five best supply management practices in use today
TRANSCRIPT
The Five Best Supply Management
Practices 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
Who Am I?
• F. Michael “Mike” Babineaux, CPSM, C.P.M.
– 40+ years Supply Management Experience
– 30 year FedEx Veteran
– SCM Educator and Trainer
• Babineaux Educational Services and Training, Inc.
• www.BESTraining.com
• 901.853.0539
World Class Excellence --
Strategic 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 --
Enablers
EstablishGlobally Integrated and Aligned P&SC Strategies/Plans
INTEGRATED
AND ALIGNED
Develop Organization and Teaming
Strategies
Deploy
Globalization
Develop Procurement and
Supply Chain Measurements
Develop and Implement Enabling IS/IT
Systems
Establish Human Resource
Development/ Training
12 World Class Supply
Management 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
Management 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 Best
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
The Five Best
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Strategic 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."
What happens when . . .
Supply Chain
Strategy
Company
Strategy
Internal
Customer
Strategy
YouMisalignment Creates Confusion for
Strategic 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 Alignment
• Goal Alignment Concepts
– Vertically aligned
– Horizontally aligned
• Strategic objectives of strategic business units
• Strategic objectives of functional groups.
– Conflict
» Bulk buying discount vs. Inventory holding cost
Strategic Goal Alignment
• Goal Alignment Concepts
– Vertically aligned
– Horizontally aligned
• Stakeholder Alignment Process
Evaluate
Relationship
Evaluate
Levels of
Alignment &
Involvement
Identify
Stakeholder
Groups
Evaluate
Importance
Strategic Goal Alignment
• Goal Alignment Concepts
– Vertically aligned
– Horizontally aligned
• Stakeholder Alignment Process
Define
Outcome
Of
Alignment
Develop
Alignment
Strategies
Implement
Alignment
Strategies
Tract Results
& Design
Follow up
Actions
Strategic Goal Alignment
• Goal Alignment Concepts
– Vertically aligned
– Horizontally aligned
– Externally aligned
• Customers and Suppliers
Visible top management direction and support
Clearly defined strategy and goals
Buy-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 barriers
Customer focus
Continuous communication and feedback throughout
the supply chain
Critical Success Factors to
Achieving Alignment
Critical Success Factors to
Achieving Alignment
Rating Exercise
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 ____
Critical Success Factors to
Achieving Alignment
Weighting and 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 Point
“If you’re not singing the same
song, you’re just making a bunch
of noise and –
your performance will suffer”
The Best Supply Management
Practices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Procurement Strategy Development
• Procurement Decision Tool
– Market Complexity
– Degree of Competition
– Geographical Dispersion
– Supplier Cooperation
“Price concessions and
collaboration”
Procurement Strategy Development
• Procurement Decision Tool
– Market Complexity
– Impact on Business
• Risk
• Value
“What happens if you don’t have it?”
Procurement Strategy Development
• Procurement Decision Tool
– Market Complexity
– Impact on Business
– Prioritization
• High to Low
High
High
Low
Procurement Decision ToolRoutine Quadrant 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 ToolRoutine Quadrant Strategy
• Focus - Removing transaction
effort
– Standardized contracts
– p-cards
• The primary goal
– Minimize the procurement costs of
these items.
