Supplier Relationship Management Program
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Implementation of SRM program to enhance Supply Chain Competitiveness
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Supplier Relationship Management Program
- 1. Group/Presentation Title Agilent Restricted Month ##, 200XPage 1 Implementation of SRM to enhance Supply Chain competitiveness Peter Woon Supply Chain Management Breakfast Seminar / Talk 17 May, 2006 “Winning through Innovation”
- 2. TLS Congress Presentation Part I : Introduction to Agilent Technologies Part II : SRM in Agilent • Business Needs for a common SRM Model • SRM Components – Stratification – Governance – Performance Measurement – Supplier Development • Benefits of implementing Q&A Session
- 3. TLS Congress Agilent Around the World • Customers in more than 110 countries • More than 60% of revenue generated outside U.S. • Global manufacturing and R&D Agilent Facts $ 5.1 billion (exclude SPG)venue (FY05) mployees 21,000 employees adquarters Palo Alto, California Our goal is to strengthen Agilent’s position as the world’s premier measurement company. Agilent provides core electronic and bio-analytical measurement tools to advance the electronics, communications, life sciences, research, environmental, and petrochemical industries
- 4. TLS Congress Bio-Analytical Measurement Electronic Measurement Semiconductor Test Solutions $1.42B$3.27B $0.45B Agilent Businesses The world’s premier measurement company Total FY05 GAAP Revenue of $5.1 billion excludes revenues from Agilent’s Semiconductor Products Group. Shared Infrastructure Agilent Laboratories Global Infrastructural Organization Global functional support teams Sourcing, Finance, Information Technology, Human Resources, Workplace Services, Legal, Trade and Tax etc
- 5. TLS Congress Presentation Part I : Introduction to Agilent Technologies Part II : SRM in Agilent • Business Needs for a common SRM Model • SRM Components – Stratification – Governance – Performance Measurement – Supplier Development • Benefits of implementing Q&A Session
- 6. TLS Congress Business need for a common SRM Model • Agilent has realized significant savings and other benefits from outsourcing services previously delivered in-house • Increased reliance on external providers has made effective Supplier Relationship Management (SRM) critical • However, Agilent has lacked a common model and results-oriented approach for optimizing supplier relationship management − Each function had defined its own approaches, tools, and processes for SRM − Agilent had not fully transitioned from people management to SLA management − Roles and responsibilities for SRM had not been clearly defined, reducing effectiveness and proliferating “vendor managers” • As a result, there were clear business need to design and implement a common SRM model to enable leveraging a COMMON process and methodology across the supply base.
- 7. TLS Congress Supplier Relationship Management (SRM) provides a framework for managing supplier interactions throughout the entire supplier relationship lifecycle The Agilent Supplier Relationship Management (SRM) Model: Supplier Development Performance Management SRM Governance Supplier Stratification SRM Definition & Best Practices SRM Systems • Supplier Stratification Definition • Supplier Stratification Expectations • Supplier Stratification Execution • Capability and Functionality Needs Analysis • SRM Model Definition • Teams, Roles and Competencies Definition • Ongoing Governance Management • SRM Adoption Management • Performance Management Definition • Performance Management Tool Development • Ongoing Supplier Performance Management • Supplier Development Needs Definition • Supplier Development Program Definition • Ongoing Supplier Development • Systems Selection and Deployment • Best Practices
- 8. TLS Congress Components of Supplier Stratification Supplier Stratification Supplier Stratification Definition Supplier Stratification Expectations Supplier Stratification Execution Definition of supplier tiers Characteristics of supplier tiers Expectations by supplier tier Supply Base guidelines Stratification criteria Stratification process Stratification tools
- 9. TLS Congress Key Best Practices for Model Development: Supplier Stratification •Stratification Based on Both Qualitative and Quantitative Information – Lockheed Martin •Use spend and qualitative consideration on region and criticality •Stratification Process Targets Top 80% of Spend – CapitalOne •Functions focus on big suppliers •Logistics has established a formal process •Stratification Class- Assignment Flexibility – Lockheed Martin •Informal consideration Best PracticesBest Practices Degree ofDegree of Practice atPractice at AgilentAgilent Practice Details at AgilentPractice Details at Agilent Stratification of supply base enables effective prioritization of resources and management of relationships. None/Low Medium-Low Medium Medium-High High
