The Hidden Asset - Effective SRM

The Hidden Advantage - SRM

The Hidden Advantage – SRM
Guy Allen
May 22nd 2013

Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential

Real World Sourcing

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.


Real World Sourcing


Agenda
1.
2.
3.
4.

What is Supplier Management?
Why Is It Important?
In Depth Look at a Real SRM Programme
Case Studies


Real World Sourcing


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.

Real World Sourcing

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


Real World Sourcing


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


Real World Sourcing


Supplier Management
Supplier Contract 1
Supplier Contract 3
Supplier Contract 2
Supplier Contract 1
Year 1

Year 2

Year 3

Year 4
Time


Real World Sourcing


Why Do It?

E fficiency
R isk
Opportunity
S upplier Motivation

Real World Sourcing


‘Companies Don’t Compete,
Supply Chains Do’
Bob Monzcka
Michigan State University


Real World Sourcing


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


Real World Sourcing


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


Real World Sourcing



Real World Sourcing

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


Fujitsu – Situation 2006
•
•
•
•

Dedicated Supplier Relationship Managers
Unmeasured
Disconnected from the rest of Procurement
Managers going native with Suppliers


Real World Sourcing


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


Real World Sourcing


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


Real World Sourcing

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%?


Real World Sourcing

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.


Real World Sourcing


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


Desirable

Possible

Unlikely

Real World Sourcing

• 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


Real World Sourcing


Supplier ‘Rewards’
• Internal publicity
• Quarterly briefings
• Access to key decision
makers
• Opportunity to demonstrate
capabilities to IT Architects


Real World Sourcing


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

Real World Sourcing

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


Real World Sourcing


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!


Real World Sourcing

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


Real World Sourcing


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


Real World Sourcing


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


Real World Sourcing


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

Real World Sourcing


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


Real World Sourcing


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


Real World Sourcing


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.


Real World Sourcing


• 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


Real World Sourcing


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


Real World Sourcing


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

Real World Sourcing


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

Real World Sourcing


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

Real World Sourcing


THANK YOU!
Please feel free to contact me on
guyallen@realworldsourcing.com


Real World Sourcing


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

Real World Sourcing

The Hidden Asset - Effective SRM

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