the 5 best supply management practices in use today
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The Five Best Supply Management The Five Best Supply Management Practices in Use TodayPractices in Use Today
The Five Best Supply Management The Five Best Supply Management Practices in Use TodayPractices in Use Today
by F. Michael Babineaux, CPSM, C.P.M., A.P.P.President/CEO
Babineaux Educational Services and Training, Inc.www.BESTraining.com
901.853.0539
For
Who Am I?Who Am I?
• F. Michael “Mike” Babineaux– 40+ years Supply Management Experience– 30 year FedEx Veteran– Lifetime C.P.M. & A.P.P.– Recent CPSM– SCM Educator and Coach
• Babineaux Educational Services and Training, Inc.• www.BESTraining.com• 901.853.0539
World Class Excellence -- World Class Excellence -- Strategic ProcessesStrategic Processes
Develop Commodity/
Purchase Family Strategies
Establish and Leverage a
World-Class Supply Base
Establish Appropriate
Strategic Alliances
INTEGRATED AND
ALIGNED
Supplier Development and Quality
Manage Costs Strategically Across the
Supply Chain
Integrate Suppliers into New Product &
Service Development
Integrate Suppliers into
the Order Fulfillment
Process
World Class Excellence -- World Class Excellence -- EnablersEnablers
EstablishGlobally Integrated and Aligned P&SC Strategies/Plans
INTEGRATED AND ALIGNED
Develop Organization and Teaming
Strategies
DeployGlobalization
Develop Procurement and
Supply Chain Measurements
Develop and Implement Enabling IS/IT
Systems
Establish Human Resource
Development/ Training
12 World Class Supply 12 World Class Supply Management PracticesManagement Practices
Strategic Processes
• Procurement Strategy Development
• Supplier Integration• Leverage the Supply Base• Develop Strategic
Alliances• Quality Management• Cost Management
Enabler Processes
• Strategic Goal Alignment • Teaming Strategies• Performance Measurement• Globalization• Information Systems
Integration • Human Resource
Development
12 World Class Supply 12 World Class Supply Management PracticesManagement Practices
Strategic Processes
• Procurement Strategy Development
• Supplier Integration• Leverage the Supply Base• Develop Strategic
Alliances• Quality Management• Cost Management
Enabler Processes
• Strategic Goal Alignment • Teaming Strategies• Performance Measurement• Globalization• Information Systems
Integration • Human Resource
Development
The Five BestThe Five Best
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
What happens when . . .What happens when . . .
Supply ChainStrategy
InternalCustomerStrategy
YouMisalignment Creates Confusion for
Strategic Goal AlignmentStrategic Goal Alignment
"Strategic Performance Measurement for Purchasing and
Supply,“ (A CAPS Research study in collaboration with
McKinsey & Co)
“Best-in-class companies align the strategy and objectives of the supply management organization with those of the rest of the organization."
Strategic Goal AlignmentStrategic Goal Alignment
• Goal Alignment Concepts– Vertical Alignment
• Business Vision & Mission– Low cost producer
• Key Corporate Objectives – Reduce expenses
• Supply Management Goals– Cost reduction
• Individual/Management Performance Objectives
– Cost Savings
Vision
Mission
Objectives
Goals
IPO/MBO
Strategic Goal AlignmentStrategic Goal Alignment
• Goal Alignment Concepts– Horizontally aligned
• Strategic objectives of strategic business units• Strategic objectives of functional groups.
