Supply Chains around the world are witnessing rapid transformation due to many factors including digitization and cybersecurity. Procurement Professionals as a whole seem to be behind the curve with these trends. You will learn how the following with impact the Procurement Function: 1. Social Responsibility 2. Digitization 3. Supplier Relationship Management 4. Supply Risk Management

1. "2019 Procurement Trends That Will Change Your Business"
Webinar
David Millington, M.Sc.QSM, NPDP, CL6σBB, SPP℠, SPSM3®, Doctoral Student
Director of Education and Product Development

2. Topics
In this webinar you will learn how the following will impact the
Procurement Function:
Supplier Management
Supply Risk Management
Social Responsibility
Digitization…part 2

3. Procurement Function Mandate
Manage Spend
Support Operations
Protect our organizations from Risks
Catalysts for Innovation

4. Strategic Supplier Management
- Supplier Performance Management
- Supplier Relationship Management
- Supplier Development – part 2

5. Strategic Supplier Management
A Survey 600 Procurement Professionals
conducted by AgileBuyer revealed that most of those surveyed were in the
process of enhancing their relationships with their suppliers
Goal: Be the Best Customer I Giving them a reason to work with us
It is becoming a necessity!
Think: Total Cost to Serve Rationalization

6. Supplier Performance Management
Supplier performance is critical to an organization
Good Supplier Performance results in:
1. Increased Efficiency
2. Higher Quality products or services
3. Reduce Costs
4. Increase Profits

7. Supplier Performance Management
Must have Supplier Rating Programs
5 questions to answer in planning a supplier rating program:
1. Which suppliers will you rate? Leverage the 80/20 and 4/50 Rules
2. What personnel in your organization will participate in the rating process?
3. What performance measures will you use? Cost, Delivery, Service, Quality
4. How will you collect performance data?
5. How will you use performance data?

8. Supplier Performance Management
Set Targets!
Performance Measure Target
Annual value of cost reduction $1,000,000 or more
Percentage of on-time deliveries 95% or greater
Number of service complaints from internal customers as a
percentage of orders 5% or less
Warranty claims as a percentage of orders 2% or less

9. Supplier Performance Management
Reward Great Performance!
Rewarding suppliers is not a difficult task! But most companies don’t!
Four ways of rewarding your top performing suppliers are:
1. Issuing a press release
2. Having a supplier awards reception
3. Naming the award-winning suppliers on your purchasing department’s
website
4. Providing a plaque or statue

10. Supplier Performance Management
Leverage Supplier Award Programs:
Motivates Suppliers
Cost very Little Money
Types of Supplier Award Programs:
"Supplier of the Year“
Gold, Silver, and Bronze Supplier
Top Ten Supplier award

11. Supplier Performance Management
Correcting Poor Supplier Performance
Some things to keep in mind when taking corrective action include:
1. Schedule your meeting as close as possible to the time that the poor performance has
started
2. Do not create an atmosphere of hostility during your meeting with the supplier
3. Prior to the meeting, indicate to the supplier that you will be asking why the poor performance
has occurred
4. Do not allow the meeting to end without:
(a) agreeing with the supplier on an action plan to resolve the performance problem
(b) the timeline in which the problem will be solved, and
(c) a mutually agreed way of measuring how effective the resolution is

13. Strategic Supplier Relationship Management
The result of optimizing strategic supplier relationships:
A higher probability for your organization of reaching its goals
Break down of barriers to efficient operations and success in the
marketplace

14. Think: Total Cost to Serve
Total Cost to Serve is the identification of the cost of servicing
customers at the product and customer levels.
The key objective is for organizations to configure their systems to deliver
the appropriate service levels for their customers and to determine the
degree of value customers represent.

15. Think:TotalCosttoServe

16. Think:TotalCosttoServe

17. Strategic Supplier Relationship Management
Understand the Degree of Criticality of your Suppliers
There are suppliers who:
Are fairly important to your organization
Are extremely important to your organization
 These are the suppliers of Mission Critical Products and Services
 Who contribute directly to your organization’s competitive advantage
Example
1. For automobile manufacturers, these are the engine suppliers
2. For a home builder, these are the plumbing and electrical subcontractors

18. Strategic Supplier Relationship Management
Strategic Suppliers are those suppliers who:
1. By virtue of collaborating with them, make your company better
2. Are experts at what they do
3. Are more capable of developing a cost saving idea
4. Are more capable of creating revenue generating ideas for your product
or service than your organization is
Goal
To optimization of relationships with Strategic Suppliers
Leverage their expertise – put it to work for you!

