Class 17 - Supplier Mgt/Development & Risk Flashcards
(30 cards)
Why should a firm care about Supplier Management and Development?
To organize and manage resources and processes across a supply chain
What is the primary objective within Supplier Management and Development?
Continuous improvement of supplier capabilities
Supplier Management - organization must have the tools to:
- Measure suppliers
- Manage suppliers
- Develop suppliers
Supplier Management - measurement must be:
- Continuous/accurate/timely
2. Simple to manage and understand: measure/rate/rank supplier performance
Supplier Management - organizations must manage suppliers by:
- Giving feedback
- Listening to responses
- Consequences
What to Measure: The Traditional Three
- Delivery Performance:
- MRP %
- ANDON (notion for calling out for help; also can be like a financial penalty to people who are late) - Cost Reduction: Purchase Price Variance
- Quality Performance:
- Number of escapes/turnbacks
- Cost of escapes
Delivery Performance: On-Time Delivery Performance
Point In-Time Measurement = Number of parts on time / Total Part Numbers
E.g.
Rolling 12-month part number activity = 150;
Part numbers late right now = 6;
On-time delivery performance = (150-6)/160 = 96%
Delivery Performance: ANDON
A visual system to notify management and workers of a problem
- ANDON hours: Time that line stopped
- ANDON $: Fee associated with time line stopped
Cost Reduction: Calculating PPV (Purchase Price Variance)
(Old Price - New Price) * Current Qty
E.g. 2020 Price = 10.00;
2021 Price = 11.50;
2021 Qty = 500;
PPV = (10-11.50)*500 = -$750
*General rule: negative is bad in most firms
Cost Reduction: Total Cost Reduction
Includes items not reflected in Price:
- Lead time
- Inventory carrying costs (consignment)
Quality Performance
- Number and Type of Escapes/Turnbacks:
- Class-1 = Caught in buyer facility before use;
- Class-2 = Caught in WIP or FG;
- Class-3 = Escape reaches Customer (worst case scenario) - Defects per Million (DPM)
- Cost of Escapes
Types of Supplier Measurement Techniques
- Categorical System
- Easiest/fastest and most basic
- Subjective in nature - Weighted-point System
- Must understand/apply methodology
- Receive overall weighted average (1-5) - Cost-based System
- Systems required
- Total cost basis - Analytics/Big Data
Supplier Performance Index (SPI) Report: What’s the best and worst score?
The bigger, the badder.
Best score = 1
SPI Calculations
SPI = (Total Purchases + Nonperformance Costs) / Total Purchases
Total Cost = Total Purchases * SPI
Factor Ratings = Points Earned/Available Points
Supply Base Optimization
A continuous process of determining the appropriate number and mix of suppliers to maintain based on capability
- As business changes, your suppliers change.
- Get rid of bad, add new and better, while still meeting offset requirements
- Does price always decrease when adding a new supplier? NO
- First supplier may be horrible, while the new one provides quality service with a matching price
- Supplier may be overseas and come with a higher price
- Supplier may come with advanced technology that calls for a higher quotation
Advantages of Optimized Supply Base
- Buying from world class suppliers
- Use of full service suppliers: large on average can offer more
- Reduction of supply base risk: probability of unintended or unwanted event
- Lower supply base maintenance costs: interaction, qualification, training
- Lower total product cost: leverage
- Ability to pursue complex purchasing strategies (need more interaction and coordination)
*Optimization usually starts with rationalization (reducing the number of suppliers)
Risks/Disadvantages of Supply Base Optimization (maintaining fewer suppliers)
- Supplier dependency
- Buyer: loss of core competency
- Supplier: becomes too much of a business mix - Absence of competition: less options to move
- Supply disruption: strike/fire/hurricane
- Overaggressive supply reduction
- Take out too much supply base capacity
- Existing suppliers cannot absorb work fast enough (late hardware/quality issues)
*Cross-sourcing: select and develop suppliers with multiple or duplicate capabilities
Supplier Development Initiatives
Remember that the primary objective is the continuous improvement of supplier capabilities:
- Technology sharing: manufacturing processes, patent rights
- Incentives for improved performance: more work, often too much new work
- Supplier Benchmarking/Competition
- Capital Investment: equipment, payment terms
- Personnel
- Coordination
- Training: Lean, Systems Quality
Approaches to overcome barriers to Supplier Development
- Direct Involvement Activities: Hands-on
- People/Funding $ - Incentives and Rewards (Carrot)
- New Work/Development - Warnings and Penalties (Stick)
- Withholding Future Business
- Limited resource that few suppliers receive
- Suppliers should believe before and after that they received a source/valuable resource
Tips for Supplier Development Success
- Get supplier senior management commitment in writing
- Resource requirements
- Cost reduction sharing - Set common/aligned goals and expectations
- Build a relationship and trust
- Select small easy-win project first
- Provide training
- Follow-thru on implementation (weekly status)
- Ombudsman: independent company person to hear concerns
- Spend time explaining how “bottom line” is affected as gains are often difficult to measure
- Place supplier development in mission and objectives
Supplier Relationship Management (SRM) definitions
- The discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization
- The systematic, enterprise-wide assessment of suppliers’ resources and capabilities with respect to overall business strategy, determination of what activities to engage in with suppliers (Make/Buy), and planning and execution of all interactions with suppliers
- A recognition that these various interactions with suppliers are not discrete and independent - instead they are thought of as comprising a relationship, which should be managed across functional and business unit touch-points and throughout the relationship life cycle
5 Key Steps in Implementing an SRM Program
- Segmenting the supplier base
- Setting the objectives for the SRM program
- Measuring the supplier performance against the objectives
- Engaging the suppliers, being transparent and getting aligned
- Collaboration and continuous improvement
SRM Values
- Business drivers and value
- Stakeholder engagement and support
- Governance and process
- People and skills
- Information and Technology
- Relationship Development and Culture
eRFx / Electronic Data Interchange (EDI)
An electronic order process that supports:
- RFP/Q Process: product specifications, bid
- PO/Contract process
- Shipping notification to buyer
- Receipt notification from buyer: inspection of products and documents
- Invoicing
- Payment Authorization and Remittance: accounting audits
