The Hidden Asset - Effective SRM

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Slides from the Real World Sourcing Presentation delivered by Guy Allen on 22 May 2013

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The Hidden Asset - Effective SRM

  1. 1. The Hidden Advantage - SRM The Hidden Advantage – SRM Guy Allen May 22nd 2013 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  2. 2. The Hidden Advantage - SRM Part 1 – Introduction The Real World Sourcing Series is a series of 6 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). Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK before becoming CPO for Abbey National and VP Global Sourcing at Fujitsu before joining 4C as a Managing Partner. Guy has since left 4C and started his own consultancy, Real World Sourcing Limited. Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  3. 3. The Hidden Advantage - SRM Agenda 1. 2. 3. 4. What is Supplier Management? Why Is It Important? In Depth Look at a Real SRM Programme Case Studies Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  4. 4. The Hidden Advantage - SRM Contract Management (CM) is maximising the returns achieved from individual contracts you have with Suppliers. Supplier Management is everything you do in your supply market, not related to a specific contract. Basic CM must be in place for an SM to be effective. Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  5. 5. The Hidden Advantage - SRM Market management Planning & ownership Resources SRM Not Contract Management Supplier development Administration GOOD PRACTICE Relationships Contract development Delivery Good Supplier Management Will Cover All of Risk Payment These Aspects Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  6. 6. The Hidden Advantage - SRM Putting into Context 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  7. 7. The Hidden Advantage - SRM Supplier Management Supplier Contract 1 Supplier Contract 3 Supplier Contract 2 Supplier Contract 1 Year 1 Year 2 Year 3 Year 4 Time Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  8. 8. The Hidden Advantage - SRM Why Do It? E fficiency R isk Opportunity S upplier Motivation Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  9. 9. The Hidden Advantage - SRM ‘Companies Don’t Compete, Supply Chains Do’ Bob Monzcka Michigan State University Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  10. 10. The Hidden Advantage - SRM Task 1 Who should own the relationship with suppliers? Discuss in your tables and agree who you think should own the relationship. Be prepared to provide your reasoning Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  11. 11. The Hidden Advantage - SRM 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  12. 12. The Hidden Advantage - SRM Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  13. 13. What we do • We design, build and manage clients’ IT systems:  Applications  Datacentres  Networks  Workgroups • We 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 © Fujitsu Services 2006 Moving Procurement Forward • Where our role is:  Prime Integrator  Partner  IT Sub-contractor • In our chosen markets:  Central Government & Defence  Local Government & Health  Private sector • Throughout Europe & the World
  14. 14. The Hidden Advantage - SRM Fujitsu – Situation 2006 • • • • Dedicated Supplier Relationship Managers Unmeasured Disconnected from the rest of Procurement Managers going native with Suppliers Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  15. 15. The Hidden Advantage - SRM The Case for Change • • • • Real sense that we were not leveraging the market Suppliers were dividing and conquering Competitors seemed to do it better than Fujitsu Identified opportunity to drive mutual benefit Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  16. 16. The Hidden Advantage - SRM 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  17. 17. The Hidden Advantage - SRM Weighted Scorecard Average 40% Corporate Social Responsibility Assessment Profiler 25% Supplier Management Programme - Scoring Mechanism Business Continuity Assessment Finance / Commercial assessment 35% Final Score > 80%? Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  18. 18. The Hidden Advantage - SRM Strategic Alliances 2-6 Partners 15-30 Premier Suppliers Tier 1 Suppliers Tier 2 Tier 3 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. Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  19. 19. The Hidden Advantage - SRM Third Party Differentiation Strategic Alliances Time Horizon Management Engagement Tier 1 Tier 2 2-6 Number Premier Suppliers 30 200 Remainder An alliance has to offer year 3-5 years 1 something that our 1 year competitors cannotSenior the moment get at Board Account Risk/Reward Management As required Stakeholders Management Mutual Individual Individual Individual The status of partner has to be earned. This is a different Exclusivity relationship from the partnership programmes run by companies such as Oracle Mandatory Possible Unlikely Unlikely Shared Objectives Mandatory Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Desirable Possible Unlikely Real World Sourcing
