Q&A

Today’s Presenters

Gary NowackiCEOTraceGains

William “Bill” MichelsPresidentPresident ADR NA, ADR-ISM China, ISM Services Companies

Enhancing Value through Supplier Relationship Management

By William L. Michels,President, ADR NA

Presentation Agenda4 Key Points

The PACE Model

Supplier Performance

Supplier Relationships

Words of Wisdom

Four PointsPoint 1 The Food Industry will continue to

consolidate.

The result of supply chain consolidation will be competing dedicated chains.Point 2

The leanest, most efficient supply chains will have competitive advantage.

Point 3

Point 4The future requires strategic positioning, collaboration and value extraction.

6

Model of Price and Cost EvolutionStage One

Price Drift

Stage Two

Price Down

Stage Three

Cost Down

Stage Four

Cost Out

Purchase Price

SupplierCost

© ADR NA7

Stage One

Price Drift

Stage Two

Price Down

Stage Three

Cost Down

Stage Four

Cost Out

Purchase Price

SupplierCost

Model of Price and Cost Development

Gaining

Tactical Control

Increasingly effective segmentation & appropriate relationship strategies

© ADR NA8

Stage One

Price Drift

Stage Two

Price Down

Stage Three

Cost Down

Stage Four

Cost Out

Purchase Price

SupplierCost

Using Appropriate Techniques

Senior/Cross-functional

Functional Operational

StrategicTactical Techniques Involved

Management Effort

© ADR NA9

CompetitionTacticalRelationship Cost

Gainsharing

StrategicRelationship

StrategicRationalization

Tactical Rationalization Breakout

Incentivization

Summary of the FeaturesStages in the Price/Cost Model

Price Drift Price Down Cost Down Cost Out

Stages in the Price/Cost Model Adversarial Competitive Collaborative Integrated

Supplier’s cost structure Unknown Challenged Transparent Negotiated

Pricing mechanism with supplier

Opportunistic/ Market

Competition/ Threat

Cost/Principled Target

Supply market/ cost understanding

of buyerLittle or none Basic Developing Expert

Supplier’s margin Not managed Under pressure Challenged Agreed

© ADR NA10

What happens Next?

Contract Signed and Implemented—Price and Potential value benefits established

Price

Agreed Value Benefits

Unidentified Value Benefits

Strategic Sourcing…and Then?

Sourcing Phase Supplier Management Phase

Time

Valu

e

Strategic Sourcing in a Perfect World

Does this happen every time?

Sourcing Phase Supplier Management Phase

SRM Planning

SRM Visioning

Relationships Well-Aligned and Managed, Performing Well SRM

Implementation Strategies and

Toolkits

Time

Valu

e

Relationships Well-Aligned and Managed, Performing

Well

Relationships Poorly-Aligned and Managed, Performance

Drifting

Relationships Misaligned, Under-managed and Non-

Performing

Strategic Sourcing in the Real World

Sourcing Phase Supplier Management Phase

SRM Planning

SRM Visioning

Powerful Implementation

of SRM Strategies and Toolkits

Inadequate Implementation

of SRM Strategies and Toolkits

"Deal & Forget" Little Active

Management of Suppliers

Time

Valu

e

Relationships Well-Aligned and Managed, Performing

Well

Relationships Poorly-Aligned and Managed, Performance

Drifting

Relationships Misaligned, Under-managed and Non-

Performing

Strategic Sourcing in the Real World

Sourcing Phase Supplier Management Phase

SRM Planning

SRM Visioning

Powerful Implementation

of SRM Strategies and Toolkits

Inadequate Implementation

of SRM Strategies and Toolkits

"Deal & Forget" Little Active

Management of Suppliers

Time

Valu

e

Without effective Supplier Management most of the potential value available from strategic sourcing

can/will be lost within 6 - 18 months

Customer of ChoiceA customer of choice is defined as a company that consistently receives competitive

preference for scarce resources from a critical mass of suppliers.—Robyn Bew, Procurement Strategy Council Corporate Executive Board

Consistency

• The supplier consistently addresses your organization’s needs ahead of those of other companies (perhaps including competitors).

Scarcity

• The resources in question–whether materials, services, new ideas, or supplier staff–are limited in availability.

Critical Mass

• Your company receives this type of preferential treatment from more than just the small handful of “strategic” suppliers.

• Provides the ability to secure support for a wide range of business needs.

How do you know if you’re a customer of choice?

