1. Effective Supplier Relationship Management
Effective Supplier Relationship Management
Peter Smith
October 2nd 2013
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Real World Sourcing

2. Effective Supplier Relationship Management
Part 1 – Introduction
The Real World Sourcing Series is a series of sessions covering hot
topics for procurement professionals.
The Real World Sourcing Series is promoted and supported by
BravoSolution, and developed by Peter Smith (Spend Matters)
and Guy Allen (Real World Sourcing Limited).
Peter Smith started his procurement career with Mars
Confectionery, then was CPO for Dun & Bradstreet Europe, the
Department of Social Security and the NatWest Group. He is now
a consultant, author, non-executive director and editor of the
Spend Matters website. He was President of CIPS in 2002/3.
Spend Matters UK/Europe
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Real World Sourcing

3. Effective Supplier Relationship Management
Agenda
1.
2.
3.
4.
What is Supplier Management?
Why Is It Important?
In Depth Look at a Real SRM Programme
Some Other Case Studies
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Real World Sourcing

4. Effective Supplier Relationship Management
Contract Management is maximizing the
returns achieved from individual contracts
you have with Suppliers.
Supplier Management is everything you do
with suppliers and in your supply market, not
related to a specific contract
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Real World Sourcing

5. Effective Supplier Relationship Management
Market
management
Planning
&
ownership
Resources
SRM
Administration
GOOD
PRACTICE
Supplier
development
Contract and
Supplier
Management
Relationships
Contract
development
Delivery
Risk
Spend Matters UK/Europe
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Payment
Real World Sourcing

6. Effective Supplier Relationship Management
Market
management
Planning
&
ownership
Resources
SRM
Supplier
Management
Administration
GOOD
PRACTICE
Supplier
development
Relationships
Contract
development
Delivery
Risk
Spend Matters UK/Europe
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Good Supplier
Management Will
Cover These
Aspects
Payment
Real World Sourcing

7. Effective Supplier Relationship Management
Develop, implement and embed category management
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Stage 6
Stage 7
Define scope
and category
structure
Understand
internal
requirements
&
stakeholders
Understand
market and
suppliers
Develop
category
strategy and
plan
Select
supplier(s)
Implement
contracts
Contract and
supplier
management
Iterative process
Supplier Contract
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Real World Sourcing

8. Effective Supplier Relationship Management
Supplier Management
Supplier Contract 1
Supplier Contract 3
Supplier Contract 2
Supplier Contract 1
Year 1
Year 2
Year 3
Year 4
Time
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Real World Sourcing

9. Effective Supplier Relationship Management
Why is it important?
Efficiency
Risk
Opportunity
Supplier Motivation
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Real World Sourcing

10. Effective Supplier Relationship Management
‘Companies Don’t Compete,
Supply Chains Do’
Bob Monzcka
Michigan State University
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Real World Sourcing

11. Effective Supplier Relationship Management
Task 1
Who should own the relationship with a key
supplier?
Is it procurement?
Discuss....
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Real World Sourcing

12. Effective Supplier Relationship Management
Commercial
Director
Service
Delivery
CEO
Operations
Director
Finance
Director
No single right answer
BUT
Supplier
relationships need to be
managed and roles
defined
Solution
Architect
IT Director
Purchasing
Alliances Manager
12
Spend Matters UK/Europe
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Real World Sourcing

13. Effective Supplier Relationship Management
Key Components of A Successful Supplier
Management Programme
•
•
•
•
•
•
Leadership
Clear Objectives
Key Stakeholder Support
Tenacity and Commitment
Willingness to Engage in a 2 Way Dialogue
Communication
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Real World Sourcing

14. Effective Supplier Relationship Management
14
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Real World Sourcing

15. Fujitsu
• Design, build and manage clients’ IT
systems:
 Applications
 Datacentres
 Networks
 Workgroups
• Provide, develop and improve client’s
Business Processes
 HR
 Procurement
 Data Capture and Print Management
 Document Management
• Through a choice of relationships:
 Consultancy
 IT Projects
 Managed Services
 Outsourcing
15
© Fujitsu Services 2006
Moving Procurement Forward
• Where the role is:
 Prime Integrator
 Partner
 IT Sub-contractor
• In chosen markets:
 Central Government & Defence
 Local Government & Health
 Private sector
• Throughout Europe & the World

16. Effective Supplier Relationship Management
Fujitsu – Situation 2006
•
•
•
•
Dedicated Supplier Relationship Managers
Unmeasured
Disconnected from the rest of Procurement
Managers going native with Suppliers
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Real World Sourcing

17. Effective Supplier Relationship Management
The Case for Change
•
•
•
•
Real sense that not leveraging the market
Suppliers were dividing and conquering
Competitors seemed to do it better than Fujitsu
Identified opportunity to drive mutual benefit
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Real World Sourcing