  20. 20. The Hidden Advantage - SRM 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  21. 21. The Hidden Advantage - SRM Supplier Management Programme Year 3 Supplier ‘Rewards’ • Internal publicity • Quarterly briefings • Access to key decision makers • Opportunity to demonstrate capabilities to IT Architects Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  22. 22. The Hidden Advantage - SRM 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, across procurement categories • Suppliers responded to the Programme – made the Supplier Account Directors heroes • Fantastic exposure for Procurement Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  23. 23. The Hidden Advantage - SRM Strategic Alliances 2-6 Partners Tier 1 Suppliers 15-30 These suppliers are still very important to some accounts 15-30 200 Tier 2 Tier 3 iGlobe • Supplier Management Programme • Supplier Scorecards • Supplier Operational Management Community and Processes Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  24. 24. The Hidden Advantage - SRM 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! Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  25. 25. The Hidden Advantage - SRM Mitigation • Lessons Learned activity • Early warning system introduction • Surplus / emergency supply established • Critical component register completed • Secondary supply sourcing engaged Mitigation & Fallback …….. • No detailed mitigation implemented • Working day job Time • Immediately Nokia notice glitch in supply order no’s don’t add up • Philip’s informs Ericsson technician • Philip’s informs Nokia’s CPO. Chief Supply Troubleshooter informed • Philip’s informs Ericsson that recovery may take weeks • Ericsson middle managers brief bosses • Philip’s informs Nokia of further supply delays • “Hit Squad” formed - 30 Nokia officials - to source chips in Europe, USA & Asia • Nokia CEO meets with Philip’s CEO in Amsterdam to demand additional capacity & supply re-scheduling Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  26. 26. The Hidden Advantage - SRM Consequences…… 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  27. 27. The Hidden Advantage - SRM Philips and Douwe Egbert • DE was facing declining margins and a shrinking market • Philips and Sara Lee/DE introduced the Senseo coffee maker in 2001 with huge success • Philips produced the coffee maker, Douwe Egbert, developed the coffee pads Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  28. 28. The Hidden Advantage - SRM Outcomes • Philips received the one-off revenue from the coffee maker • DE profited from ongoing sales of the coffee pads • However the purchase price of € 59 was an obstacle to rapid market penetration Douwe Egberts compensated with a first box of free coffee pads • Later on the patent on the pad could not be sustained, and multiple suppliers of the pads emerged on the market Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  29. 29. The Hidden Advantage - SRM Rexam • 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  30. 30. The Hidden Advantage - SRM 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 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  31. 31. The Hidden Advantage - SRM Custom Built 3,400sq ft Supplier Relationship Centre, Opened 2012 Aims • Create significant value for Roche to fund their future pipeline. • Build strategic relationships (true partnerships) with external partners. • Demonstrate the Procurement goal to deliver innovative business solutions. Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  32. 32. The Hidden Advantage - SRM • New role of Value Creation Agents; full time, dedicated resources from external suppliers and Roche employees • Target is to deliver hard benefits to Roche from the selected partners year on year Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  33. 33. The Hidden Advantage - SRM Task 2 How could better Supplier Management have mitigated or avoided the impact that these situations had on the buying organisation: • • • • • G4 Security at the Olympics West Coast Rail Horsemeat in Burgers Bangladesh Factory Collapse Or an issue in your own organisation for the group to discuss Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  34. 34. The Hidden Advantage - SRM Final Thoughts • You need to be doing Contract Management as a prerequisite for effective SM as is accurate data • 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 • As well as delivering benefits for your organisation SM is a great platform for Procurement recognition Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  35. 35. The Hidden Advantage - SRM In the end, however, I have a lot of sympathy with the following: ‘Its all part of the day job’ Rachel Lee Group Procurement Director Norland Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  36. 36. The Hidden Advantage - SRM Real World Sourcing Scholarship • £2500 towards any procurement based training • Log on to the BravoSolution Education Network with the details you’ll receive tomorrow • Complete the certification programme • Check your ranking! • The winner will be announced at the Sourcing Experts Dinner in December Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  37. 37. The Hidden Advantage - SRM THANK YOU! Please feel free to contact me on guyallen@realworldsourcing.com Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing
  38. 38. The Hidden Advantage - SRM Who Owns the Relationship? Commercial Director Service Delivery Finance Director Solution Architect There is no right answer BUT Supplier The relationships need to be managed and the roles defined CEO Operations Director IT Director Purchasing Alliances Manager 38 Spend Matters UK/Europe ©ALL RIGHTS RESERVED - Confidential Real World Sourcing

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