Robyn BewProcurement Strategy CouncilCorporate Executive Board

• 75% of suppliers say they regularly put most-preferred customers at the top of allocation lists for materials or services in short supply on a regular basis

• 82% say that these customers consistently get first access to new product or service ideas and technologies

• 87% of suppliers offer unique cost reduction opportunities to their most-preferred customers first

Sizing the Opportunity

• Start by looking at yourself as suppliers do• Use interactions with suppliers as an opportunity to uncover

“hidden” decision criteria • Being a customer of choice is as much about selling as it is about

buying• Low cost-to-serve customers are as attractive to suppliers as low-

cost suppliers are to buyers

Becoming a Customer of

Choice

Customer of Choice

Robyn BewProcurement Strategy CouncilCorporate Executive Board

Identify the “baseline”

relationship and set goals for

improved return on investment

To establish where the real

relationship differs from the

“nominal” relationship.

To shift power in the relationship

To address any gaps in the relationship

Why Have Relationship Improvement “Tools”?

BusinessAlliances

Preferred Suppliers

ClosenessOf

Relationship

TIME(resources required & expected duration of relationship)

PerformancePartnerships

CompetitiveSuppliers

x x

x x

xxxx

x

x x

xx x x

x

x

xx

xx xx

x

x

Supplier Relationship TypesIdentify and invest in the appropriate relationship

Key Features

Performance Partnerships Business Alliances

• Single/dual sourcing• Joint Focus on Cost and

Quality• Managed Risk• Technology Sharing• Key Performance

Indicators (KPIs)• Balanced Scorecard

• Single Sourcing• Dedicated Resources• Mutual Dependency• Shared Risk• Joint R & D• Exclusive Rights• Communication Plan• Transparent Metrics

Preferred Suppliers Competitive Suppliers

• Fewer evaluated sources• Short Term Agreements• Regular Benchmarking of

Cost

• Multiple Sources• Frequent Negotiations• Arms length Relationship• Price Change

Measurement

PerformancePartnerships

PreferredSuppliers

BusinessAlliances

CompetitiveLeverage

x x

x x

x

x x

x x x

x

xx

xx

xxx x

x x x

Closenessof

Relationship

Close

Distant

Mapping Relationship Closeness

Tactical Tools• Tactical cost management

(interrogating cost breakdowns)• Link continued business to KPI

metrics• Performance reward to drive

compliance to specification• Market testing with

unpredictable competition• Price benchmarking and price

guarantees• Action Plans• Operational Reviews

Strategic Tools• Strategic cost management

(transparent business model)• Link joint marketing to KPI

metrics• Incentives for meeting stretch

targets• Supplier-driven market testing

to derive sources of advantage• Joint problem solving using

DMAIC• Market/Customer Reviews

Typical Approaches

Supplier Management Process

‘Hard’ Relationship Attributes

‘Soft’ Relationship Attributes

Perspectives & attitudes of individuals

(subjective view)‘Best Fit’

relationship(vision)

An Organizational perspective

(objective view)

GapAnalysis

(diagnosis)

More effective relationship

management(delivery)

Relationship Mapping

Cont

ract

ing

and

Perf

orm

ance

Mea

sure

men

t

Continuous Improvement

Tool kit

ValueEnhancement

Tool kit

Supplier Matching

Portfolio Analysis

SupplierPreference Relationship Needs

Analysis

Using Competition and Negotiation to

maximize value delivery

Generic Phase. Steps applied to entire Supply Base to select appropriate Relationship Model

Specific Phase. Steps applied to appropriate segments of Supply Base (example above is Strategic

Preferred

Competitive

Performance Partnership

Business Alliance

“Hard” Relationship Attributes

Competitive Key Performance Alliance

Sources Many Limited One Single

Dependency None Reduced Managed Reliance

Goals Unknown Conflicting Different, but Known Mutual

Organization Separate Accommodated Dedicated Integrated

Change Management Re-source SLA KPI Continuous Improvement

Review Process Fire fighting Measured Driven Open

Performance Measurement Not considered Accommodated Compatible Empathizes

Rewards Contested Divided Maximized Grown

Dispute Resolution Imposed Contractual Principled Principled

Tactical Strategic

“Soft” Relationship Attributes

Competitive Key Performance Alliance

Expected Continuity None Short to Medium Long Permanent/very Long

Trust None Sufficient High Complete

Management Attitude Exploitative Positive Compatible Driven

Competence Not considered Accommodated Developing Investment

Personal Relationships OftenIntrude

Sometimes Considered Developing Core Competence

People Not considered Selected Team Common

Culture Not considered Accommodated Compatible Empathizes

Communications Arms Length Managed Driven Open

Owner Contested Buyer Joint Mutual

Tactical Strategic

• Remember to always consider the balance of power

• Power will drive relationship dynamics such as commitment, value-congruence and trust

What is the "Real” Relationship?

