procure srm 1© the delos partnership 2005 procurement masterclass supplier and results management

Procure SRM 1 © The Delos Partnership 2005

Procurement MasterclassProcurement Masterclass

Supplier and Results Management


Supplier & Results ManagementSupplier & Results Management

6 Supplier Management – Relationships & Results


Supplier Relationship Types Supplier Relationship Types No trust between supplier and buyer

Closely guarded information on both sidesSupplier Enemy

Buyer dictates price and service parameters Threat of pulling business

Exploitable

Buyer views suppliers sales representative as friend Rarely any professional negotiationInformality

Long rewarding relationship Genuine commitment, but not tied to any specificsApproval Plus

Small supplier gets paid what he needs to remain profitable Friendly Parasite

Supplier is viewed as integral part of buyer’s business Relationship includes technical, operational and sales peoplePreferred Supplier

Supplier is viewed as resource to gain competitive advantage Long term commitmentStrategic Partner


Role of a Supplier Manager Role of a Supplier Manager

The supplier manager has the overall responsibility for a supplier relationship– “Owns” the relationship on behalf of the customer organisation– Is a catalyst which enables the two organisations to work together– Regularly monitors the contact between the two organisations– Reports to Senior Management

He or she ensures that communications are effective and efficient– Manages initial discussions and assists in drawing up contracts– Is kept fully aware of communications & can be involved in negotiations &

deals– Is the conduit and prime contact – Arranges and facilitates meetings and events

Can be dedicated to one strategic partner and/or Product Category – High involvement: one supplier manager for one supplier– Low involvement: One supplier manager for several suppliers


Identifies new value

opportunities

Defines the project and measures improvement

potential

Confirms resource requirements and

organisation Create project

with stage- gates and

milestones

Removes Roadblocks

for the project team

Measures the value delivered and communicates

progress

Implementation

Builds the relationship

Supplier Manager StagesSupplier Manager Stages


Positioning Supplier Positioning Supplier ManagersManagers

Supplier Importance

Current relationship

Negotiation & Deal Status

Current Communication

Involvement levels

Performance Measures

Key Considerations

© The Delos Partnership 2005The Delos Partnership Procurement Masterclass

CR

ITIC

AL

ITY

TOTAL ANNUAL COST

HIGH

LOW

CRITICAL / HIGH COST

NON CRITICAL / LOW COST

CRITICAL / LOW COST

LOW HIGH

STRATEGICSTRATEGICCRITICAL CRITICAL

NUISANCENUISANCE LEVERAGELEVERAGE

NON CRITICAL / HIGH COST

Positioning MatrixPositioning Matrix


Risk

© The Delos Partnership 2005The Delos Partnership Procurement Masterclass

CR

ITIC

AL

ITY

TOTAL ANNUAL COST

HIGH

LOW

CRITICAL / HIGH COST

NON CRITICAL / LOW COST

CRITICAL / LOW COST

LOW HIGH

STRATEGICSTRATEGICCRITICAL CRITICAL

NUISANCENUISANCE LEVERAGELEVERAGE

NON CRITICAL / HIGH COST

Positioning MatrixPositioning Matrix

EnsureSupplyEnsureSupply

Partner Value

Partner Value

MinimiseAttentionMinimiseAttention

DriveSavings

DriveSavings

Strategy Focus Strategy Focus


Supplier and Results ManagementSupplier and Results Management

Supplier AssessmentSupplier Assessment


Typical Starting PointTypical Starting Point

• There is huge and unrecognised value in supplier performance assessment.

• Internal Customers and most internal functions have their favourite suppliers.

• Most suppliers have made value contributions and are proud of their performance.

• Most suppliers will be Silver Gilt or below.• Senior Management commitment to supplier performance assessment

is normally low and respective senior management may have only met at social events.

• The lack of user requirement specifications and internal team working can mean that overall supplier performance is not recognised and understood

• Internal resistance to the programme may occur


Supplier Performance Supplier Performance AssessmentAssessmentSupplier Performance Assessment is a formal supply side

management programme that continuously and quantitatively assesses the performance of all categories of suppliers against seven performance elements

1) Risk Management2) Quality and S.H.E.3) Cost (Price)4) Delivery 5) Process and Service6) Innovation7) Business Value and Net Total Value (£).

Its purpose is to provide a channel through which suppliers performance is professionally assessed and their best ideas are captured.

Its purpose is to provide a channel through which suppliers performance is professionally assessed and their best ideas are captured.


Supplier Ranking & Supplier Ranking & PerformancePerformanceThere are five levels of Supplier

Performance is assessed against seven elements for all five levels

The level or ranking is based on the net total value delivered by the supplier

Suppliers might be eliminatedfrom any level

BRONZEBRONZE(New)(New)

SILVER SILVER (Development)(Development)

SILVER GILTSILVER GILT(Approved)(Approved)

GOLDGOLD(Preferred)(Preferred)

PLATINUM PLATINUM (Strategic)(Strategic)

SUPPLIERELIMINATION


SUPPLIER PERFORMANCE & VALUE GAP ASSESSMENT

Assessment Measure Assessment Measure BronzeBronze SilverSilver Silver GiltSilver Gilt Gold Gold PlatinumPlatinum ScoreScore

Risk Management Assessment

Quality & HSE Performance

Cost Performance

Delivery Performance

Process & Service Performance

Innovation Performance

Business Value & Net Total Value Delivered

Bronze = New SupplierSilver = Development SupplierSilver Gilt = Approved SupplierGold = Preferred Supplier Platinum = Strategic Supplier

Assessment MeasuresAssessment Measures


Supplier Performance Supplier Performance AssessmentAssessmentThe assessment is based on • the net total value delivered by the supplier in the

past; • a discussion on where performance has

improved, declined or remain static versus each total value element

• The joint definition and agreement to specified future value added goals that are directly part of the business vision, strategy and priority.


