BIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYOctober 8-9, 2012
Crowne Plaza, Foster City, CA
Strategic Management of Suppliers
Maintaining Efficient Manufacturing Options
• Share the rationale for Strategic Supplier Management (SSM)
• Define an approach for SSM
• Illustrate tools that can be used for SSM
Session Objectives
Strategic Supplier Management (SSM) is•The systematic, enterprise-wide assessment of suppliers’ assets and capabilities with respect to overall business strategy;•Determination of what activities to engage in with different suppliers;•Planning and execution of all interactions with suppliers in a coordinated fashion across the relationship lifecycle,•To maximize the value realized through those interactions
What is Strategic Supplier Management?
Source: Adapted from “Maximizing the Value of Supplier Relationships“
SSM Rationale
• Increased outsourcing and reliance on suppliers
• Globalization of business and of supply chains
• Greater complexity in managing suppliers
• Increased supply risks
• View of suppliers not only as a cost, but also as a
strategic input to our bottom line
Why we need SSM
SSM Rationale
• Align supplier capabilities with business requirements
• Improve supplier capabilities to increase value for the Company
• Achieve cost reduction targets or service level objectives
• Collaborate to meet continuous improvement objectives
• Reduce inventory levels (in house and at supplier locations)
• Accelerate time to commercial manufacturing
• Implement frameworks to monitor environmental, social responsibility or supplier diversity objectives
Benefits of SSM
SSM Rationale
1. Secure active support from leadership
2. Identify participants (by commodity, spend category, and site)
3. Link supplier goals to corporate goals
4. Encourage and facilitate communications between parties
5. Create formal documents and processes to capture results
How do you establish a SSM program?Getting Started
SSM Approach
Which suppliers should you focus on?
Core, Strategic High Volume/Spend
Sole Source/Critical
SSM Approach
Tiers help segment suppliers
SSM Approach
Higher Tier Suppliers Lower Tier Suppliers
Global resource coordination Local or regional supply base
Multi-level communication network
Site-specific resource and communication coordination
Joint development of shared goals Effective and efficient transactions
Aligned technology and innovation road-mapping Independent goal setting
Long-term focused Short term planning horizon
Illustrative Supplier Segmentation Criteria
SSM Approach
Criteria Area Specific Criteria Evaluated
FinancialAnnual spendExpected change in spendSwitching costs
RiskSupply market profileApproved second source statusFailure impact
OpportunityOpportunity to harness incremental valueSupplier willingness to engage in SSMSupplier cultural alignment
Once you have selected your suppliers, what should you measure?
• Quality
• Technology
• Delivery
• Service
• Cost
SSM Approach
Quality Metric Objectives
• Quality goal of zero defects• Defect free raw materials, parts, assemblies and services• Quality expected to be achieved through
– Superior design– Continuous improvement– Process, test and inspector controls– Reduced product variability
• All materials must be fit for intended use
SSM Approach
Sample Quality Metrics & Goals
IncomingInspection
Supplier Corrective
Action Request
SupplierAudit Results
95% acceptance rate
Response deadline and action plan
Documented audits and scoring mechanism
SSM Approach
Technology Metric Objectives
• Demonstrated commitment to technology to meet current and future needs
• Proven thought leadership
• Tangible benefits delivered through technological advances– Reduced costs
– Reduced cycle time
SSM Approach
Sample Technology Metrics & Goals
% Of Revenue Spent On
Technology
Innovation & Awards
Documentation & Compliance
Within top quartile of peer set
Nationally or globally recognized within industry
ISO certification, etc.