– Conflict» Bulk buying discount vs. Inventory
holding cost
Strategic Goal AlignmentStrategic Goal Alignment
• Goal Alignment Concepts– Horizontally aligned
• Stakeholder Alignment Process
EvaluateRelationship
EvaluateLevels of
Alignment &Involvement
IdentifyStakeholder
Groups
EvaluateImportance
Strategic Goal AlignmentStrategic Goal Alignment
• Goal Alignment Concepts– Horizontally aligned
• Stakeholder Alignment Process
DefineOutcome
OfAlignment
DevelopAlignmentStrategies
ImplementAlignmentStrategies
Tract Results& DesignFollow upActions
Strategic Goal AlignmentStrategic Goal Alignment
• Goal Alignment Concepts– Externally aligned
• Customers and Suppliers
Visible top management direction and supportClearly defined strategy and goalsBuy-in from key stakeholders Establishment of uniform metrics Implementation of cross-functional/ cross-
organizational teams Internal and external education and training Information technology and systems support Elimination of functional barriersCustomer focusContinuous communication and feedback throughout
the supply chain
Critical Success Factors toCritical Success Factors toAchieving AlignmentAchieving Alignment
Critical Success Factors toAchieving Alignment Rating
(1=Poorly, 2=Below Avg, 3=Avg, 4=Above Avg and 5=Excellent)(1=Poorly, 2=Below Avg, 3=Avg, 4=Above Avg and 5=Excellent)
Factor Rate• Visible top management direction and support ____• Clearly defined strategy and goals ____• Buy-in from key stakeholders ____ • Establishment of uniform metrics ____• Implementation of cross-functional teams ____• Internal and external education and training ____• Information technology and systems support ____• Elimination of functional barriers ____• Customer focus ____• Continuous communication and feedback ____
Total ____
Critical Success Factors toAchieving Alignment Weighting & Rating
Factor Weight X Rate = ____• Visible top management direction and support ____ _____ ____• Clearly defined strategy and goals ____ _____ ____• Buy-in from key stakeholders ____ _____ ___• Establishment of uniform metrics ____ _____ ____• Implementation of cross-functional teams ____ _____ ____• Internal and external education and training ____ _____ ____• Information technology and systems support ____ _____ ____• Elimination of functional barriers ____ _____ ____• Customer focus ____ _____ ____• Continuous communication and feedback ____ _____ ____
Total 100 ____
Key PointKey Point““If you’re not singing the same If you’re not singing the same
song, you’re just making a bunch song, you’re just making a bunch of noise and – of noise and –
your performance will suffer”your performance will suffer”
The Best Supply Management The Best Supply Management PracticesPractices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Procurement Strategy DevelopmentProcurement Strategy Development
• Procurement Decision Tool– Market Complexity
– Degree of Competition– Geographical Dispersion– Supplier Cooperation
“Price concessions and collaboration”
Procurement Strategy DevelopmentProcurement Strategy Development
• Procurement Decision Tool– Market Complexity– Impact on Business
• Risk• Value
“What happens if you don’t have it?”
Procurement Strategy DevelopmentProcurement Strategy Development
• Procurement Decision Tool– Market Complexity– Impact on Business– Prioritization
• High to Low
High
High
Low
Procurement Strategy DevelopmentProcurement Strategy Development
• Procurement Decision Tool– Market Complexity– Impact on Business– Prioritization– Procurement Strategies
• Routine• Bottleneck• Leverage• Strategic
Procurement Decision ToolProcurement Decision Tool
Business Impact
Marketplace Complexity
Low
High
LowHigh
Routine
Procurement Decision ToolProcurement Decision ToolRoutine CharacteristicsRoutine Characteristics
• Many capable suppliers• Fewer total dollars spent• Low priority items• May consume a disproportionate amount of time and
dollars to acquire• Developed quality and technology• Able to move easily between suppliers--low
switching costs
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolRoutine StrategyRoutine Strategy
• Remove effort-transactions through low dollar purchase systems– Standardized contracts – p-cards
• The primary goal is to minimize the procurement costs of these items.
