Organizational Excellence Framework-Suppliers & Partners

This is an introductory course on suppliers and partners as it applies to organizational
excellence
Participants will learn about best management practices related to the topic and have
an opportunity to self-assess against the practices and develop an improvement plan to
address gaps
Note to Facilitator
This workshop is part of a consulting toolkit that includes:
• Organizational Excellence Framework publication downloadable at no charge at
http://organizationalexcellencespecialists.ca/
• Games – to illustrate the current state versus future state for the organization
• Holistic workshops for micro size (1-25 employees) and larger size organizations
(small 26-100, medium 101-999, large 1000+)
• Modular workshops for each key management area: governance, leadership,
planning, customers, employees, work processes, suppliers and partners, resource
management, continuous improvement & performance measurement)
• Specialty workshop – combined OEF and ISO 9001
• Addendum materials – to customize workshops (e.g. video clips, pictures, quotes,
success stories, best in class examples, hands on exercises
• Automated assessments – online assessments that provide a report for the client
(automatic) or consultant (editable) that includes a description of the process, the
1

Review the agenda
3
This document is a partial preview. Full document download can be found on Flevy:
http://flevy.com/browse/document/oef-workshop-suppliers-and-partners-module-1423

The OEF is a platform for success that is applicable to any size and type of organization
(copyright Dawn Ringrose & Associates Inc. 2010).
Comprised of 3 rings:
• Inner - Principles (9)
• Middle - Best management practices across key management areas (9)
• Outer - Performance measures for key management areas and the organization
The performance measures are those used around the world and can be used by the
organization for internal and external benchmarking
6

Share the results of a survey on supply chain management issues facing organizations in the
United States
A joint IW Custom Research and BearingPoint survey of 344 United States organisations about
SCM reported the following:
• When asked to rate the importance of specific business issues over the next 6 to18 months,
respondents focused on growing the top line, and
• strongly stressed the importance of acquiring and maintaining customers.
• When asked to gauge enterprise capabilities in specific areas, less than 25% rated their
enterprise capabilities as excellent/very good.
• When asked about the major challenges faced when achieving supply chain improvements:
o 65% reported financial challenges as the main issue
o 40% cited corporate cultural resistance
o 37% cited personnel concerns
Source: Anonymous, (2007), Vision 2007: Key Challenges in Manufacturing, Industry Week,
Vol. 256, Iss. 3, pp S2-S7, Penton Media, Inc., Cleveland
9

1. ERP systems help to reduce duplication of effort by integrating human resources, sales order
management, finance and accounting, manufacturing
processes, and sales. New generation ERP systems have a strong focus on SCM.
2. E-commerce has capitalised on web-based services to link internal and external organisations
with suppliers and customers.
Source: Chuang, M., Shaw, W. H., (2005), A Roadmap for E-Business Implementation,
Engineering Management Journal, Vol. 17, Iss. 2, pp 3-13.
Gabriel Bitran and colleagues, at the MIT Sloan School of Management in the United States,
believe that future supply chains will not consist of simple serial interactions between buyers,
suppliers, and logistics operators, but will be much more dynamic in nature. The authors
envisage value networks in which all players operate collaboratively to maximise productivity
and efficiencies. The visibility and manoeuvrability of the stock, held in inventories throughout
the value network, would be of critical importance and enable information to be used swiftly.
This would allow the coordination of production and pricing
strategies to be based on real-time information relating to actual supply and demand.
Source: Bitran, G. R., Gurumurthi, S., Sam, S. L., (2007), The Need for Third-Party Coordination
in Supply Chain Governance, MIT Sloan Management Review, Vol. 48, Iss. 3, pp 30-40, Sloan
Management Review Association, Alfred P. Sloan School of Management, Cambridge
Notes for facilitator
Labour cost is the biggest driver for offshoring. The following drivers for pursuing global
outsourcing strategies were reported by respondents in various U.S.-based surveys:
• access to new markets (30%)
• enhancing system redundancy (35%)
• changing the rules of the game (35%)
• accepted industry practice (36%)
• domestic shortages of qualified personnel (36%)
• differentiation strategy (38%)
• exploit location-specific advantages (39%)
• exploit country-specific advantages (45%)
• increasing speed to market (52%)
• improved service levels (57%)
• business process redesigns (58%)
• growth strategy (59%)
• competitive pressures (60%)
• access to qualified personnel (75%)
• other cost savings (75%)
• part of a larger global strategy (80%)
• labour cost savings (90%)
Source: Aird, C. L., Sappenfi eld, D., (2009), IT the ‘Enabler’ of Global Outsourcing, Financial
Executive, Vol. 25, Iss. 5, pp 62-63, Financial Executives International, Florham Park
A 2008 survey, conducted on behalf of EquaTerra and World 50, polled more than 200 senior
executives from 19 industry groups worldwide about the benefits and challenges of
11

