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Corporations are looking for cost savings in business operations, and supplier management can play a strong role in this.
Corporations are looking for cost savings in business operations, and supplier management can play a strong role in this.
Supplier Management Programs Cost Saving Partners not Cost Cutting Adversaries Accurate Facts Lead to Accurate Decisions.
Tara Lamboley ModeratorMarketing communications strategy and businessdevelopment consulting firm.Partners with industry-leading companies to developand deliver best-of-breed Webinar content focused onbusiness growth.For more information, go to: www.integratedmarcom.com or email email@example.com Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Today’s seminar will focus onWhy a Supplier Management Program is essential to increasedperformance and reduced riskProven strategy for effective supplier management segmentationKey components of an effective Supplier Management ProgramStrategies to balance cost reduction with "Its interesting that the moresupplier innovation technically sophisticated we get, the more it is about enabling relationships. Win-win is replacing the old idea ofHow proactive management of supplier beating up your suppliers. You cant cost-cut yourself into prosperity."performance and contracts drives bottom- Carol Park, Vice President of Industryline results Strategy for PeopleSoft/Oracle Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Kimberly Smokey Director of Value CreationSVP and Director of Corporate Services SupplierManagement with Wachovia Bank with responsibility for 21Indirect Services categories20 Years Finance, Insurance, REtail (FIRE) and governmentindustry experience;11 years global sourcing and procurement strategiesExtensive global management experience in 17 countriesthroughout North America, South America, EMEA, andASPACProven record of success for developing effective strategiesand operational efficiencies to drive profitable businessgrowth Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Ted Weyn Managing Partner Over 20 years Indirect Services ProcurementConsulted to firms such as: Experience Entrepreneurial Innovator for organizations who pioneered Staffing Industry VMS Software, Statement of Works electronic processing and req-to-check procurement systems. Founded HCMWorks to help organizations better leverage the opportunities within Indirect Services Procurement Consulted to dozens of Fortune 500 and International Organizations in gaining greater efficiencies within indirect services processing. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Who is HCMWorks?HCMWorks helps procurement departments gain greater control over indirect& expenditures to gain a competitive advantage in their industry.A consulting, advisory and outsourced services provider focusing on theanalysis, strategic direction, implementation and management of indirectservices expenditures.Founded on the basis that Indirect Services Expenditures were an untappedopportunity.Seasoned experiences with a track record of proven success.Recognized Pioneers in the vendor management industry. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Poll Question 1How would you rate the effectiveness of your Supplier Management Program? Extremely Effective Effective Somewhat Effective Ineffective Dont Have a Program 0% 10% 20% 30% 40% 50% 60% Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Supplier Management Program (SMP) As a company develops into a capable global competitor, it often restructures its supply base to optimize competitive advantage. The primary focus of the restructuring effort should be on reduction of total cost, not purchase price. In addition to reducing total cost, improvements in supply base service levels, quality, reliability, and access to technology are also achievement goals. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Supplier Management VisionTo develop and implement a world class supplier management programthat promotes needed to createa . “We strive for nothing less than excellence in quality. It may take time to obtain the level of quality we require, but we expect our supplier’s goal to be for continual improvement. We won’t accept anyone remaining at status quo if the level of quality is less than perfect.” Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Program ComponentsThe constructs of developing an effective SupplierManagement program include: Supplier Segmentation Risk Management Metrics Management Expense Management Performance Management Demand Management Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Program ObjectivesMitigate riskStandardize services and pricingEnhance the business relationshipEnsure quality products/services are receivedDevelop long and short term strategiesManage performance with clear objective performance targets and periodicassessment Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Supplier Segmentation Strong supplier relationships are characterized by a high level of trust, mutual respect, open and efficient communications, shared risks and rewards, commitment to each others success, and the ability to constructively deal with differences. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Segmentation ModelsA segmentation model needs to be developed to uniquely address each companies businessimperatives. Many models have been created to address differentiating factions, such as: Growth-Focused: Relationships able to drive growth through innovation and fund growth through cost cutting. Three Dimensional: Initial segmentation used to allocate scarce resources, second dimension is to determine relationship type and the third dimension is to tailor a relationship approach needed to maximize results. Risk Management: Targeted approaches addressing specific/potential risk drivers. Multi-Dimensional: Segmentation created using multiple variables including spend, relationship, and product complexity. Potential-Based: Look towards large, aligned suppliers for potential strategic advantage. Product Development: Relationships leading to development of commercially viable technology. Performance Based: Clear decision rules around supplier segment mobility Material Based: Commodity-based tiering places suppliers according to their products life cycle and strategic value. Sourcing Process Step: Used as a standard opportunity analysis step in each strategic sourcing initiative Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Selection Criteria • Production/Service facilities and capacity Off-Shore requirements and Capabilities Age, type of equipment, and personnel, Business policies for contingency and etc continuity • Financial stability Ability, process and base line for handling, • Product/Service quality and corresponding rush and off-hour requests philosophy Industry ranking • Technology compliance to Bank systems Major customers and suppliers requirements Managerial skills and performance • Operating efficiency Sub-contracting requirements • Cost and overhead structure Commitment to diversity initiatives • Joint Venture / Co-Development capability Once all the above has been gathered and analyzed, the selected supplier(s) should qualify for the 5 “rightsRight priceRight qualityRight quantity The single most important outcome in the strategic sourcing process is the selection ofRight time the right supplierRight source Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Selection ConsiderationsBuild and maintain internal alignment. Before entering a partnership, identify stakeholders andinvolve them.Evaluate the “relationship fit”. Look beyond traditional buyer-supplier relationship to howpotential partners fit strategically and financially with your company.Build a strong relationship while negotiating an optimal deal. Success is difficult to achieve ifthe relationship is adversarial.Establish common ground rules, processes and protocols.Have dedicated Alliance Managers to include responsibility of managing day-to-dayrelationship issues, not just operations and business strategies.Encourage collaboration in conflict resolution, negotiation, problem solving, and conductingdifficult conversations. A collaborative mindset needs to be established at the corporate levelso problems are mutually addressed, not framed as “ours” or “theirs”.Identify and discuss multiple Supplier relationships. Sometimes a partner is also a competitor,customer and/or supplier so determine the breadth of the relationship and manage accordingly.Periodically review the health of the alliance by conducting joint reviews to assess businessgoals and the quality of the working relationship.Identify and manage change. Significant business changes, such as executive moves,organization restructuring, or shifts in competitive or regulatory environment is inevitable. Planfor how changes will be communicated and managed. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Segmentation CategoriesValue from different types ofsuppliers are achievable only Highafter suppliers have beenmapped to an appropriatestrategy and should be Collaborative Strategic Supplier Relationshipaccording to the strategic Alliance ortance ake / value of the relationship. This Strategic Impo Value at Stamethodology should beinstitutionalized at all levels of Transactional CustomSupplier Management and Relationship RelationshipSourcing to minimize resourceallocation on non-strategicsupplier relationships. Four Low Highcommonly used segment Cost / Difficulty of Switching Supplierscategories are li t d b l t i listed below Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Segmentation Category Strategic Collaborative Custom Transactional Alliance• Cross-firm • Cross-firm • LOB-specific or • May or may not be• Limited alternatives • Low/moderate concentrated market leader switching costs • Large spend • Commodity easily• Important to • Important • Important replaced corporate strategy commodities commodities • Solid performance• Solid performance • Solid performance • Switching costs • Contracts of varying• Strong market • Good market assessed by project lengths, but on standing standing • Experience with average < 1yr• Long term contract • Mid-term contracts LOB • May be LOB niche• Spend • Category spend • Inter-dependency or enterprise, but concentration concentration with other utilized low switching cost • Client relationship suppliers • Product/Service• Client relationship • Limited long-term • Limited long-term little/no customizing• Joint revenue and co-investment co-investment venture strategies potential potential Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Category Overview Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Supplier Risk Management The leaner and more integrated supply chains become, the more likely it is that uncertainties, dynamics and accidents in one link will affect other links in the chain. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Risk Management StrategyThe concept of supplier risk management is still relatively new, as business strategies go. But in theera of global sourcing and volatile markets, supplier risk management is rapidly becoming every bitas necessary to global supply chains as in-house corporate risk management.Today’s supply chains face risks from many factors, including: Increased globalization through outsourcing, which elongates end-to-end supply chains Additional regulatory compliance imposed by government entities, further complicating international trade Increased levels of economic uncertainty, which create additional variability in demand and supply and make it more difficult to accomplish demand supply balancing Shorter product lifecycles and rapid rates of technology change, which increase inventory obsolescence Demanding customers who have created additional time-to-market pressures by requiring better on-time delivery, order fill rates and overall service level efficiencies. Supply side capacity constraints, making it more difficult to meet demand requirements. Natural disasters and external environmental events, which can wreak havoc on global supply chains. Potential regulatory risks posed from supply chain practices associated with future regulatory non-compliance, e.g. environmental regulation changes Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Risk Management Categories Category Examples Forecast errors, component/material shortages, capacity constraints, quality problems, machine failure/downtime, software failure, imperfect yields, efficiency, process/product changes, property Operational/ losses (due to theft, accidents, etc.), transportation risks (delays, damage from Technological handling/transportation, re‐routing, etc.), storage risks (incomplete customer order, insufficient holding space, etc.), budget overrun, emergence of a disruptive technology, contract terms (minimum and maximum limit on orders), communication/IT disruptions Labor shortages, loss of key personnel, strikes, accidents, absenteeism, human errors, organizational errors, union/labor relations, negative media coverage (reputation risk), perceived quality, Social coincidence of problems with holidays, fraud, sabotage, pillage, acts of terrorism, malfeasance, decreased labor productivity Fire, wild fire, severe thunderstorm, flood, monsoon, blizzard, ice storm, drought, heat wave, Natural/Hazard tornado, hurricane, typhoon, earthquake, tsunami, epidemic, famine, avalanche, volcanoes Economy/ Interest rate fluctuation, exchange rate fluctuation, commodity price fluctuation, price and incentive Competition wars, bankruptcy of partners, stock market collapse, global economic recession Liabilities, law suits, governmental incentives/restrictions, new regulations, lobbying from customer Legal/Political groups, instability overseas, confiscations abroad, war, tax structures, customs risks (inspection delay, missing data on documentation) Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Risk Management Models1. Deterministic analytical models, which include mathematical programming models (e.g. linear, nonlinear, integer, dynamic programming). Applications to supply chain include scheduling production, distribution planning, raw material sourcing, facility location, inventory level setting, replenishment timing and order quantity specification, and resource balancing.2. Stochastic analytical models, where at least one of the variables involves uncertainty, and is assumed to follow a particular probability distribution. Examples of supply chain applications include inventory and production management problems, where demand and yield are represented as random variables respectively.3. Economic models, which tend to be focused on buyer-supplier relationships. These models have a traditional base in determining the financial risks to either sellers or buyers, given various assumptions.4. Simulation models, which are (usually) data driven representations facilitated by sampling from specified probability distributions. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Metrics Management One of the key goals of businesses today is the collection and delivery of the metrics decision makers need to make timely, informed and well-reasoned choices. The quality of these metrics depends on three factors: accuracy, timeliness and presentation. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Metrics ObjectivesEstablish an operating model which allows you to scale betterUnderstand the key drivers of outputConsistently managing the unit to your operating modelIdentify a set of early warning signs that can focus your attentionOpportunity to move to best practicesKnow when you need to add staff or other resources Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Metrics DeliveryLinkage Between Goals and Metrics: Fundamental to a successful performancemeasurement system is a foundation in measurable goals that are tightly linked to the mostcritical corporate objectives.Controllable and Measurable Metrics: Setting clear performance targets for each metricgives owners an unambiguous achievement standard with a high level of internal accountabilityby providing instant, granular visibility into its effectiveness.Individual Accountability: When an individual is assigned responsibility for each metric, thenotion of accountability moves from theory to practice. With direct visibility into individualperformance (and potential implications for linked compensation), incentives are aligned toforce problem ownership and speedy resolution.Forced Trend Analysis: Forcing regular data-based assessments of progress against a suiteof metrics helps detect emerging challenges in a timely fashion, rather than relying on intuitionor deferring to anecdotal explanations of “what happened last year.” Simultaneously, thisapproach enables the function to provide a cogent and holistic situational assessment ofmarketing performance to the wider organization at any given time. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Metrics Collections Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Poll Question 2 What were your above contract cost savings last year? 12% AboveFrom: 10% - 12% From: 5% - 9% From: 1% - 4% Zero 0% 10% 20% 30% 40% 50% Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Expense Management BAD habits are developed in GOOD times, GOOD habits are developed in BAD times! Operating changes, such as developing individual accountability and improving data analysis, can drive benefits now. Structural changes, such as simplifying operations and improving processes, can deliver sustainable value. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
