1. “Addressing
strategic sourcing challenges and
applying leading-edge,
procurement best practices for
consistent improvement”
presented by
Josh Kaiman, CPM, CPIM, CBM, CLM, PMP, CSSBB
May 10, 2013

2. Step 1
Form the Team
Step 2
What to Buy?
-Products
-Services
Step 3
Integrate Functional
Requirements
Step 4
Define Ideal Supplier
Step 5
Assess Suppliers
-K-T Analysis
-Source Suppliers
Step 6
Develop Strategy
Step 7
Implementation
-Roadmap
-Calendar
-SupplyAgreement
Engineering Manufacturing
Supply Chain
Developing a Strategic Sourcing
Process Roadmap–
Procured Materials and Services

3. Evaluation of Current/Future Supply Base for Core Capability/Capacity as
aligned to specific Commodity Sourcing application
Example

4. Evaluation of Current Supply Base for
Long-term Productivity/Enhancement in
Cost, Quality, and Delivery
Example

5. Aligning a Sourcing Strategy to
a Supplier Development Plan
Phased Implementation Aligned with:
Prototype/High Volume Manufacturing
Premise, and Global Servicing Plan
Resource constraints within the organization
Definition of performance metrics (KPI’s)
Supplier Resources (Capability/Capacity)
Integration of Global Sourcing needs –
Materials and Services
Identify critical
supplier
performance
gaps vs
sourcing
strategy
objectives
Supplier Development
Create
development
plan
Identify and
incorporate
resources to assist
suppliers bonded
into supply or
service
agreements and
assign measures
of Repeatability
and Reproducibility
Manage
Projects to
Schedule
Continuous
Improvement
/VA/VE
conferences,
Supplier Site
Kaizen
Reviews
Prioritize and
Schedule
supplier
development
plan
Review key measures of
performance (KPI’s) with
suppliers via Quarterly
Business Reviews and on-site
supplier audits, FMEA risk
assessments, and Kepner-
Tregoe functional evaluations

6. Assessment of needs
-v- currently identified
prototype supply
chains & spend,
set baselines for spend
and savings objectives
2009 forward
Identify
performance,
capability,
capacity
gaps,
redundancy,
and market
trends
associated
with each
commodity
specialization
Identify
strategy per
intended
product
segment
workstream(s)
to eliminate
gaps &
redundancy
Assign Roles
and
responsibilities,
set project
timescales
Manage
Projects
to
Schedule
Complete
Identify Raw Material
Sourcing strategy to
facilitate long-term cost
containment and global
leveraging
Identify other synergy/
leveraged opportunities
and sourcing
approaches lent across
all company
divisions/groups
Define
measurable
Objectives
Project-based Work moving
to Regions/Local Content
Sourcing for reduced total
logistics costs
Establish Separate Sourcing Plans for
Prototype, Full Production Builds or Global
Servicing Requirements
Assigning a Basis of Supply Chain Configuration and
Value Optimization

7. DefineDefine MeasureMeasure AnalyzeAnalyze Innovate &Innovate &
ImproveImprove
ControlControl
~ LTA engagement
analysis –
spend/productivity plan
against baseline Business
Plan
~Develop proforma of
intended sourcing process
flow
~Prioritization of CTQ
inputs/outputs
~PFMEA of sourcing
process
~Cause and Effect
Diagram of Sourcing
Process/Fishbone analysis
with intended process
flow
~ Define Product or
Service Team for
sourcing decisions
~ Define Charter
Problem
Statement
Scope
Validate with
Product Team
Link to long-
term Regional
Penetration
~ SIPOC Engagement
Plan
~ Data Collection
Plan/Quoting Analysis
clearly understood by
Team members
~ Supplier Inquiries on
Capability/Capacity,
endearment to Ideals
of Preferred Supplier
~ Functional Attribute
Supplier Capability
Matrix – Preferred
Suppliers for LTA
engagement
~ Define LTA approach
with Preferred
Suppliers based on
CTQ inputs/outputs –
Pre-Strategy
Negotiation Summary
~ NDA engagement/RFP
release/quote analysis
~ Confirmed Process
Flow approved by
Product Team with
optimized supply
base lent to RFQ
abstract analysis, K-
T, FMEA Risk
Assessment, and
Ideals of Preferred
Suppliers
~ Pilot Programs Setup
with
Preferred Suppliers
(LOI, MOU, Blanket
PO)
~ Project
Implementation
Plan Review/
Recalibration, LTA
signoffs
~ Control Plan,
PFMEA, Cpk
feasibility, PPAP
~ Post-launch survey of
Product or Service Team
Members
~ Define Long-term,
Quarterly Business
Review schedules with
suppliers
~ Implementation of
Supplier Performance &
Improvement Planning
~ Business Operating
Results aligned with
CTQ outputs
~ Engagement with Senior
Management to ensure
reporting metrics are
aligned to Business Plan
Developing a Supplier Selection Process that becomes Fully Calibrated with
a 6-Sigma Process Methodology