Share this example of criteria used by an Amercian company doing business with a supplier
in China
PSE Associates specialize in sales, engineering and marketing of precision engineered
mechanical components. We serve New England's Original Equipment Manufacturers
(OEMs) and provide precision engineered component parts and assemblies from USA
and Asian suppliers (e.g. metal injection molding (MIM), stampings, plastic injection
molding, rubber molding, fine blanking, swiss turning and CNC machining). Changes to
traditional markets led PSE Associates, an American company, to look abroad. An initial
arrangement with a Chinese supplier led to new relationships being formed with other foreign
companies. Experience made PSE insist on the following minimum criteria:
1. Quality: poor quality would destroy relationships and was therefore not acceptable.
2. American presence: all suppliers had to act like an American manufacturer and have
personnel and warehouses sited locally.
3. Logistics and documentation: all suppliers were required to own the goods supplied, manage
shipping, and conduct transactions in US dollars.
Due diligence investigations established the capabilities and the trustworthiness of suppliers.
PSE found that its foreign suppliers were extremely loyal, and would work very hard to please
the company and its customers. PSE also discovered that foreign suppliers (from various
counties) were interested in long-term relationships.
Source: Foster, J., (2008), As the World Turns, Agency Sales, Vol. 38, Iss. 8, pp 16-19,
Manufacturers’ Agents National Association, Lake Forest.
13

Forecasting, Flushing.
15

o planning sessions
Implementation
• In Canada, there is legislation governing the management of information in the public
sector. Both freedom of information and protection of privacy legislation impact how
information about the customer can be used and shared
• Considerable time and energy is required to collect and manage information. Accordingly,
organizations should weigh the costs and benefits of collecting and managing information
• Information management should be linked to achieving strategic and business objectives
• The organization should ensure suppliers and partners receive information related to
fulfilling their responsibilities and improving performance
• Creating synergy in working together adds value to the customer and supplier-partner
chain
17

Discuss how buyers, sellers, and banks help reduce the cost of financing invoices and
accelerate supplier payments
Tom Crowe, director of sales and delivery, financial supply chain solutions, at Abbey Corporate
Banking in the United Kingdom, believes that “reverse factoring” has the potential to
significantly reduce the cost of financing invoices and also to accelerate supplier payments,
both of which are of particular interest in times of economic downturn. [4] In reverse factoring
arrangements, banks partner with buying organisations to evaluate the risks associated with
non-payment. The bank then minimises its risk by financing only those invoices that have been
approved for payment by the buying organisation. By reducing risk in this manner, lower rates
of finance can be provided, which benefit both the buyer and the supplier. “In the normal
course of business, the supplier submits an invoice once the goods or services have been
provided to its customer,” explains Crowe. “The buying organisation will then go through its
internal approval processes – in most cases the invoice will be matched against the original
purchase order and the goods received note. If the invoice passes these checks, the buying
organisation knows that it is a legitimate invoice for the goods or services requested, and it also
knows that it has received the goods or services detailed. At this point, the invoice is good to
pay and the bank is able to assist.” The Figure, adapted from Crowe, depicts supply chain
reverse factoring.
20

Discuss 4 steps in the implementation process of new products and services
1. Determine how new opportunities will be managed – the organization and its’ suppliers and
partners must agree on how new opportunities will be managed:
• How opportunities will be identified?
• Who will be responsible for opportunity identification?
• What tools and processes will be used?
• What decision making process will be used to decide how to proceed?
• What information is required before an opportunity warrants further attention?
• How will this information be validated and managed?
2. Develop review and assessment process – the organization and its’ suppliers and partners
must agree on how potential opportunities will be analysed and assessed. Criteria may include:
• Alignment with strategic and business objectives
• Market feasibility
• Economic implications:
o cost
o benefit
o return on equity
o return on investment
• Alignment with current relationship plans
23

Practice 7.5: Involve suppliers and partners in the development of social and environmental
standards
Definition
• Standards are created by recognized authorities and provide a rule of principle that is
used as a basis for judgment
• While some standards are established in government legislation, other standards require
organizations to be self-regulating
• Social standards include protection for internal and external stakeholders, for example:
o labour
o employment
o occupational health and safety
o organizational accountability
• Environmental standards regulate the effect of human activity on the environment, for
example:
o air
o water
o land
• The organization should:
o make suppliers and partners aware of current and emerging social and
environmental standards
o invite suppliers and partners to participate in the development of social and
environmental standards, related work processes, and performance targets
• Support innovative and creative thinking with suppliers and partners
25