Business
Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision Tool
Business
Impact
Marketplace Complexity
Low
High
LowHigh
Routine Bottleneck
Procurement Decision ToolBottleneck Quadrant 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 ToolBottleneck Quadrant 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 Tool
Business
Impact
Marketplace Complexity
Low
High
LowHigh
Leverage
Routine Bottleneck
Procurement Decision ToolLeverage Quadrant 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 ToolLeverage Quadrant 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 Tool
Business
Impact
Marketplace Complexity
Low
High
LowHigh
StrategicLeverage
Routine Bottleneck
Procurement Decision ToolStrategic Quadrant 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 ToolStrategic Quadrant Strategy
• Focus on Building Relationships
– Collaborative or
interdependent relationships
(e.g. Strategic Alliances)
Business
Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Procurement Decision Tool
Business
Impact
Marketplace Complexity
Low
High
Low High
StrategicLeverage
Routine Bottleneck
Key Point“If you use the same strategy to
buy airplanes as you do to buy
pencils,
your performance will suffer”
The Best Supply Management
Practices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Supplier Integration in New
Product/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 Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Design Process
• Use of Supplier expertise and experience
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Design Process
– Product/Service Development
• Prototypes/Demonstrations
• Replacement materials/alternative methods
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Process
– Product/Service Development
– Cost
• Cost projections of a new product or service
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Process
– Product/Service Development
– Cost
– Quality
• Supplier knowledge of
quality requirements
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Process
– Product/Service Development
– Cost
– Quality
– Technology
• Influence final
material/application
selection
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Process
– Product/Service Development
– Cost
– Quality
– Technology
– Design
• Experience in serving a
particular market
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Process
– Product/Service Development
– Cost
– Quality
– Technology
– Design
– Co-Development
• Sharing costs
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Manufacturing/Service Process
– Product/Service Development
– Cost
– Quality
– Technology
– Design
– Co-Development
– Cycle Time
• Through reduction in
redundancies
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Confidentiality Issues
• Proper controls
– Disclosure Parameters
– MN-DAs
– Dispute resolution
clause
Supplier Integration in New
Product/Service Development
• Early Supplier Involvement
– Confidentiality Issues
– Product/Service Life Cycle
• Pre-commercialization
• Introduction
• Growth
• Maturity
• Decline
Key Point
“Suppliers know more about
what you buy than you do, so if
you don’t use them, your
performance will suffer”
The Best Supply Management
Practices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
An Action Plan for Creating
Effective Teamsby Robert M. Monczka, Ph.D., C.P.M. and
Robert J. Trent, Ph.D.
Studies by MSU reveals
– 80% of Best-in-Class organizations
emphasize the use of Supply Management
Project teams.
Teaming Strategies
• Procurement Project Teams
– Definition - The application of project knowledge,
skills, tools and techniques to procurement
project activities to meet customer requirements
Teaming Strategies
• Procurement Project Team Stages– Initiation
• Root Cause analysis
• SWOT
• Feasibility Analysis– Net Present Value
– ROI
• Business Case
Teaming Strategies
• Procurement Project Team Stages– Planning
• Scope Development
• Roles & Responsibilities
• Project Plan Approval
Teaming Strategies
• Procurement Project Team Stages– Monitoring & Control
• Contract Management
– Performance measurement
– Risk Monitoring
• Project Management Software
– PERT & Gant Charts
• Performance Reporting
– Cost
– Schedule
Teaming Strategies
• Cross-Functional Teams– Purpose
• To permit different viewpoints and perspectives
Teaming Strategies
• Cross-Functional Teams– Purpose
– Supply Management Roles
• Leadership
• Facilitation
• Contributor
Teaming Strategies
• Cross-Functional Teams– Purpose
– Supply Management Roles
– Advantages/Disadvantages
• Consensus Building
• Group Think
Teaming Strategies
• Cross-Functional Teams– Purpose
– Supply Management Roles
– Advantages/Disadvantages
– Organizational cultures
• Traditional vs. Team
• Skill Considerations
• Personality Considerations
• Leadership
Key Point
“Two heads are better than one,
so if you’re not including them in
the decisions, your performance
will suffer”
The Best Supply Management
Practices
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement
Performance MeasurementAberdeen 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 Measurement
• Department
– Organizational Expectations
• Objectives Congruence
– Organization
– Suppliers & Customers
Performance Measurement
• Department
– Organizational Expectations
• Objectives Congruence
• Scorecard
– Quantitative
– Qualitative
Performance Measurement
• Department
– Reasons for Scorecard
• Determine effectiveness
– To objectives
– To department management
• Measure improvement/deterioration
• Provide Resources
• Determine Value
Performance Measurement
• Staff
– Issues
• Objective Alignment
– Vertical & Horizontal
• Success Criteria
– Known in advance
• Appraisal Factors
– Quantitative
– Qualitative
Performance Measurement
• Staff
– Issues
– 360o Reviews
• Users
• Management
• Peers
• Suppliers
• Others
Performance Measurement
• Staff
– Issues
– 360o Reviews
– Feedback
• Timely
• Corrective actions
• Individual Development Plans
Performance Measurement
• Suppliers
– Scorecards
• Qualitative measures
• Quantitative measures
• Price, Delivery & Quality (PDQ)
• Other/specific
Performance Measurement
• Suppliers
– Scorecards
– Others/specific
• Cycle/Lead time Reductions
• Productivity Improvements
• Flexibility and Responsiveness
• e-Commence Capabilities
• Innovation
The Five Best Supply
Management Practices in Use
Today
1. Strategic Goal Alignment
2. Procurement Strategy Development
3. Supplier Integration
4. Teaming Strategies
5. Performance Measurement