- 10. TLS Congress Supplier stratification process One of the key activities in the Supplier Relationship Management (SRM) effort was to stratify suppliers in the areas like HR, WPS, IT and Marketing etc. Supplier Stratification was required to effectively prioritized supplier relationship management focus on strategic and core suppliers The stratification exercise also revealed that approx 30% of the spend $$$ were with the “tail” of ~4,400 basic suppliers across the areas Agilent has an opportunity to realize savings in the short term by rationalizing suppliers in specific target categories where significant savings opportunities exist
- 11. TLS Congress IT, WPS, HR, and Marketing, all categories where SRM is underway, each have a long supplier “tail” The “tail”: • Average of 30+% of spend • ~4,400 suppliers (98%) Spend # Suppliers IT WPS HR Marketing 60% 14 800+ 80% 29 55% 16 80% 25 2,300+ 650 800+ Supplier tail in each function represents opportunity for rationalizing suppliers in specific sub-categories where significant savings are possible
- 12. TLS Congress Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Strategic Suppliers Core Suppliers Basic Suppliers Stratification Tiers and Characteristics Strategic Suppliers: Critical to operations of functional group(s) and to long-term functional goals Require significant functional resources and investment Core Suppliers: Important to operations of functional group(s) and to long-term functional goals Potential incremental value from developing ongoing relationship Difficult to replace Basic Suppliers: Short-term, transactional relationships Minimal investment Purely cost-driven performance management Do Not Do Business With Strategic Company-Wide Partners: Qualified as Strategic Supplier Multi-dimensional relationship (multi-function, buy-sell, etc.) Typically require high levels of cross-functional resources and investment Do Not Do Business With: List of suppliers with whom Agilent has elected not to do business 80% Financial Value 20% Financial Value Strategic Company- Wide Partners The first three supplier tiers are determined at the Function level, allowing for flexibility. The highest tier is determined across Functions, providing a company-wide perspective.
- 13. TLS Congress Components of SRM Governance SRM Governance Teams, Roles, and Competencies Definition Ongoing Governance Management SRM Adoption Management SRM Team structure by strata SRM roles and responsibilities SRM competencies definition SRM competency assessment and development process SRM review structure and processes Day-to-day supplier management processes Escalation process Process and tools for measurement of SRM adoption and effectiveness Ongoing process to incorporate feedback
- 14. TLS Congress Key Best Practices for Model Development: SRM Governance • Executive Board Oversees SRM Program – Tropicana • GIOCO established but only temporary role • Formal SRM Processes and Roles – BP • Structured relationships and roles exist for several large suppliers • Cross-functional SRM Business Office for Strategic Suppliers • Business office exists formally for several suppliers and informally for a small number of strategic suppliers • SRM Lead – BP • Often exists, but clearly defined and agreed to in only a few specific cases • Formal Skill Assessment Program – Agilent IT Pilot • IT has developed a best practice skills program and is piloting and expanding • Formal Issue Escalation Process – Rolls Royce • Not formalized in many relationships, but documented for several large relationships for HP, JCI, and Oracle • Internal MBOs Aligned With SRM Goals and Activities – Nordstrom • Perception that MBOs are highly cost focused • Individual MBOs may not be aligned with SRM goals Best PracticesBest Practices Degree ofDegree of Practice atPractice at AgilentAgilent Practice Details at AgilentPractice Details at Agilent Formal governance structure and roles clarify supplier interactions and internal collaboration. Roles-based skills definition results in effective SRM team staffing. None/Low Medium-Low Medium Medium-High High
- 15. TLS Congress Teams responsible for managing supplier relationships the team objectives Operations Management Team Executive Management Team Assess supplier operational performance Assess financial performance Analyze and address escalation issues Assess supplier operational performance Develop suppliers to resolve capability gaps Discuss new capabilities Partner with program managers and content experts Assess supplier financial performance Manage supplier contracts and service level agreements Manage new supplier services and change order requirements Business Office SRM Lead Lead internal SRM team collaboration and Assist with interactions with suppliers and business partners Ongoing Operational Activities SupplierRelationshipManagement(SRM)Operations