OverviewExpense management actively employs market trending to identifychanging utilization, product enhancements, altering market structuresand supplier mergers/acquisitions/divestitures to evolve existingrelationships, where applicable.With scrutiny on cost reduction, expense management professionals arein a prime position to drive transformational changes that result in bothImmediate savings as well as sustainable long-term value. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Expense Management Process Step 2: Step 3: Step 4: Step 5: Step 1: Trend Goal Planning & Follow Up Analysis Review Setting Organizing & ControlExpense Management has to be done as a partnership between Global Supply Chain,the business unit leads and the supplier managers to ensure consistent measurementcriteria are applied to all suppliers and process. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Supplier Performance Management Supplier performance management sets the expectation that the suppliers understand the customer needs and expectations, to result in performance and competency growth and foster a value add strategic partnership. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
OverviewSupplier performance management brings together the components ofsupplier segmentation, risk management metrics management andconsequence management, to actively manage important supplierrelationships in a consistent, objective method that provides actionable datato make informed decisions on supplier selection.A disciplined performance management program is the best venue forsuppliers to contribute to most advantageous outcomes of expensemanagement and demand management strategies, as they interact withsupply chain and business unit leaders. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Program BenefitsEnables stakeholders to understand where the performance gaps lie andsupplier’s trended performanceOffers sourcing managers increased objective data during suppliernegotiationsOffers senior management an overall, objective view of best and worstperforming suppliers Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Scorecard Structure Quantitative SLAs and KPIs 45% Process Compliance Strategic PartnershipSourcing, Diversity Billing, HR, Cost Avoidance/Savings and Product/Service LeadershipReporting and Misc. processes 15% 10% Qualitative This category is uniquely designed Customer Surveys from to constantly promote best in class LOBs and Sourcing Mgrs behavior, competitive advantage 30% with our preferred supplier community and continual growth in Professional Services delivery. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Demand Management Demand management takes supply chain management to the next level by enabling an automated “ecosystem” that simultaneously maps demand forecasting against factors like supply restrictions, customer commitments, inventory counts, financial predictions, as well as patterns of behavior that can affect demand at any given time. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Demand PlanningDemand planning begins with a clear and complete business requirements definition. Good businessrequirements enables the organization to develop the most appropriate sourcing strategies, select thebest suppliers and manage the category or service.Components to consider include: Client strategic direction and growth Service objectives, sales growth forecasts, business efficiency goals, budgetary constraints Impact on purchasing process, supplier management, purchase volumes, specifications Client procurement goals and objectives Performance objectives, customer service New product/service introductions Impact on new supply market requirements Supplier diversity status and utilization Market standing Product differentiation Customer Impact Speed to market Industry trends Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Demand ModelingDemand management is a more proactive approach than its predecessors – relying on highlysophisticated quantitative analytics and advanced modeling techniques to preset tolerancelevels, predict and pinpoint problem areas, monitor and adjust strategies dynamically, andachieve real-time visibility and synergy across all channels.Some of the considerations for a comprehensive demand management solution include: Forecast only the products and components that make sense from a profit and/or strategic perspective Utilize best-of-breed statistical forecasting techniques Perform real-time data synchronization. Employ automated, closed-loop, industry-specific workflows based on best practices Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Implementation Most companies will need to make both a resource and financial commitment to establish a Supplier Performance Program, however industry trends from