8. CustomersSuppliers Input Process Output
Manufacturing
Manager
Engineering Manager
and Product
Engineers
Quality Manager
Supply Chain Director
VP, Supply Chain
Management
Spend Data/RFQ
bidding/quoting
analysis
PFMEA of sourcing
process
Fishbone analysis of
current process
Critical To Quality Inputs
(VOC)
Classification of Supply
Base
(Strategic/Key/etc.)
Supplier
Capability/Capacity
Matrix
LTA Contract
engagement/
execution –
initiate/amend as
aligned to CTQ
inputs
Blanket PO’s per LTA
Contract Execution
Fulfillment of
business
requirements as
aligned to CTQ
inputs
External Customers
(enhanced supply
base supporting
customer product
deliveries)
Site/Division
Operational
Management
Directors
Site/Division
Marketing/
Business
Development
Directors
Capability/
Capacity Matrix
alignment to Ideals
of Preferred
Suppliers
LTA Contract
engagement
strategy – reduce
current suppliers
to Strategic/Key
Suppliers and
suppliers with
Lowest Cost
Solutions and
compliance with
Quality,
Manufacturing, and
Engineering
expectations
Developing a Sourcing Optimization Plan through application of
6-Sigma Methodology
(“Voice of Customer”)
“SIPOC” Engagement Plan

9. STRATEGIC SUPPLIER DEVELOPMENT
PRIORITIZATION MATRIX

10. Regional/JustIn Time/ SingleSourcing (%) SupplierSchedule
Adherence(%)
5000
6000
4000 3000
100
100
100
100
2013 2014 2015 2016 2017 2018
-40
-50
-60
-65
98
98
98
98
75
80
80
80
10
20
40
60
Long-termAgreementPenetration(%)
100
60
50
98
-70
-55
98
2500 2000
100
A Long-termSourcing Strategy may be stretching but achievable, stable yet flexible, compelling
collaborative Sourcing Teamengagement and unblocking sourcing inefficiency
60
25
TotalC
ost
R
eduction
(W
eighted
Average
%
)
vs.C
urrent
B
udget
Estim
ates
QualityAQL
(lowest,
composite
ppm’s)
ValueAnalysis/ValueEngineeringcostdownpenetration/total
costs –(%)
Setting Long-Term Team Sourcing Deliverables
Example *subject to change
with stakeholder
source input data

11. Hoshin Kanri Planning – fast-track method for rapid
improvements in monitored processes/activities
KPIs = Key Performance Indicators
CSFs = Critical Success Factors