Discuss process used to meet or develop standards
1. Identify relevant standards – the organization and suppliers or partners work together to
identify or develop standards relevant to the activities encompassed by the supplier or
partnership relationship:
• What standards apply to the scope of activities captured by the relationship?
• Designate whether standards are:
o public or private sector
o municipal, provincial, federal, or international scope
o industry based
o best practises
2. Understand standards – the organization and its’ suppliers and partners reach a common
understanding about the meaning of the standards and the application of such to their
relationship. This includes understanding how standards setting bodies and independent
decision makers have interpreted application of the standards in circumstances similar to those
captured by the relationship. This may require some research and direct contact with one or
more standard setting bodies.
3. Develop a commitment to compliance - the organization and its’ suppliers and partners
discuss how to implement and conform to the standards. Factors may include:
27

improved distribution systems
• reduced supply chain inventories by reducing variations in demand
• reduced defects
• reduced cost of materials as a result of improved product designs
• reduced cost of manufacture through outsourcing
• reduced order processing costs by using simplified ordering procedures and more efficient
data transmission systems
• improved customer service
• increased sales
• reduced cash-to-cash cycle time
Obstacles hindering the achievement of these benefits include:
• providing poor guidelines for the creation of alliances with supply chain partners
• failure to develop measures for monitoring alliances
• inability to broaden the supply chain vision beyond procurement/distribution and to
encompass larger business processes
• inability to integrate the organisation’s internal procedures
• lack of trust inside and outside the organisation
• organisational resistance
• lack of buy-in by top management
• lack of integrated information systems and electronic commerce connections between
partners.
Source: Crandall, R. E., (2006), How Green Are Your Supply Chains? Industrial Management,
Vol. 48, Iss. 3, pp 6-12, Institute of Industrial Engineers, Norcross
28

Discuss supply chain management in large organizations that deal with foreign suppliers
Charles Matthews, supplier quality manager at Boeing in Seattle, United States, claims that
organisations may need to reshape their cultures and structures to gain the full benefits from
supply chain integration. Large system integrators like Boeing no longer build many of the
components and major assemblies that make up their products, and this creates a significant
degree of risk. To support effective risk management, the performance goals of suppliers and
customers should be carefully aligned. To ensure reliability and the high quality required in the
aerospace industry, integrators must understand their suppliers’ organisational and cultural
environments, as well as their processes. The integrator must also understand how knowledge
and information are to be used throughout the supply chain network. In this respect, Total
Quality Management (TQM) is an important component for ensuring success across integrated
supply chain environments. Organisations that are dependent upon SCM need to develop
appropriate criteria to appraise supply chain performance, and employ rigorous and continuous
measurements of that performance. An effective performance measurement strategy is vital
for risk management associated with large-scale integrated supply chain operations.
The Supply-Chain Operations Reference-model (SCOR) is a management tool that enables users
to address, improve, and communicate supply-chain management practices within and
between all interested parties. The SCOR model supports the TQM concept, and provides
feedback to support decisions by satisfying the following key information:
• understanding and meeting organisational requirements
• data relating to the added value of processes
• providing process performance and effectiveness measures
30

category sales to a given customer, divided by the percentage of customers’ product category
that is purchased from the supplier. A ratio of 1.0 indicates a balanced partnership. However, a
ratio of
100/1 or 0.01 indicates the degree of risk involved.
SCM – shared data sets: This refers to the number of shared data sets/total data sets. This is a
measure of how closely organisations share information and use common terminology relating
to demand targets, point of sale data, advance shipping notices, production schedules,
promotion plans, strategic directions, and customer targets.
SCM – performance trajectories of competing technologies: This refers to the rate at which the
performance of a product has improved, or is expected to improve over a specified time. The
performance trajectory seeks to measure the performance of potential substitute products and
technologies.
The following measures could be used within an SCM balanced scorecard:
1. Financial Measures
• profit margin by supply chain partner
• cash-to-cash cycle time
• customer growth and profitability
• return on supply chain assets
2. Customer Measures
• number of customer contact points
• relative customer order response times
• customer perception of fl exible response
• customer value ratio
3. Internal Process Measures
• supply chain cost of ownership
• supply chain cycle efficiency
• number of choices/average response time
• % of supply chain target costs achieved
3. Innovation and Learning Measures
• product finalisation point
• product category commitment ratio
• number of shared data sets/total data sets
• performance trajectories of competing technologies
Source: Brewer, P. C., Speh, T. W., (2006), Using the balanced scorecard to measure supply
chain performance, Journal of Business Logistics, Vol. 21, Iss. 1, pp 75-93, Council of Logistics
Management, Oak Brook.
31

Review the PDSA process and continual improvement in the Suppliers and Partners area
• Ask the same supplier and partner questions each year
• Benchmark an organizations performance against its history and objectives
• Use the results of surveys to identify areas for improvement
• Develop an action plan to address performance gaps
• Request, evaluate and act on employee recommendations for improvement
• Communicate and execute the plan and hold people accountable for results
• Set specific measures for each performance objective
• Insist on regular implementation updates
• Publicize the fact that results will be measured and reported on and that everyone will be
held accountable for results
34

Review the action plan format used in improvement planning. Ask participants to fill out
action plans for low rated practices.
Action Plan format:
• Key management area – Suppliers and Partners
• Practice – sentence that describes best management practice (1 – 5)
• Action steps – methodology in the Framework that speaks to implementation.
• Responsibility – individual(s) responsible for implementing the practice
• Timing – approximate timeframe over which implementation will occur
• Measurement – measurement method that will be used to track progress on
implementation
• Cost – out of pocket cost

1
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