- 16. TLS Congress What are the structure and roles of current SRM teams? Operations Management Team Executive Management Team Business Office SRM Lead Ongoing Operational Activities SupplierRelationshipManagement(SRM)Operations Supplier Personnel Agilent Personnel Ops Mgmt. Lead Financial Performance Mgmt. Contract /Sourcing Management Relationship Risk Mgmt. Communications Management Legal & Audit Support Client Relationship Mgmt. Lead Sales Relationship Core Support Delivery Management Project Management Transition Management Performance Management Supplier Development Mgmt. Customer Satisfaction Mgmt. Escalation Management Other Supplier Team Members Other Supplier Leads Agilent Executive Sponsor Other Executive(s) Client Relationship Sponsor SRM Lead
- 17. TLS Congress Components of Performance Management Performance Management Definition Performance Management Performance Management Tool Development Ongoing Performance Management Performance Management components and process definition Performance Management team roles and responsibilities Performance Management goals and objectives Performance Management review structure and processes Day-to-day metric tracking and supplier communication Escalation process and management of supplier accountability Supplier objective and KPI alignment with Functional goals and targets SLA visibility and management Performance tracking tools: • Scorecards • Supplier Metrics Registers • Action Items • Supplier Surveys
- 18. TLS Congress Key Best Practices for Model Development: Performance Management • Common Processes/Tools Tailored to Support Specific Functional Needs • Few common processes and tools • Supplier Strata Based Performance Management – Lockheed Martin • Robust performance management process for major suppliers • Falls off for small suppliers • Not pervasive in decentralized organizations • Company Standardized Supplier-Led Performance Reporting – BP • HP, key MRO suppliers, and others self- report, but not standardized • Mandatory Corrective Action Plans – Coca-Cola • Exists for major suppliers as part of performance management • Ad-hoc for remaining • Trigger Points for Elimination of Underperforming Suppliers – Siemens Medical Systems • No formal process established • New Business Award Eligibility Linked to Performance Rating – PalmOne • No formal process established Best PracticesBest Practices Degree ofDegree of Practice atPractice at AgilentAgilent Practice Details at AgilentPractice Details at Agilent Consistent performance management process and tools using incentives and penalties to drive improved supplier performance. None/Low Medium-Low Medium Medium-High High
- 19. TLS Congress Function KPI CatalogFunction KPI CatalogFunction Supply KPI CatalogAction Item Registers Execution of Performance Management Align metrics to Function objectives and targets Align metrics to contract SLAs Define KPIs, performance targets and contractual consequences Apply scorecards and dashboards to report KPIs at different levels Use Action Item Register to track and escalate issue resolution Apply other tools to manage overall KPI List and supplier commitments Report supplier performance based on strata frequency requirements Manage ongoing issue identification and resolution Provide performance inputs to Supplier Reviews Resolve performance issues Provide rewards/incentives to suppliers exceeding performance targets Penalize and/or eliminate underperforming suppliers KPI Definition Owner Source Uptime Percent of system uptime Supplier System log Capacity Utilization Weekly system utilization Function Oracle monitor User satisfaction Survey rating score Function Survey Supplier Evaluation Scorecard Category Manager <Name>, GS Grade Account Manager <Name>, Supplier Good Completion Date Fair Poor Fill Rate % >=92 94-92 <=94 95.3 97.0 97.0 97.0 96.4 93.0 99.0 99.0 94.7 96.4 Monthly Turnover Rate % <=5 5-10 >=10 8.0 4.0 4.0 5.0 5.3 4.0 4.0 4.0 4.0 4.0 Preventable Turnover Rate % <=5 5-10 >=10 7.0 4.0 4.0 6.0 5.0 2.0 2.0 2.0 2.0 2.0 Account Management Account Management Quality Rating 1-3 3 2 1 3.0 3.0 3.0 3.0 3.0 2.0 2.0 2.0 2.0 2.0 Invoice Timeliness Days late <=0 0-5 >=5 2.7 2.0 2.0 2.0 2.2 2.0 2.0 2.0 2.0 2.0 Invoice Accuracy % Variance of Total Bill <=0 0-2 >=2 0.7 1.0 1.0 1.0 0.9 2.0 1.0 1.0 2.0 1.5 Reporting Timeliness Days late <=0 0-5 >=5 0.7 1.0 1.0 1.7 0.9 2.0 2.0 2.0 2.0 2.0 Reporting Accuracy Reporting Errors <=0 0-3 >=3 1.7 0.0 0.0 3.3 0.6 2.3 2.0 2.0 2.0 2.1 On-site Management Quality Score 1-5 >=3.5 2-3.5 <=2 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Temporary Associate Quality Score 1-5 >=3.5 2-3.5 <=2 4.0 4.0 4.0 4.0 4.0 2.0 2.0 2.0 2.0 2.0 Update Meeting Quality Rating 1-3 3 2 1 Improvement Feedback Quality Rating 1-3 3 2 1 3.0 3.0 3.0 3.0 3.0 2.0 2.0 2.0 2.0 2.0 <Name> <Name> <Name> Omaha Q1 Q2 Q3 Annual Average Q2 Q4 <Name>Company Functional Managers Supplier On-Site Managers Representatives Base Evaluation Metrics Survey Results QuarterlyMetrics Reporting and Invoicing Quarterly Reviews Q3 Comments / Action Items Metric Units Good Fair (between range) Poor Annual Average Fort Worth Q1 Definition Meets or exceeds requirements Nearly meets requirements, improvement needed withinone month Fails to meet requirements Annual Scorecard By Quarter and Location Evaluation Category MonthlyMetrics Evaluation Criteria Q4 Metrics Tools Ongoing Measurement Outcomes Scorecards & Dashboards Incentives / Rewards Penalties Elimination Incentives / Rewards Penalties Elimination