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision Tool
Business Impact
Marketplace Complexity
Low
High
LowHigh
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolBottleneck CharacteristicsBottleneck Characteristics
• Small number of suppliers• Low to medium annual dollars• Customized specification and technology
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolBottleneck StrategyBottleneck Strategy
• Focus on continuous supply– Reduce Custom specifications
or technology– Purchase in quantity– Monitor Inventory closely– The relationship is important but, search
for alternative suppliers
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision Tool
Business Impact
Marketplace Complexity
Low
High
LowHigh
Leverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolLeverage CharacteristicsLeverage Characteristics
• Greater number of suppliers• Medium to high annual dollars• Low risk to obtain, but major disruption• Multiple users• Developed quality and technology• Able to move easily between suppliers
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolLeverage StrategyLeverage Strategy
• Focus on volume– Leverage the organization’s
volume to get lower prices– Combine user requirements– Form categories of items
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision Tool
Business Impact
Marketplace Complexity
Low
High
LowHigh
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolStrategic CharacteristicsStrategic Characteristics
• Few capable suppliers• Product/services success critical• Unique or customized items• Unable to move between suppliers easily• Cost analysis yields high benefits• Unproven or undeveloped technology
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision ToolStrategic StrategyStrategic Strategy
• Build Relationships – Collaborative or
interdependent relationships (e.g. Strategic Alliances)
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolProcurement Decision Tool
Business Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Key PointKey Point““If you use the same strategy to If you use the same strategy to buy airplanes as you do to buy buy airplanes as you do to buy
pencils, pencils, your performance will suffer”your performance will suffer”
The Best Supply Management The Best Supply Management PracticesPractices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Supplier Integration in New Supplier Integration in New Product/Service DevelopmentProduct/Service Development
“Firms looking for ways to –
– decrease concept to customer development time
– improve quality– significantly reduce the cost of the
resulting product
are involving suppliers earlier in the design process.” “Best of the Best” by Aberdeen Research
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Product/Service Life Cycle
• Pre-commercialization• Introduction• Growth• Maturity• Decline
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Manufacturing/Service Design Process
• Use of Supplier expertise and experience
Supplier IntegrationSupplier Integration
“Firms looking for ways to –
– decrease concept to customer development time
– improve quality– significantly reduce the cost of the
resulting product
are involving suppliers earlier in the design process.”
“Best of the Best” by Aberdeen Research
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Product/Service Development
• Prototypes/Demonstrations• Replacement
materials/alternative methods
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Cost
• Cost projections of a new product or service
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Quality
• Supplier knowledge of quality requirements
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Technology
• Influence final material/application selection
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Design
• Experience in serving a particular market
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Co-Development
• Sharing costs
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Cycle Time
• Through reduction in redundancies
Supplier IntegrationSupplier Integration
• Early Supplier Involvement– Confidentiality Issues
• Proper controls– Disclosure Parameters– Mutual Non-Disclosure
Agreements– Dispute resolution
clause
Key PointKey Point““Suppliers know more about Suppliers know more about
what you buy than you do, so if what you buy than you do, so if you don’t use them, your you don’t use them, your performance will suffer”performance will suffer”
The Best Supply Management The Best Supply Management PracticesPractices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Teaming StrategiesTeaming Strategies
• Procurement Project Teams • Cross-Functional Teams
An Action Plan for Creating An Action Plan for Creating Effective TeamsEffective Teams
by Robert M. Monczka, Ph.D., C.P.M. and by Robert M. Monczka, Ph.D., C.P.M. and Robert J. Trent, Ph.D.Robert J. Trent, Ph.D.
Studies by MSU reveals– 80% of Best-in-Class organizations
emphasize the use of Supply Management Project teams.
Teaming StrategiesTeaming Strategies
• Procurement Project Teams– Definition - The application of project knowledge,
skills, tools and techniques to procurement project activities to meet customer requirements
• A Beginning and an End
Teaming StrategiesTeaming Strategies
• Procurement Project Team Stages– Initiation
• Root Cause analysis• SWOT• Feasibility Analysis
