why traditional supplier relationship management is now obsolete

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The 5 Steps You Must Take With Your Critical Suppliers to Create Power Partners in 2013 and Beyond Presented by Steve Carter

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Traditional SRM focuses on operational excellence by measuring supplier performance with scorecards and software to manage all interactions with a supplier. Just Google the term supplier relationship management and check out the first page to verify this. What today's economy needs are critical suppliers who can create value with you through activities such as the co-production of goods and services to improve outcomes for you and them; create agile and flexible supply chains to respond to today's "pull" economy of mass customisation and consumer choice; working with you to strategically manage costs through cost down and cost out activities; and assume some of the responsibility for managing the risk in your supply chains. To do this you need a new concept - that of Power Partners. There are five critical steps that you and your key suppliers must take together to turn your relationship into a Power Partner relationship. This presentation introduces these five steps.

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Page 1: Why traditional Supplier Relationship management is now obsolete

The 5 Steps You Must Take With Your Critical Suppliers to Create Power

Partners in 2013 and Beyond

Presented by Steve Carter

Page 2: Why traditional Supplier Relationship management is now obsolete

www.A4PE.com

Page 3: Why traditional Supplier Relationship management is now obsolete

What we will cover today

• Why traditional supplier relationship management programmes are now obsolete

• Why you need Power Partners, what that means and what benefits it brings

• The 5 steps you and your critical suppliers must take to create a power relationship

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So what is SRM?

CIPS defines SRM as ‘the process for managing these two aspects* in the interaction between two entities - one entity is the supplier of goods or services and the other entity is the customer/end-user organisation’.

* a) Clear commitment between the two parties involved b) the objective of understanding, agreeing, and whenever possible codifying the interactions between the two parties

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Another definition

Supplier relationship management (SRM) is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. Wikipedia

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We are often driven by short term savings targets orientated around price measures to do things we know do not make sense

… even more disturbingly we have periodically negotiated so aggressively with our key suppliers that we knew we were depriving them of the margin they needed to operate a healthy business

Senior Sourcing Executive, reported in CPO Agenda

Problem #1: Price focus

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• Forecast need

• Right place, right time

• Planning, design and implementation kept internal

• Customer one step removed

Problem #2: “Push” Economy

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• Customer focussed

• Agile and flexible

• Examples: Levi Strauss Swatch Dell The Experience Economy

• Understand capabilities of your supply chain

“Pull” Economy

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Customer

segment #1

Customer

segment #2

Customer

segment #3

Value propositi

on #1

Value propositi

on #2

Value propositi

on #3

Key activitie

s

Key resource

s

Part

ners

Customer relations

hips

Channels

Costs Revenues

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Value proposit

ion

OUTCOME

Product or Servi

ce

OUTPUT

Key activiti

es

PROCESS

Key resour

ces

INPUT

Your outcomes

SUPP

LIER

Page 13: Why traditional Supplier Relationship management is now obsolete

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Problem #3: Motivating suppliers

• Away motivation – because you have to

• Scorecards and contracts are away motivation

• Towards motivation – because you want to

• Car showroom versus training course

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What science knows that business doesn’t

• One group is simply timed and the second group is offered rewards.

• Second group take three and a half minutes longer than the first group

• If mechanical skill only involved, rewards mean better performance

• if any rudimentary cognitive skill is needed, a larger reward means a worse performance

• London School of Economics have also found that financial incentives can result in a negative impact on performance

Dan Pink

Dan Ariely

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Introducing Power PartnersYou need Power Partners because the relationship with them:-

• creates the right environment for tackling immediate issues with contract / service delivery

• addresses the enablers of good contract / service delivery and lays the foundation for continuous improvement

• encourages suppliers to treat you as “customer of first choice” for innovations

• creates the framework for managing supply risk

• enables costs to be strategically managed (cost down and cost out) rather than be the victims of market forces

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Definition of a PPR

A Power Partner Relationship is about motivated and empowered PEOPLE working in TEAMS of key

supplier and buying staff to SOLVE PROBLEMS or DELIVER OPPORTUNITIES that in turn create VALUE

for both parties

The key to successful PPR is having the right people, the right process and the right Sponsor

to lead and drive change pan-Client so that value is created and not destroyed.