- 20. TLS Congress Components of Supplier Development Supplier Development Needs Definition Supplier Development Supplier Development Program Definition Ongoing Supplier Development Supplier Development goals and objectives Supplier Development benefits Supplier Development challenges and needs Supplier Development Program objectives Supplier Development Program components and process definition Supplier Development Program implementation techniques Supplier Development team roles and responsibilities Supplier Development stratification impact
- 21. TLS Congress Key Best Practices for Model Development: Supplier Development • Formal Supplier Development Program – Procter & Gamble • No formalized development program • Gain-Sharing Incentivizes Development and Cost-Cutting Activities – IBM • Focus is on penalties and not incentives • Tiered Awards and Incentives Program – Nordstrom • No formalized incentives program • Joint Process Improvements – Solectron • Performed in several areas including logistics, MRO, and IT, but no structured process • Rigorous ROI Analysis – John Deere • Current process ad-hoc • Continuous Improvement Commitment – Boeing • Some SLAs include continuous improvement commitment, but not always enforced • Intellectual Capital Sharing – John Deere • Some small attempts (HR, IT & Marketing) with mixed results • Specific gap around codes of conduct Best PracticesBest Practices Degree ofDegree of Practice atPractice at AgilentAgilent Practice Details at AgilentPractice Details at Agilent Formal programs for advancing supplier capabilities and improving joint processes to create long-term value. None/Low Medium-Low Medium Medium-High High
- 22. TLS Congress Supplier Development challenges and needs Development NeedsSupplier Relationship Challenges Continuous Improvement • Corporate/Functional objectives require year-on-year cost and/or service level improvements • Competition drives need to identify and implement best practices • Ineffective processes and systems in relationship drive increased costs and reduce performance Examples Capability Gap Closure • Supplier does not offer the services and/or products that Agilent needs • Supplier does not have the global capabilities to meet Agilent objectives • Supplier has capabilities that require further development to meet Agilent requirements • HR service provider lacked the employee services functionality required • TBD Value Creation • Few contracts encourage suppliers to identify opportunities to add value to Agilent • Lack of process to identify new value creation ideas • Lack of incentives for suppliers to identify new opportunities • Logistics Function sought creative approaches for additional cost savings
- 23. TLS Congress Benefits of implementing SRM Increased supplier performance visibility and accountability Aligned Corporate, Functional, and Supplier objectives Streamlined governance activities with a “Single Agilent Face” to suppliers Stratified supply base and greater visibility into supply relationship priorities and criticality Immediate Impacts of SRM Year-on-year cost-reductions and continuous performance improvement Supplier agreements support business performance and extract maximum supplier value Realization of internal efficiencies and reduction in supply management costs Stronger and more strategic supplier relationships with reduced supply costs and risks Long-Term Benefits of SRM
- 24. Group/Presentation Title Agilent Restricted Month ##, 200XPage 24 Questions and Answers Winning ThroughWinning Through InnovationInnovation
Editor's Notes
- &lt;number&gt; Structure of presentation ..into three parts. Part I : intro to Agilent Part II : Aabt SRM program in Agilent Part III : Overview of a case study : SRM with an LSP
- Speaker Notes: Agilent has a strong global presence. The black dots show where the company’s larger offices and manufacturing sites are located. Agilent’s corporate headquarters are located in Palo Alto, California, about an hour south of San Francisco. In the U.S., Agilent has significant presence in the San Francisco Bay Area of California, in the Pacific Northwest, in northern and southern Colorado, and on the East Coast in and around Delaware. In Europe, Agilent’s manufacturing sites are in South Queensferry, Scotland and Boeblingen, Germany. In Asia, Agilent has a significant presence in Japan, China, Malaysia, Singapore, Korea, Taiwan, India and Australia.