SSM Approach
Delivery Metric Objectives
• Accurate delivery quantity
• Timely delivery shipments
• Lead time stability/reduction
SSM Approach
Sample Delivery Metrics & Goals
No tolerance for over/under shipments
On time delivery
% variance from forecast to actual
# of out of stocks
Duration of plant closures or line delays due to late shipments
SSM Approach
Service Metric Objectives
• Response time for normal inquiries– Engineering samples and material specifications
– Price and availability
– Repair and maintenance
• Communication of process changes and/or quality problems before they happen
• Accurate bill of materials and invoices
SSM Approach
Sample Service Metrics & Goals
Rapid response time for standard
issues
Proactive communications
Accurate billing
24 hours to provide response
Account management plan, relationship map, escalation plan
Zero error rate in deliveries to P.O. specifications
SSM Approach
Cost Metric Objectives
• Best price for product/service
• Joint commitment to cost reduction programs
• Transparency
SSM Approach
Sample Cost Metrics & Goals
Best price
Annual cost reduction goal
Pricing Transparency
Breakdown of cost components“Cost plus” pricing modelsBenchmark rates
Gain sharing agreements% of revenue
Pass through invoicesGuaranteed profit %
SSM Approach
Best Practices In SSM
• Common Processes/Tools
• Performance Improvement Action Item Tracking
• Supplier Satisfaction Survey
• Formal Issue Escalation Process
• Trigger Points for Elimination of Underperforming Suppliers
• Tiered Awards and Incentives Program
SSM Approach
SSM Formats
“Top to Top”
QuarterlyBusinessReviews (QBRS)
Continuous Improvement
SSM Approach
Audiences and objectives for different SSM formats
Topto Top
QuarterlyBusiness
Reviews (QBRS)
Continuous Improvement
Audience Objectives
Executive leaders Share vision
Operationalrelationshipowners
Maintain accountability
All participants
Set goals
Evolve
SSM Approach
Tools to execute Top to TopsSSM Tools
Topto Top
QuarterlyBusiness
Reviews (QBRS)
Continuous Improvement
• Format: In person• Frequency: Annually• Critical Success Factors:
– Appropriate participation– Clear agenda and priorities– Agreed outcomes and actions
Example Biotech Firm Uses Annual Supplier Risk Assessments To Inform SSM Plan
SSM Tools
Tools to execute QBRs
SSM Tools
Topto Top
QuarterlyBusiness
Reviews (QBRS)
Continuous Improvement
• Format: In person or telecon• Frequency: Quarterly• Critical Success Factors:
– Functional participation– Metrics and performance data– Remediation and action plan– Links to incentive compensation
(as appropriate)
Some form of scorecard data is required
SSM Tools
Yellow – Some issues exist within this category, but have been identified and are being reviewed/ addressed •50% - 74% average score in categoryRed – Issues exist within the scope of the category
•Issues are persistent/ reoccurring, and are not being resolved in a timely manner to satisfaction •Below 50% average score in category
Green – No major issues exist •75% or greater average score in category
Supplier Name Annual Objectives:Date of Evaluation
Panel 1 - Account Support Score 50 Status Y Panel 2 - Quality Score 95 Status G
Panel 3 - Delivery Score 46 Status R Panel 4 - Value Score 87 Status G
Score 76 Overall SM Program Status Y
Issues & Opportunities - Issues & Opportunities -
Issues & Opportunities - Issues & Opportunities -
Panel 5 - Overall Performance & Customer Satisfaction
Issues & Opportunities -
Sophisticated SSM platforms exist
SSM Tools
Illustration of Ariba SSM tool
In these QBRs, you must document agreed upon actions and outcomes…
SSM Tools
Illustrative corrective action plan from QBR
Tools to execute QBRs
SSM Tools
Topto Top
QuarterlyBusiness
Reviews (QBRS)
Continuous Improvement
• Format: Various• Frequency: Ongoing• Critical Success Factors:
– Anyone can generate ideas– Document and track progress
against them– Delineate between suppliers who
do – and don’t – participate
Sample Continuous Improvement Opportunity Plan
SSM Tools
Illustrative Continuous Improvement Plan
• Start with your most important suppliers
• Agree on format, frequency and type of SSM program
• Generate appropriate participation
• Execute consistently
• Promote success and outcomes to broaden participation
SummaryStrategic Supplier Management