– Net Present Value– ROI
• Business Case
Teaming StrategiesTeaming Strategies
• Procurement Project Team Stages– Planning
• Scope Development• Roles & Responsibilities• Project Plan Approval
Teaming StrategiesTeaming Strategies
• Procurement Project Team Stages– Execution
• Change Management
Why change initiatives failWhy change initiatives fail
Inconsistencies between
management words and
deeds
MessageMessage
“Actions speak louder than
words”
Why change initiatives failWhy change initiatives fail
Lack of system to evaluate
change results
MessageMessage
“You can’t manage what
you don’t measure”
Why change initiatives failWhy change initiatives fail
No change of reward systems
MessageMessage
“Recognize and Reward Performance
You want Repeated”
Why change initiatives failWhy change initiatives fail
Unrealistic timelines
MessageMessage
“Deadlines can be a
challenge, but obtainable”
Why change initiatives failWhy change initiatives fail
Lack of stakeholder
Buy-In
MessageMessage
“Stakeholder involvement
breeds buy in”
Why change initiatives failWhy change initiatives fail
Training is not enough
MessageMessage
“Practice makes perfect”
Teaming StrategiesTeaming Strategies
• Procurement Project Team Stages– Monitoring & Control
• Contract Management– Performance measurement– Risk Monitoring
• Project Management Software– PERT & Gant Charts
• Performance Reporting– Cost– Schedule
Teaming StrategiesTeaming Strategies
• Procurement Project Team Stages– Closure
• Process• Post Project Audit
Teaming StrategiesTeaming Strategies
• Cross-Functional Teams– Purpose
• To permit different viewpoints and perspectives
Teaming StrategiesTeaming Strategies
• Cross-Functional Teams– Supply Management Roles
• Leadership• Facilitation• Contributor
Teaming StrategiesTeaming Strategies
• Cross-Functional Teams– Advantages/Disadvantages
• Consensus Building• Group Think
Teaming StrategiesTeaming Strategies
• Cross-Functional Teams– Organizational cultures
• Traditional vs. Team• Skill Considerations• Personality Considerations• Leadership
Key PointKey Point
““Two heads are better than one, Two heads are better than one, so if you’re not including them in so if you’re not including them in the decisions, your performance the decisions, your performance
will suffer”will suffer”
The Best Supply Management The Best Supply Management PracticesPractices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Performance MeasurementPerformance MeasurementAberdeen Benchmarking ResearchAberdeen Benchmarking Research
• Best-in-Class companies are more than 2.5x more likely to use performance monitoring, management, and optimization solutions.
• Best-in-Class companies are 1.67x more likely to use portals or dashboards for consolidating and reporting of performance data.
Performance MeasurementPerformance Measurement
Department Staff Suppliers
Performance MeasurementPerformance Measurement
• Department– Organizational Expectations
• Objectives Congruence– Organization– Suppliers & Customers
Performance MeasurementPerformance Measurement
• Department– Organizational Expectations
• Scorecard– Quantitative– Qualitative
Performance MeasurementPerformance Measurement
• Department– Reasons for Scorecard
• Determine effectiveness– To objectives– Of department management
• Measure improvement/deterioration• Provide Resources• Determine Value
Performance MeasurementPerformance Measurement
• Staff– Issues
• Objective Alignment– Vertical & Horizontal
Performance MeasurementPerformance Measurement
• Staff– Issues
• Success Criteria– Known in advance
Performance MeasurementPerformance Measurement
• Staff– Issues
• Appraisal Factors– Quantitative and Qualitative
Performance MeasurementPerformance Measurement
• Staff– 360o Reviews
• Users• Management• Peers• Suppliers• Others
Performance MeasurementPerformance Measurement
• Staff– Feedback
• Timely • Corrective actions• Individual Development Plans
Performance MeasurementPerformance Measurement
• Suppliers– Scorecards
• Qualitative measures• Quantitative measures• Price, Delivery & Quality (PDQ)• Other/specific
Performance MeasurementPerformance Measurement
• Suppliers– Others/specific
• Cycle/Lead time Reductions• Productivity Improvements• Flexibility and Responsiveness• e-Commence Capabilities• Innovation
Open Innovation: the next frontier in Open Innovation: the next frontier in innovation managementinnovation management
• "When developing new ideas, innovation leaders say they rely on their customers, business partners and competitors to supplement their own internal functions.
• Companies that profess best practices in innovation produce nearly half of their innovations from ideas generated outside the company."
Research Study by A.T. Kearney,
Key PointKey Point
““You can’t manage what You can’t manage what you don’t measure, so if you don’t measure, so if
you’re not measuring you’re not measuring performance . . .”performance . . .”
The Five BestThe Five Best
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
The Five Best Supply Management The Five Best Supply Management Practices in Use TodayPractices in Use Today
The Five Best Supply Management The Five Best Supply Management Practices in Use TodayPractices in Use Today
by F. Michael Babineaux, CPSM, C.P.M., A.P.P.President/CEO
Babineaux Educational Services and Training, Inc.www.BESTraining.com
901.853.0539
For