12. Apply Harada Lean Methodology to Build better Supplier Relationships
and accomplish greater productivity
• Pick your own goal that is aligned with your vision and your company’s success.
• Develop your own timeline for achieving your goal.
• Create the necessary measures to monitor your progress.
• Determine the real purpose and benefit to becoming a champion for yourself, your family and
others.
• Analyze your past successes to determine your strengths and ensure that you can repeat them.
• Analyze your past failures to determine your weaknesses and create ways to eliminate them.
• Write down 64 tasks/actions you need to reach your goal.
• List 10 daily routines to establish new habits and break those past patterns that were limiting you.
• Do “80/20” breakdowns repetitively and automate the routines through standardized application.
• Learn how to keep a daily diary to see that your tasks/actions are being done at the time
scheduled.
• Evaluate your daily performance to motivate yourself to stay on target.
• Learn how to work with a coach to review and improve your daily progress.
Benefits of Harada Lean:Self-Reliance – what it is and how it benefits you and your organization.
Pursuing success – determining what you want to achieve in your life/profession.
Setting Goals – creating a clear vision of your future.
Understanding the purpose – increase your motivation by writing why you want to pursue your goals.
Servant Leadership – why the most effective leaders are great supporters.
Analyzing past successes/failures – use your past to guide your future.
Anticipating future obstacles – preparing for and planning how to avoid problems.
Building an action plan – write out the steps you need to reach your goal.
Implementing the plan – set up each day to make progress.
Routines – sustain why the most effective changes come from building new habits.
*Coaching/Mentoring – how to teach the Harada Method with a mentoring system so others can be successful.
*Strokes – use praise to motivate people and build morale.

13. Understanding the elements in the
Total Cost of Ownership (TCO) for every Product
Profit, 7%
Depreciation, 8%
Indirect Labor, 5%
Direct Labor, 20%
Purchased Parts, 10%
Raw Material, 60%
Raw Material
Purchased Parts
Direct Labor
Indirect Labor
Depreciation
Profit
ExampleExample
Essential for Strategic Sourcing Development

14. Performing an Enterprise Risk Management (ERM) assessment on
every targeted Supplier prior to selection, acquiring the following
documentation:
Income Statement
Balance Sheet
Cash Flow Statement
Dun and Bradstreet (D & B) PayDex and Credit Risk Scores
The Company should then use the above reports to calculate the
following financial risk ratios for Suppliers:
Leverage Ratio
Asset Ratio
Current Ratio
A/R Aging
A/P Aging
Equity Ratios
Return on Equity
Return on Assets
Net Working Capital
Altman Z-Score Insolvency Prediction Calculator
Apply Enterprise Risk Management (ERM) principles unilaterally
prior to Sourcing Selection

15. Use of the Altman Z-Score Supplier Insolvency Prediction Calculator –
Elements and Scoring Indicators
1. Earnings Before Interest & Taxes:EBIT
2. Total Assets
3. Net Sales
4. Market Value of Equity
5. Total Liabilities
6. Current Assets
7. Current Liabilities
8. Retained Earnings
The 5 financial ratios in the Altman Z-Score and their respective weight factor is as follows:
RATIO WEIGHTAGE
A EBIT/Total Assets x. 3.3-4 to +8.0
B Net Sales /Total Assets x 0.999-4 to +8.0
C Market Value of Equity / Total Liabilities x 0.6-4 to +8.0
D Working Capital/Total Assets x 1.2-4 to +8.0
E Retained Earnings /Total Assets x1.4-4 to +8.0
These ratios are multiplied by the weightage as above, and the results are added together.
Z-Score = A x 3.3 + B x 0.99 + C x 0.6 + D x 1.2 + E x 1.4
The Interpretation of Z Scoring:
Z-SCORE ABOVE 3.0 -The company is safe based on these financial figures only.
Z-SCORE BETWEEN 2.7 and 2.99 - On Alert. This zone is an area where one should exercise caution.
Z-SCORE BETWEEN 1.8 and 2.7 - Good chances of the company going bankrupt within 2 years of operations
from the date of financial figures given.
Z-SCORE BELOW 1.80- Probability of Financial embarassment is very high.

16. Example of a Supplier Assessment conducted by a
Commodity or Sourcing Team prior to Sourcing Selection to bring greater focus on a
Supplier’s alignment to Continuous Improvement principles

17. Example of a FMEA-based Risk Mitigation Survey conducted by a
Commodity or Sourcing Team prior to Sourcing Selection
ExampleExample
*example
developed at GE

18. Use of an Advanced Program Quality Planning (APQP) Model for managing procured
material/outsourced assembly programs following strategic sourcing decisions
Example
*example
developed at GE

