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CHAP 9: Supplier Management and Development - Coggle Diagram

- - - - § Reporting frequency to buyer: Day-to-day performance for troubleshooting and expediting
        
        § Reporting frequency to supplier: Routinely summarized monthly or quarterly; Annual face-to-face appraisal meeting
        
        § Never delay reporting supplier’s poor performance
    - - § Identify poor and high performing suppliers
        
        § Support supply base optimization and rationalization efforts
        
        § Determine future purchase volume allocations
        
        § Identify performance improvement opportunities
        
        § Make sourcing decisions
  - - - § Corporate and business unit goals, objectives, and strategies must drive supply management’s corresponding goals, objectives, and strategies
      - § Supply management must develop appropriate supplier evaluation strategies to support the business unit
      - § Not all suppliers need to be evaluated in the same way
      - § Supplier segmentation must consider …
        
        § Supply base risk levels
        
        § Category spend amounts
        
        § Switching costs
      - § Must understand …
        
        § Types of information required
        
        § How information will be deployed
        
        § Methods needed to obtain information in a timely and cost-effective manner
        
        § What resources will be required to collect the information
      - § What to measure
        
        § Quantitative variables: Delivery performance; Quality performance; Cost reduction
        
        § Qualitative variables
      - § Compare to standards and goals
        
        § Measurement and reporting frequency
        
        § Uses of measurement data
  - - - § Categorical system:
        
        § Assign subjective rating score for each performance category
        
        § May be completed by buyer, other internal users, or combination
        
        § Minimal insight provided
        
        § Often significant variance between subjective ratings
        
        Advantages
        
        • Easy to implement
        
        • Requires minimal data
        
        • Different personnel contribute
        
        • Good for firms with limited resources
        
        • Low-cost system
        
        Disadvantages
        
        • Least reliable
        
        • Less frequent generation of evaluations
        
        • Most subjective
        
        • Usually manual
        
        Users
        
        • Smaller firms
        • Firms in the process of developing an evaluation system
      - § Weighted-point system:
        
        Advantages
        
        • Flexible system
        
        • Supplier ranking allowed
        
        • Moderate implementation costs
        
        • Quantitative and qualitative factors combined into single system
        
        Disadvantages
        
        • Tends to focus on unit price
        • Requires some computer support
        
        Users
        
        • Most firms can use this approach
        
        § Less subjective
        
        § Weighs and quantifies relative scores across different performance categories
        
        § Weights can be adjusted depending on needs
        
        § Need to carefully select categories
        
        § Need to choose proper weights
        
        § Need to develop a set of decision rules
      - § Cost-based system:
        
        § Most thorough and least subjective
        
        § Seeks to identify and quantify total cost of doing business with given supplier
        
        § Challenge
        
        § Identifying and recording appropriate costs that result when supplier fails to perform as expected
        
        § Logic is based on calculation of supplier performance index (SPI)
        
        SPI Calculation = (Total Purchases + Nonperformance Costs)/Total Purchases • SPI has base value of 1.0
        • It is total cost index calculated for each item or commodity provided by supplier
        
        Advantages
        
        • Total cost approach
        
        • Specific areas of supplier nonperformance identified
        
        • Objective supplier ranking
        
        • Greatest potential for long-range improvement
        
        Disadvantages
        
        • Cost accounting system required
        
        • Most complex
        
        • Implementation costs are high
        
        • Computer resources required
        
        Users
        
        • Larger firms
        • Firms with large supply base
      - § Each system differs in terms of …
        
        § Ease of use
        
        § Level of decision subjectivity
        
        § Required system resources
        
        § Implementation cost
- - - - § Buying from world-class suppliers
      - § Use of full-service suppliers
      - § Reduction of supply base risk
      - § Lower supply base administrative costs
      - § Lower total product cost
      - § Ability to pursue complex supply management strategies
  - - - § Supplier dependency
      - § Absence of competition
      - § Supply disruption
      - § Overaggressive supply reduction
  - - - § Twenty-eighty rule: Based on Pareto principle
      - § “Improve or else” approach: Need to improve quickly
      - § Triage approach: Categorization of existing suppliers
      - § Competency staircase approach: Series of performance milestones
  - - - § There are a variety of approaches: Organization may use more than one approach
      - § Buyer does not have to limit its analysis to current suppliers: May add new suppliers as necessary
      - § Benefits are real: Drawbacks are manageable
- - - - Identify critical commodities for development
      - Identify critical suppliers for development
      - Form cross-functional development team
      - Meet with supplier’s top management team
      - Identify opportunities and probability for improvement
      - Define key metrics and cost-sharing mechanisms
      - Reach agreement on key projects and joint resource requirements
      - Monitor status of projects and modify strategies as appropriate
- - - - Barrier
        
        § Buying company’s purchase volume from supplier does not justify development investment
        
        § No immediate benefit to supplier development is evident to buyer
        
        § Importance of purchased item does not justify development efforts
        
        § Lack of executive support at buyer organization for supplier development
      - Solution
        
        § Parts standardization across product lines
        
        § Single sourcing
        
        § Pursue small wins to build momentum
        
        § Take a longer-term focus
        
        § Include integrated solutions to be used in future designs
        
        § Prove the benefits
        
        § Document and publicize
    - - Barrier
        
        § Supplier is reluctant to share information on costs or processes
        
        § Confidentiality inhibits information sharing
        
        § Supplier does not trust buyer
        
        § Organizational cultures are poorly aligned
        
        § Not enough inducements to participate are provided to supplier
      - Solution
        