18. Effective Supplier Relationship Management
Supplier Management Programme Year 1
•
•
•
•
•
Programme launch
Segmentation of supply base
Basic measurement consolidated
Internal supplier satisfaction surveys
Comparison of performance across sectors and
accounts
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Real World Sourcing

19. Supplier Management Programme - Scoring Mechanism
Effective Supplier Relationship Management
Weighted
Scorecard
Average
40%
Corporate
Social
Responsibility
Assessment
Profiler
25%
Business
Continuity
Assessment
Finance /
Commercial
assessment
35%
Final Score > 80%?
Spend Matters UK/Europe
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Real World Sourcing

20. Effective Supplier Relationship Management
Strategic
Alliances
2-6
Partners
Tier 1 Suppliers
Tier 2
Tier 3
15-30
Premier Suppliers
15-30
200
The rest
* Premier suppliers are those that are scorecarded and eligible to participate in the Supplier
Management Programme with the prospect of FS Gold Accreditation. The candidate
suppliers are selected by the cross company Supplier Relationship Management Board.
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Real World Sourcing

21. Effective Supplier Relationship Management
Supplier Management Programme Year 2
• Supplier Relationship Management Board Launched
• Representatives from all functions
• Clear decision making authority and responsibilities
• SRMB Met Four times a Year
• Meeting 1 – Agreed Premiers Suppliers, Agreed Key factors
• Meeting 2 – Monitored On-going Performance of Suppliers
• Meeting 3 – Identify ‘failing’ suppliers and agree action plan
• Meeting 4 – Agree Suppliers that will be awarded ‘Gold’ status for next year
• Supplier Awards
• All Suppliers achieving Gold invited to Awards Dinner
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22. Effective Supplier Relationship Management
Supplier Management Programme Year 3
Supplier ‘Rewards’
• Internal Publicity
• Quarterly Briefings
• Access to Key Decision
Makers
• Opportunity to demonstrate
capabilities to key decision
makers
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Real World Sourcing

23. Effective Supplier Relationship Management
Outcomes
• Brought Procurement firmly into the relationship
• Gave a platform from which to talk about poor
performance (and a consequence for failing to
address it)
• Introduced performance competition amongst
suppliers
• Suppliers responded to the Programme – made the
Supplier Account Directors heroes
• Fantastic exposure for Procurement
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Real World Sourcing

24. Effective Supplier Relationship Management
Nokia - 3rd Party Supplier failure
• Supplier incident in Albuquerque,
New Mexico.
• Nokia and Ericsson both were
supplied from the factory
• Owned and operated by Philips
• Caused the flow of chips to suddenly
stop
• With mobile phone sales booming
around the world, neither Nokia or
Ericsson could afford to wait!
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Real World Sourcing

25. Effective Supplier Relationship Management
Ericsson
• Cost to Group estimated at $400 million
• Market share fell 3% to 9% of market
• Withdrew from Handset market January 2001, outsourcing
business to Flexitron in Singapore. (Loss making handset division
later re-formed as new joint venture Sony-Ericsson in Oct 2001)
• Jan 01 - share price 50% below price at time of fire
Nokia
• Production targets met
• Market share increased by 3% to 30% (exactly Ericsson’s share)
• Jan 01 - share price 15% below price at time of fire
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Real World Sourcing

26. Effective Supplier Relationship Management
• Rexam manufacture 54 billion drink cans a year
• Their Supplier Management Programme has run
for 10 years
• Primarily focused on improving quality and
developing supplier capability
• Full support of senior management including CEO
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Real World Sourcing

27. Effective Supplier Relationship Management
Outcomes
• Shared enthusiasm with Supply Base
• Shared innovation programmes
• Suppliers seen as an enabler to Rexam’s
move into value add products
• 83% improvement in quality over 10 years
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Real World Sourcing

28. Effective Supplier Relationship Management
Task 2
Below are some recent supply chain issues. How could
better Supplier Management have mitigated or avoided
these situations:
• Horsemeat in consumer food products
• Cost over-runs for the winter Olympics in Russia
• Or alternatively think of an issue in your own
organization
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29. Effective Supplier Relationship Management
Final Thoughts
• Procurement cannot own the relationship, but
they can help to structure it
• It takes leadership, communication, a clear set
of objectives, and tenacity
• One size does not fit all
• A successful programme delivers benefits for
your organization and will be a great platform
for Procurement recognition
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30. Effective Supplier Relationship Management
Real World Sourcing Scholarship
• 10,000AED towards any procurement based training
• Go to www.strategicsourcing.ae with the URL you will
receive tomorrow by email
• Complete the quiz programme
• Answer as many questions right as possible
• The winner will be announced at the end of the series!
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Real World Sourcing

31. Effective Supplier Relationship Management
THANK YOU!
Please feel free to contact psmith@spendmatters.com or
guyallen@realworldsourcing.com
Spend Matters UK/Europe
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Real World Sourcing