19. “Fishbone” Analysis of common Sourcing Approaches
that may cause spend inefficiency
High
Spend/
Inefficiency
Lack of competitive
bidding from a global
scale among different
facilities
Lack of cumulative
forecasting knowledge
of projects in
“Ideation” phase
among all facilities
Time constraints on
order
placement/fulfillment
precipitated by
premium demands of
on-time Customer
delivery
No critical path
established toward
optimized supplier
consolidation
Most Supply
Agreements lacking
“year-over-year” cost
productivity
stipulations or “value-
add” service
enhancement
commitments by
suppliers
(ie VMI, Kanban)
Sourcing decisions
primarily lent to
mitigation of risk and
familiarity with in-bred
supplier base groups
Review of
Spend
Variables
Check for incumbent Sourcing Processes
that may promote inefficiency
Example

20. FMEA (Failure Mode Effect Analysis) of common sourcing practices
applied without collaborative group engagement/leveraging
Incumbent Sourcing processes that may promote inefficiency
Example

21. Review of the Basic Flow in development of a
typical Supplier Sourcing Strategy
(subject to change with Voice of Customer Surveys)
Example

22. Forming a Commodity or Sourcing Team, Defining Boundaries, Setting Objectives and
Progressive Strategy Execution
(subject to change with Voice of Customer Surveys)
Example

23. Basic Supplier Selection Criteria as aligned to
Best-In-Class Procurement Practices
(subject to change with Voice of Customer Surveys)
-On time delivery of prototypes and production articles following launch authorization
(blanket purchase orders, memoranda/letters of intent).
-Price competitiveness – benchmarked against industry standards, international trade
associations, and scholastic reviews.
-Cost Efficiency in terms of Product Development and Manufacturing Processes, as related
to continuous improvement processes (lean/kaizen) or application of Six Sigma best
management practices.
-Vertically integrated Customer Service (post-sales support).
-Technical Support in terms of design assistance and participative engineering involvement
through the timely and consistent submission of value engineering analysis proposals.
-Price protection per indemnification of intellectual property rights.
-Providing value-added inventory management services for program support
(consignment/vendor-managed inventory programs) and alleviation of inventory tax burden.
-Firmly established Quality Assurance best management practices in line with ISO 9001:2000
certification and other quality registrations required by the end Customers.
-Specific brand availability relative to intended finished product roadmaps.
-Anticipating material needs and design considerations while making capitalized
investments in product availability and process adjustments in advance of time-phased
commitments.
Example

24. ~ Financially secure, maintaining high PayDex/credit scores, low risk metrics on Dun and Bradstreet report
~ Shop Floor - 6S centered
~ Long-term relationships with integrated global supply chains
~ Demonstrated Excellence in sub-tier mgt
~ Demonstrated Excellence in program mgt , total quality control, with high annual On-time delivery and low
quality defect parts per million
~ Demonstrated Excellence in root cause analysis on quality corrective action issues
~ Demonstrated Excellence in logistics mgt, centred toward consignment, Kanban systems
~ Comprehensive deployment of Lean Manufacturing/Toyota Production Management System techniques
~ Demonstrated, consistent improvements at process level with intensive capital investments
~ Demonstrated improvements at product level, VA/VE approaches following program launches
~ Lowest direct & indirect cost basis, especially in areas of administration and utility management
~ Low cost country sourcing integration (ie tooling/raw material)
~ Demonstrated experience with modular, returnable packaging
~ Flexible, Integrated Production scheduling and Capacity Management Systems (MRP/ERP)
~ Flexible, Integrated Engineering Change Management System
~ Dedicated, fast cycle machines with full ownership
~ Dedicated tooling resources for fast-cycle development
~ Flexible tooling charge arrangements and absorption of capital resources for long-term projects
~ In-house processing capabilities with essential secondary proces
~ Ability to work with limited product development
~ Integrated Manufacturing and Design Engineering capability with collaborative mindset
~ Flexible dedicated labor, unhampered by union contracts
~ ISO 9001:2000 certification at a minimum, ISO 14001 preferable in long-term, familiar with AIAG PPAP
procedures
~ Flexible toward early-payment discounts with Customers on long-term projects
~ Flexible toward year-over-year cost productivity with Customers on long-term projects
~ Flexible toward tier-level spend annual rebates with Customers on long-term projects
~ Flexible cost-benefit sharing on joint VA/VE engagements
~ Endeared to becoming an extended business enterprise (EBE) of Customers with proprietary exclusivity
~ Open to cost-bridging, benchmarking techniques and complete direct/indirect cost breakdown analysis
~ Open to conducting joint Kaizen events for cost-benefit sharing
~ Open to effecting price adjustments for material based on global market indexes
~ Open to using leveraged Material Procurement Consortiums vs. bonded distributors on raw material
~ Capable of offering PPAP submissions with Control Plans, PFMEA, and Process Flow Router Analysis
~ Demonstrated high score on Kepner-Tregoe (K-T) Altman Z-Score, and Team FMEA supplier assessments
~ Maintaining low risk assessment in terms of ongoing Product Team evaluation
Ideals imbued in a Preferred Supplier -
subject to change with a Voice of the Customer (VOC) Team survey
Example