Nominal Relationship

RealRelationship

Contracted Choice

ExclusivityDurationMutuality

A partner is chosen and others are excluded

Coordinated Co-working

Co-ordinationCloseness

Shared risk and reward

Partners work together harmoniously

Creative Collaboration

CreativitySignificance

Synergy

Partners create something new out of their

interaction

Who Has the Power Here? Temporary Trust

Equality (Equivalence)Symmetry

Trust

One party drives the partnership and requires

consent

5 Step Supplier Management ProcessBuyer/Supplier

Daily Operations

Performance Information Collection:

• IT Systems• Human interaction

Supplier ScorecardAction Item Register

Top-to-Top ReviewsOperational Reviews

Day-to-Day Interaction

Top-to-TopReviews

Operational & Management Team Reviews

Day-to-Day Interaction &

Execution

Top-to-Top Review Objectives

Conduct high level business and performance reviews

Reinforce/support relationship objectives

Discuss escalated issues from management team

Monitor key new product development

Operational Review Objectives

Monitor performance vs. scorecard

Manage cost/value improvement efforts

Resolve issues escalated from day to day

Benchmark supplier to market

Lead supplier development efforts

Track benefits received from agreement

Day-to-Day Objectives

Place/coordinate orders

Manage product/service flow

Collect performance data

Escalate issues

Supplier Management Model

• Agree procurement “owns” supplier relationship

• Agree category objectives & supplier management strategy

• Develop supplier communication strategy• Provide stakeholders supplier conditioning

training• Proactively manage communications to

ensure appropriate stakeholders “in the loop” and “on message”

• Educate stakeholders on importance of supplier communication management & discipline

Managing Internal Supplier Communication

Manufacturing

Strategic Planning

Finance

Procurement

Supply Chain Quality

LegalR & D

Supplier

“Sea” of communication

INCREMENTAL TOTALVALUE

ENDORSEMENTS

GROWTH

LOWER COSTOF DOINGBUSINESS

TRANSPARENCY&

HONESTY

LESSBUREAUCRACY

INNOVATION

COMPETITIVEADVANTAGE

SUSTAINABLERELATIONSHIPS

SPE PROGRAM

Misalignment in Relationships

Organizational

ResourceIssues

MeasurementToolsPersonal

Clash

Vision&

Direction

Capabilities&

Competence

ConflictingObjectives

IndividualBehavior

Poorly Performing

Relationship

Causes of MisalignmentVision

&Direction

Organizations have differing goals

Future Investment not forthcoming

Priority given to other customer’s

Organizational

Organizationally—misfit, potential service conflicts

Poor communication to stakeholders

Lack of local interest—benefits accrue elsewhere

ResourceIssues

Imbalance between parties–either way

Lack of availability

Timing

MeasurementTools

Inappropriate or out of date measures

Lack of review or actions

Functional perspective—feedback impersonal

Causes of MisalignmentPersonal

Clash

Clash of personalities or individuals

Historical or incompatible

Educate or eliminate

ConflictingObjectives

Maybe personal, functional or divisional

Lack of understanding of priorities

Capabilities&

CompetenciesPoor choice of team members

Lack of training

Lack of adequate recruitment

IndividualBehavior

Inappropriate actions undermine progress

Inability to see the big picture

Blame culture

•Leadership, Decision-making, Influencing, Compromising

Team Building

•Project Scoping, Goal-Setting, and Execution

Strategic Planning Skills

•Presentation, Public Speaking, Listening and Writing

Interpersonal Communication Skills

•Web-enabled Research and Sourcing Analysis

Technical Skills

•Cost Accounting and Business Case Analysis

Financial Skills

•Ethics, Facilitation, Conflict Resolution, and Creative Problem Solving

Relationship Management Skills

•Contract Writing and Risk Mitigation in a Global Environment

Legal Issues

A Supply Manager’s Core Skills andKnowledge

Source:Robert Handfield, DirectorSupply Chain Resource Consortium (SCRC)

Supplier Relationship Management

• “Our suppliers are only as good as we let them be.”

—David W. Johnson, President, Entenmanns Bakeries, June 1966

35

Barrier 1Organization goal

alignment

Barrier 2Selecting the right

supplier

Barrier 3Internal collaboration

GOAL Barrier 4Identifying incremental

value

OUR PATH

The SRM Journey

Turning Data Into Information

Typical

24/7 Detection& Compliance

TraceGains

AutomaticScorecarding

Difficult to search, analyze, andtake action

Instant eNotificationAlerts

No More Spreadsheets: Documents to DataStatic Data

COAsSupplier Documents

Finished Goods Quality

Machine Maint.

Receiving

Receiving Inspections Lab Results

Auto. P.O.Acknowl.

Plant Floor Feedback

Finished Goods QA

COA

ActionForm™

TraceGains Automation Solves Many Problems

GFSI

Labeling

FSMA

Audits

Q&A

Gary Nowacki

gary.nowacki@tracegains.com

Bill Michels

wmichels@usa.net