- Agilent Business .. Premier measurement company !!! Focusing on three key businesses namely EMG, STS and Bio Analytical/LSCA Supported by Global Infrastructure … R&D Lab and Shared services GIO
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- &lt;number&gt; NEED for a COMMON Supplier management program .. Just indirects ..16,000 suppliers…every function group and business “own” and “manage” suppliers … duplication or R&Rs .. No clear accountability !!! Supplier them selves confuse .. “customer” is always right
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- : An advisory or executive board is tasked with developing, reviewing, and overseeing the organization’s top-level SRM strategy; board consists of executive leadership from across the organization, including functions, procurement, business units, finance, and operations – Pepsi : SRM initiatives focus on collaboration, relationship development, and value creation with suppliers; emphasis is on total relationship value and not transactional issues A single coherent procurement strategy is defined to support corporate strategy and goals; strategy drives SRM program development and management Sourcing, procurement and SRM activities are institutionalized across categories, functions, geographies and units; SRM activities are centrally owned and compliance with practices is enforced Cross-functional SRM benchmarking task-force responsible for researching and internally publishing best-in-class SRM standards, metrics, and practices for the organization’s industry, and across all industries - General Motors
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- : An advisory or executive board is tasked with developing, reviewing, and overseeing the organization’s top-level SRM strategy; board consists of executive leadership from across the organization, including functions, procurement, business units, finance, and operations – Pepsi : SRM initiatives focus on collaboration, relationship development, and value creation with suppliers; emphasis is on total relationship value and not transactional issues A single coherent procurement strategy is defined to support corporate strategy and goals; strategy drives SRM program development and management Sourcing, procurement and SRM activities are institutionalized across categories, functions, geographies and units; SRM activities are centrally owned and compliance with practices is enforced Cross-functional SRM benchmarking task-force responsible for researching and internally publishing best-in-class SRM standards, metrics, and practices for the organization’s industry, and across all industries - General Motors
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- : An advisory or executive board is tasked with developing, reviewing, and overseeing the organization’s top-level SRM strategy; board consists of executive leadership from across the organization, including functions, procurement, business units, finance, and operations – Pepsi : SRM initiatives focus on collaboration, relationship development, and value creation with suppliers; emphasis is on total relationship value and not transactional issues A single coherent procurement strategy is defined to support corporate strategy and goals; strategy drives SRM program development and management Sourcing, procurement and SRM activities are institutionalized across categories, functions, geographies and units; SRM activities are centrally owned and compliance with practices is enforced Cross-functional SRM benchmarking task-force responsible for researching and internally publishing best-in-class SRM standards, metrics, and practices for the organization’s industry, and across all industries - General Motors
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- : An advisory or executive board is tasked with developing, reviewing, and overseeing the organization’s top-level SRM strategy; board consists of executive leadership from across the organization, including functions, procurement, business units, finance, and operations – Pepsi : SRM initiatives focus on collaboration, relationship development, and value creation with suppliers; emphasis is on total relationship value and not transactional issues A single coherent procurement strategy is defined to support corporate strategy and goals; strategy drives SRM program development and management Sourcing, procurement and SRM activities are institutionalized across categories, functions, geographies and units; SRM activities are centrally owned and compliance with practices is enforced Cross-functional SRM benchmarking task-force responsible for researching and internally publishing best-in-class SRM standards, metrics, and practices for the organization’s industry, and across all industries - General Motors
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