25. “SCORE” principles applied for collaborative supplier development practices
“SUPPLIER COST OPERATIONAL REDUCTION EFFORT”
Suppliers are often neglected when people ask for suggestions, but they can be very helpful.
They should have a vested interest in the Company’s success, an informed point of view (since
they usually also visit Company competitors), and an outsider's perspective combined with
some knowledge of the Company business. Though it may not be possible to get views of
competitors' practices through common suppliers, there should be little problem in obtaining
views of the Company’s supply management and design practices and how they can be made
better.
====================================================Recommended Clause for Insertion into all long-term Company Supply Agreements:
"The Supplier agrees to an annual cost reduction target of a minimum (TBD) of annual purchases, inclusive of
discounts and a tier-level rebate structure as agreed to by Supplier and the Company which are outlined in
Attached A. Such reduction will consist of, but not be limited to marginal adjustment, Products design value-
analysis initiatives, and Six Sigma/Lean Manufacturing/continuous improvement savings allocation. These price
reductions are necessary for the Company to maintain a premium market position involving the components
serviced by the Supplier and therefore will be one of the key decision factors when considering Supplier for
future sourcing initiatives by the Company. The Supplier will work to identify specific projects and time
schedules to reduce overall manufacturing costs at its facilities and total component costs as quoted directly to
the Company. Any cost reductions resulting from material market or currency deflation will be realized entirely by
the Company. Supplier will also be given roll-over credit by the Company for any validated cost reductions that
exceed TBD of sales in any year of this agreement. Such reductions may accrue from material, process,
packaging conversion, joint “kaizen”/lean manufacturing/continuous improvement reviews, or technology
changes that pose a mutual benefit to both the Supplier and the Company, consistent with the Company SCORE
(“Supplier Cost Operational Reductional Effort”) collaborative supply chain management policies."

27. Benefits of Vendor Managed Inventory (VMI) and Third-Party Logistics (3PL)

28. VendorInventory
XDays XXDays
Vendor
Production
Vendor
Ship
XDays
the Company pays Vendor
VendorA/R
Day XXDay XXConventional VendorManaged Inventory (VMI)
Structure
XXDays XXDays
Vendor
Production
Vendor
Ship
XXDays
Adding in the GE TDS potential alternative forthe Company – with accelerated early
payment cash flowleverage
In
Transit
In
Warehouse
In
Warehouse
In
Transit
VendorSale To the Company
VendorInventory Vendor GE TDS A/R
GE TDS Inventory GE TDS A/R
Day 1
VendorSale the Company
GE TDS pays Vendorwith early
pay discount applied
Day XX
the Company pays GE TDS
Day XX
Day XXGE TDS invoices Sale to the Company
with
applied early pay discount
Credit less handling fee
High Volume Just In Time Supply Chains with optimal cash flow leverage
achieved through potential a Third-Party Capital Solution (ie GE Capital Trade Distribution Services)
Example

29. QUALITY
PURCHASING
PRODUCTION
CONTROL
SUPPLIER
Key Focus Areas in Strategic Commodity and
Sourcing Management
Communication,
Focus,
Mutual Need
Recognition,
Drive for Value
Excellence in
Cost, Quality,
And Service

30. Questions ?