        § Create ombudsman to deal with noncontractual issues
        
        § Establish confidentiality agreements
        
        § Non-disclosure agreements
        
        § Exclusivity agreements
        
        § Engage in ethical behavior
        
        § Spell it out with properly executed written agreement
        
        § Adapt new approach to local conditions
        
        § Supplier partnership manual
        
        § Training
        
        § Designed-in motivation
        
        § Future business
        
        § Financial incentives
        
        § Payment terms favorable to supplier
    - - Barrier
        
        § Lack of commitment on part of supplier’s management
        
        § Supplier’s management agrees to improvements but fails to implement proposals
        
        § Supplier lacks engineering resources to implement solutions
        
        § Supplier lacks required information systems
        
        § Supplier is not convinced development will provide benefits
        
        § Supplier lacks employee skill base to implement solutions
      - Solution
        
        § Joint development of goals and objectives
        
        § Determination of potential costs and benefits to each party and how they will be shared
        
        § Training in tools and techniques
        
        § Direct support by buyer personnel
        
        § Direct electronic data interchange (EDI) support
        
        § Direct financial assistance as required
        
        § Training on hardware and software
        
        § Supplier evaluation and measurement system
        
        § Establish training centers
        
        § Develop supplier skill levels
        
        § Provide human resource support
    - - § Many barriers are interrelated
        
        § Managerial attitude is common and difficult barrier to overcome
        
        § Requires strategic orientation toward SCM and alignment of supply management objectives with business unit goals
        
        § Relationship management is critical to supplier development success
      - § Supplier development is neither quick nor easy
        
        § It requires …
        
        § Vision and commitment from both parties
        
        § Open communication
        § Equitable sharing of costs and benefits
- - - - § Substantial expenditures of time, effort, and money
        
        § Negative public relations
        
        § Loss of customer confidence
        
        § Lost sales and reduced profitability
    - - Buyer Political risk
        
        Market risk
        
        Sourcing risk
        
        Financial risk
        
        Supplier risk
    - - § Country stability
        
        § Regional stability
        
        § Political and governmental stability
        
        § Levels of official corruption
        
        § Dissimilar legal systems
        
        § Intellectual property rights
        
        § Elections
        
        § Military actions
        
        § Civil disturbances
        
        § Terrorism
        
        § Foreign trade balance issues
        
        § Duties and tariffs
    - - § Number of buyers competing for supplier’s goods, services, and capabilities
        
        § Increasingly shorter product life cycles
        
        § Threat of emerging, often disruptive technologies
        
        § Maintaining trade secrets and intellectual properties
    - - § Longer supply pipelines provide greater risk exposure
        
        § Potential for supply disruption
        
        § Level of supplier competition
        
        § Language, communication, culture, and time differences
        
        § Suppliers shared with competitors
    - - § Inventory carrying costs
        
        § Inventory investment
        
        § Material handling
        
        § Loss and damage
        
        § Taxes
        
        § Obsolescence
        
        § Lost opportunity costs
        
        § Currency exchange rate fluctuations
        
        § “Soft” vs. “hard” currencies
        
        § International terms of sale or INCOTERMS
    - - § Financial stability and future viability
        
        § Early detection and visibility
        
        § Sources of information
        
        § Replacement supplier evaluation and selection
        
        § Supplier capabilities and KSAs
        
        § Supplier’s own supply chain
        
        § Mergers and acquisitions
    - - Inventory Multiple sourcing
        
        Use of third-party intermediaries
        
        Scenario analysis
        
        Currency hedging Insurance
        
        Automated visibility systems
    - - Identification of specific issue or risk situation
        
        Consideration of stakeholders impacted
        
        Establishment of baseline condition
        
        Classification and analysis of potential risk scenarios as to severity and disruptive impact
        
        Creation of viable working strategies and plans for quick response
        
        Identification and monitoring of key risk event “triggers” on an ongoing basis
        
        Periodic review of risk scenarios and corresponding contingency plans
    - - § Transaction values in buyer’s currency
        
        § Supplier bears currency exchange risk
        
        § Transaction valued in supplier’s currency
        
        § Buyer bears currency exchange risk
    - - § Every international shipment should be insured
        
        § Matter of “when” loss occurs, not “if”
        
        § Goods in international trade subject to much higher risk of loss or damage
        
        § Insufficient insurance coverage often discovered only after loss occurs
        
        § Not every loss can be fully covered
        
        § Some losses are explicitly excluded from coverage unless additional rider is attached and extra premiums paid
        
        § Need to pay close attention to choice of INCOTERMS which specify …
        
        § Who pays insurance premium?
        
        § Who owns the goods and suffers actual loss?
        
        § Who files loss and damage claims?
    - - § How supply chain members communicate and collaborate regarding sources of risk, utilizing risk management tools to mitigate and minimize risk and uncertainty across supply chain
      - § Systems approach to identify, assess, and develop appropriate risk responses
    - - § Visibility: Integrating with and deploying analytics gathered from ERP systems data
        
        § Event recognition and early warning system: Ability to react quickly and effectively in early stages of risk event
        
        § Broad mix of real-time supply chain analytics
        
        § Simulating models of risk events
        
        § Suggesting risk mitigation strategies
        
        § Evaluating different risk responses
        
        § Critical evaluation of competing scenario response
- - - - “A framework of measurable corporate policies and procedures and resulting behavior designed to benefit the workplace and, by extension, the individual, the organization and the community in the following areas: community, diversity and inclusiveness-supply base, diversity and inclusiveness-workforce, environment, ethics, financial responsibility, human rights, health and safety, and sustainability.”
    - - § Material-related
        
        § Climate and energy
        
        § Procurement-specific
        
        § Transportation and logistics
        
        § Metrics and measures
        
        § Appropriate contractual terms
        
        § Product life cycle analysis
        
        § Environmental compliance auditing