respected research companies, such as Accenture, Vantage Partners and Ernst & Young have documented via industry surveys that the resulting cost savings can be as great as 40%. Excerpt from HCM white paper series, Supplier Management Programs Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Implementation ModelPoint of Complexity Point ofDeparture Arrival Increased Operational Increased Relationship Strategic Multi-Dimensional Efficiency Return on Investment (ROI) Supplier Relationships Focused/appropriate Supplier Build commodity strategies with Share business plans, and Focused Enterprise Participation interactions SSG, LOBs and strategic supplier financial strategies Optimal performance metrics participation Co-investment and co- collection, analysis and Develop and consistently apply branding Value behavioral modification Relationship Value Index criteria Intrinsically tied together processes Implement risk/reward strategies Joint success goals Performance Scorecards to build participant success completed for only strategic factors suppliers (critical few) Strategic Milestones 1. Better definition of performance 1. Implement demand planning 1. Research joint venture opportunities metrics sessions to included strategic with select suppliers to affect 2. Development of segmentation Suppliers financial and market standing definition 2. Define two party benefit with an 2. Define opportunity for joint client 3. FTE re-allocation for greater ROI increased value based relationship approach to solutioning on activity 3. Facilitate operational and 3. Modify sourcing processes to 4. Redirect LOB communication to stakeholder readiness activities recognize/leverage joint increased focus on high-impact buying power relationships Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Industry Demand Trends The savviest companies leverage insights about demand gained through disciplines such as forecast optimization to actively influence and shape demand. Industry trends from respected research companies, such as"Its interesting that the more Accenture, Vantage Partners and Ernst & Young havetechnically sophisticated we documented via industry surveys that the resulting cost savingsget, the more it is about can be as great as 40%.enabling relationships. Win-win is replacing the old idea of Even more compelling, is these same survey results havebeating up your suppliers. You confirmed that effective implementation of these programscant cost-cut yourself into create sustained cost savings due to the trulyprosperity.“ transformational design of well implemented supplier management program.Carol Park, VP of Industry Strategy for PeopleSoft/Oracle Vantage Partners conducted a survey with 115 procurement professionals responding when asked how much more value Accenture’s research shows that (in terms of cost savings, innovation, quality, etc.) is delivered companies who transform their by suppliers with whom a company has a strong working businesses during a recession relationship than by suppliers with whom the company has a will see sustainable advantages poor working relationship. Almost half of the respondents said when the economy improves. that strong working relationships deliver at least 50% greater value than poor ones. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
Key “Take-Aways”Operational and supplier metrics is THE foundation of success for anycomponent of Supplier Management.Creating a supplier performance program with an objective foundation that canbe used to not only track contracted supplier performance, but establish a venuefor suppliers to contribute and be held accountable for strategic innovation andcontinuous improvementDefining supplier segmentation criteria and effectively completing the process soappropriate resources can be assigned to the right suppliersLeading the overall change management toensure adoption and sustainabilityDon’t start at the finish line, evolution of each ofthe program components is integral to theprocess and the success. Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
How can HCMWorks help? Industry statistics support that implementing a comprehensive Supplier Management Program, with a focused output of Expense and Demand Management, can provide between 10 – 40% in cost savings.HCMWorks has experienced personnel and a proven track record in: Analysis and trend/utilization reporting Strategy definition For More Information Contact: Communication Strategy Kimberly Smokey Change Management Director, Value Creation Implementation firstname.lastname@example.org Metrics identification 866-547-1645 x 300 Category Management Outsourcing Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.
HCMWorks’ Blueprint Series Release 1 - Segmenting the Supply Base to Improve Resources Allocation Develops the ideology of a supplier management program and more fully details supplier segmentation. One of the most critical steps in the exercises. Release 2 - Assessing Supplier Performance: Supports procurement staff in developing metrics and dashboards to critically assess supplier performance. Release 3 - Driving Continuous Supplier Improvement: Supports procurement staff in developing metrics and dashboards to critically assess supplier performance and ensure that the measurement process is efficient, consistent, and transparent. Release 4 - Collaborating with Suppliers to Create New Value: Assists Procurement in building collaborative partnerships with suppliers and between suppliers that drive value and innovation.www.hcmworks.com/news/blueprint Accurate Facts Lead to Accurate Decisions. Copyright 2010 HCM Works Inc.