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Change bid criteria

Better align incentives of buying organisation

Access to stakeholders outside of Procurement

Measure supplier performance differently

Access to senior management

Establish longer term relationship

Share more information

0 20 40 60 80 100 120

BuyerSupplier

How buyers could drive more value from key suppliers

Source: Vantage Partners (CPO Agenda)

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What’s in it for suppliers?

t-15

1 2 3 4 5 6 7 8 9 10

15

1716

1312

10

76

4

1

1 2 3 4 5 6 7 8 9 10

% of total companyprofits

Largest 10%of customers

Smallest 10%of customers

Customer decile groups

1 2 3 4 5 6 7 8 9 10

-3

26

29

2220

8

4

-3 -3

1 2 3 4 5 6 7 8 9 10

% of total companyprofits

Largest 10%of customers

Smallest 10%of customers

Customer decile groups

t.o

Adapted from: ‘Profitable Customers’ by Charles Wilson

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The widening rift between profitable and unprofitable customers

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Behaviours of a Power Partner

But often they remain passive and uninvolved, with significant service and quality problems and the focus on short-term and

cost-focused approaches

Power Partners should:-

Provide the highest levels of value for money

Act as true business partners

Provide superior customer service

Deliver high quality products and services

Co-design and co-deliver your products or service

Have the same agenda as you

Be integrated into your organisation

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Multiple interactions with a purpose

Supervisors

Clerks

Operators

Managers

Directors

PurchasingManager

Supervisors

Clerks

Operators

Managers Key AccountManager

SellingSellingCompanyCompany

BuyingBuyingCompanyCompany

Directors

Selling Company Buying CompanyMgrs Mgrs

Operations

Administration

Board

Operations

Administration

Board

Key AcctMgr

Maincontact

www.A4PE.comSource: Prof Malcolm McDonald Cranfield Business School

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StrategicBottleneck

LeverageTactical

The Buyer’s View

StrategicDevelop

ExploitNuisance

The Supplier’s View

N E D S

T

L

B

S Potential Power Partners

No basis for a relationship No need for a

relationship

Fit with outcomes

Abili

ty to

inno

vate

Low

Low

High

Hig

h POWER PARTNERS

SRM PARTNERS

SRM PARTNERS

SRM PARTNERS

How to find Power Partners

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IDENTIFY PROBLEM OR OPPORTUNITY TO ADD VALUE

DATA COLLECTION / ANALYSISCOST-BENEFIT CASE

SOLUTIONIMPLEMENTATION PLAN

Continuous Improvement ProcessHigh performance teams set up to address specific opportunities

CONTRACT LETTING

CONTRACT DELIVERY

CONTRACT REVIEW

Contracts let in such a way as to support the agreed Account Plan

Problems or opportunities identified during or after delivery of the contract are fed into the Account Manager led process

Regular presentations from Account Managers to Sponsors on progress against plans/targets and emerging issues

SPONSOR REVIEW MEETINGS

Key

Account Manager led

Sponsor led

Contract Manager led

BENEFITS TRACKER

WORKSHOP #1Goal alignmentMission statement Objectives

WORKSHOP #2StrategyMeasuresTargets

Baseline

Update during annual planning cycle

ACCOUNT PLAN

Account Plan and commercial model set from strategy and Client demand plan (from Category Manager)

The PPR Process

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The 5 Steps to a Power Partnership

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MPASSCOllateralCOM SS

PArtnerCOMPAS

SponsorCOMPASS

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PRISM

SM

PRIorities

PRI M

BaSeline

PRIS

Map

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Baselining a relationshipSupplier’s

view of the supplier

Buyer’s view of the buyer

Buyer’s view of the

supplier

Supplier’s view of the

buyer

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Mission Statement for the SRM Partnership with that supplier

Standard against which we can assess future

improvement projects• Build on synergies• Manage tensions

Lower unit costs

Maximise value from spend

Faster engagement process

Improve processes

Linked to corporate goals to demonstrate how PPR

adds value

Increase fee rates

Lower cost base

Increase margins

Improve confidence in delivery

Buyer Supplier

Goals Alignment

Tension

Synergy

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DE-MIST

DE- IST

MissionDE-M ST

VIsionDE-MI

STrategy

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TRIPOD

RIPOD

ToolsTR POD

InnovationTRI D

PrOblem

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Tools for getting startedQuickly explore and understand

the problem, opportunity, situation etc.

Tools for checking aroundGet insights from those involved to

get ideas, identify needs and solutions that are suitable

Tools for breaking it downOrganise, categorise and associate insights or findings around an idea

Tools for breaking freePrevious tools identify boundaries of the problem. These help you to

break free and generate ideas

Tools for evaluationDefine your criteria and evaluate

ideas to select only the best

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SKIING

KIING

StabiliseSK ING

ImproveSKI NG

Innovate

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Q & A

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The Power Partners Online Bootcamp

Go to www.A4PE.com and click the icon

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Go to www.A4PE.com and click the icon

What is the bootcamp? Online coaching and training in the 5 Steps to Power Partners

Five weeks in duration

Monday is a webinar on one of the steps

Friday is a live Q&A

Tuesday, Wednesday and Thursday are tasks for you to carry out

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Go to www.A4PE.com and click the icon

What is the bootcamp? Online area for you to write your notes and upload

documents

Forum for you to share thoughts with other bootcampers

Area for you to log your questions for me

Continuing access to learning (webinars and Q&A sessions are saved to your personal learning space) and forum for 12 months