WorkshopWorkshop

What are your current Supplier Assessment tools, and what needs to be done to improve them to make them deliver

improved Total Value ?

What are your current Supplier Assessment tools, and what needs to be done to improve them to make them deliver

improved Total Value ?


Supplier and Results ManagementSupplier and Results Management

Results ManagementResults Management


Supply & Procurement Priorities Supply & Procurement Priorities

Performance MeasureSales

Profit and Growth

Cost of Sales

People

CostsAssets Inventory Creditors

Perfect Customer Orders Lead Time Reduction RFTQ100%OTIF Supplier Schedule Achievement On Time New Products Total Net Value Delivered


Business FinancialsBusiness Financials

Shareholders, Stakeholders, Management, Employees, Customers, Suppliers & Competitors are focused on business financial performance and outlook


Supply Chain & Procurement Supply Chain & Procurement FinancialsFinancials

Stakeholders, Management, Supply Chain, Procurement and Suppliers (Supply Side Performance) are normally focussed on costs – direct, indirect, assets, inventory...


Results Tracking Results Tracking

• Cost Change is normally allocated against cost centres & monthly cost centre report and procurement report is produced.

• Stakeholders, customers, finance and procurement need to own the cost centre cost, results and performance change.

• A common results tracking system needs to be developed and agreed – tied into the business financials


Results Tracking Results Tracking

• Key performance indicators show progress or deterioration versus the standard using overall total value, supplier and procurement performance change (i.e. not just price or quality)

• Cost avoidance must be against agreed market and competitor benchmarks

• Performance and results need to be communicated on a monthly basis


Category Total Value PlanCategory Total Value Plan

£0 £20,000 £40,000 £60,000 £80,000

MonthlyGoal

MonthlyActual

No of Suppliers

Cash Improvement

Cost Improvement

Price Reductions

Price Increases


Quarterly Focus Quarterly Focus

• Quarterly focus documents should be produced for the complete procurement and supply chain team.

• Focus documents are an excellent way of ensuring team consensus and awareness of the overall business goals, overall functional goals and individual goals – all of which must be aligned.

• All quarterly goals – business, function and individual need to be S.M.A.R.T.

• All team members need to contribute to the quarterly focus followed by a commitment from all team members to write & share their smart goals.


Smart Goal Definition Smart Goal Definition

SpecificSpecificWhat What is the is the specificspecific goal? goal?What is the benefit to the businessWhat is the benefit to the business??How can we measure the perHow can we measure the performance?formance?

MeasurableMeasurable How How will the business will the business measure measure the value of the goal?the value of the goal? How How will the business will the business measure the measure the volume of work?volume of work?

AchievableAchievable Does the business team/business support the Does the business team/business support the goal?goal? Can the goal be achieved with current resources?Can the goal be achieved with current resources?

RealisticRealistic Is the goal Is the goal realisticrealistic??Is there past experience in the business of this goal?Is there past experience in the business of this goal?

Time limitedTime limited How will progress be reviewed? How will progress be reviewed? What are the consequences if the goal deadline is missed?What are the consequences if the goal deadline is missed?


Procurement Focus ExamplesProcurement Focus Examples

1. Supply assurance – Specific Quarterly Focus Areas

2. Total value plan – Specific Quarterly Focus Areas

3. Improve purchasing processes – Specific Quarterly Focus Areas


Focus is to get specific supplier

to deliver all orders

100% OTIF

Focus is to get specific supplier

to deliver all orders

100% OTIF

PeopleProcesses

Poor communication& unreliable promises

Supplier lack of goals

Manufacturing Material

Order Placement

Supplier Projected Requirements

Machine Availability(Make our orders a top priority) Obsolete, Spoiled, Out of date, Non availability

Not to spec

Stoppages & Breakdownsdue to people, power and equipment

No carrots & sticks(rewards& penalties)

Materials Free Issue

Ordermanagement

Stores and Goods Receiving

Upstream materials long / variable lead time

Untrained, low capability, low commitment to value

Sub Contracted

Focus using Fishbone ToolFocus using Fishbone Tool


Reporting Timelines & StructuresReporting Timelines & Structures

Procurement Relationship

Daily Weekly Monthly Quarterly

Senior ManagementCustomer supply risk issues and immediate response if needed

Brief informal overview

Procurement Monthly Report

Procurement Review Meeting

Internal Customers & Stakeholders

Customer supply risk issues. Customer claims or service issues

Personal contact for two way update

Relevant parts of the Procurement Monthly Report

Review of KPI's and key issues

Other key sister functions

Customer supply risk issues.

As and when required or if priority item needs resolution

Relevant parts of the Procurement Monthly Report

Review of KPI's and key issues

SuppliersCustomer supply risk issues and corrective actions.

Weekly Performance Reports

Transmission and review of

performance and supply data

Supplier Performance Assessment Meeting

Procurement Team

Customer supply risk issues, market information, visit and meeting reports

Savings Log and Team Meetings

Monitoring of results by supplier, by product vs. agreements and plan

Performance appraisal - team and individual

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