19. Strategic Supplier Relationship Management
Fostering Relationships With Strategic Suppliers
Surveys
Surveys are often the first step in establishing a strong relationship with
suppliers
 Rather than requiring suppliers to simply meet their targets
 Provides feedback on what you, as the buyer, could do to improve the
relationship
 Take advantage of all of the synergies to be gained

20. Strategic Supplier Relationship Management
Fostering Relationships With Strategic Suppliers
Conferences
Conferences attended by select strategic suppliers help to communicate your
organization’s goals to suppliers
Enables suppliers that they can help your organization meet its objectives
 Supplier conferences are a great way to get the attention your organization
deserves
Tip
These conferences should be attended by the most senior management of the suppliers as well
as your organization

21. Strategic Supplier Relationship Management
Advisory Boards
Some organizations even invite the top management of their strategic suppliers
to serve on a supplier advisory board.
An advisory board is designed to:
Give suppliers a vested interest in your success
breaking down the traditional buyer-seller boundaries
thereby giving your organization more access to the expertise of your strategic
suppliers.
The result of optimizing strategic supplier relationships is a higher probability
for your organization of reaching its goals. The techniques described will break
down barriers to efficient operations and success in the marketplace.

22. Supply Risk Management

23. Supply Risk Management
6 types of Procurement Risk:
1. Supply Risk
2. Price Risk
3. Financial Risk
4. Legal Risk
5. Safety Risk
6. Public Relations Risk

24. Sources of Risks (from Supply Chain System)
Suppliers must be reliable, responsive, capable, aligned to strategic
objectives, innovative
Inputs must be right price points, quality, all the time, on time, right
quantities, cost of executing procurement work
Processes must convert inputs accurately with minimal rework
Outputs must meet customer requirements, great innovative products
and low Total Cost of Ownership

25. Supply Risk Management
How to manage risks
Identify risk drivers by assessing the factors that negatively impact
spend, conversion processes, and customer satisfaction
Quantify their severity, degree occurrence, your ability to detect impact
Act upon them at the Root level

26. Sources of Risks (from Business Landscape)
 Socio-Demographic trends
 Ecological trends…harm to environment
 Economic trends…recessionary impacts
 Competitive trends…market share loss, degree of agility
 Political trends…trade wars
 Technological trends…cyber security
 Industry trends…maturing industry
 Customer trends…changing product tastes and requirements

27. Methodologies for Mitigating Risks
Risk Log

28. Benefits of conducting FMEA(Failure Mode and Effects Analysis):
• Understand Issues that negatively impact Business Operations
• Understand that not all business problems are equal
• Learn to prioritize Sustainable Responses to negative impacts
• FMEA is under pinned by a problem’s Risk Priority Number (RPN)
Permission granted USA LEAN Engineering, LLC for use
Failure Analysis (FMEA) / Risk Management
Methodologies for Mitigating Risks

29. Formula for RPN (Risk Priority Number):
RPN = S x O x D or Severity x Occurrence x Detection on a scale of 1 to 10
In the table below for “Information input into MRP System” the RPN=1000
 Severity =10 (Extreme)
 Occurrence =10 (Extreme)
 Detection = 10 (Impossible to Detect)
Process, Item, or
Issue
Potential
Failure Mode
Potential Effect / Impact of
Failure Potential Causes
Current
Controls Severity Occurrence Detection RPN
Action
Recommended
Who is
Responsible
Information input
into MRP System
Incorrect
MRP output
1.Excess raw materials
purchased(cash flow tied
up) or 2. too little raw
materials purchased to
support MPS
1. Damaged
cell in excel, 2.
type O none 10 10 10 1000
Protect
formulas in
work sheets Amy
Picking Operations
Wrong
Items
Picked
1.Customer
dissatisfaction,
2.inventory discrepancy
and recount rework,
1.Packaging
looks the
same, 2.item
numbers are
complicated
double
checking
all bills 8 7 10 560
Get
reasonably
priced RFID Randy
Scale of 1 to 10
The MRP Process
presents Critical Risk
Permission granted USA LEAN Engineering, LLC for use

30. Stakeholder Severity
No Effect 1. None 1. Verylow <.01/1000 1. Almost Certain Consumer Owner SafetyProblem 10
2. VeryMinor 2. Low - 1/1000000 2. VeryHigh (e.g., buyer) Major Owner Dissatisfaction 8
Annoyance 3. Minor 3. Low - 1/100000 3. High Moderate Owner Dissatisfaction 6
4. VeryLow 4. Moderate - 1/10000 4. Moderate High Minor Owner Dissatisfaction 4
5. Low 5. Moderate - 1/2000 5. Moderate Customer Plant SafetyProblem 10
6. Moderate 6. Moderate - 1/500 6. Low (Manufacturer) Possible Recall 9
Loss or degradation 7. High 7. High- 1/100 7. VeryLow Line Stoppage 8
of primaryfunction 8. VeryHigh 8. High- 1/50 8. Remote WarrantyCosts 7
Failure to meet 9. Hazardous withwarning 9. VeryHigh1/20 9. VeryRemote AIAG PPAP 4th Scrap 7
safety/regulations 10. Hazardous w/o warning 10. VeryHigh>1/10 10. Almost Impossible RegulatoryPenalty 7
Moderate Rework (<25%) 5
Plant Dissatisfaction 4
Minor Rework (<10%) 3
Effects of FailureOccurrence Rating: Detection Rating:Severity of Effect:
Loss or degradationof
secondaryfunction
FMEA Criteria Key, AIAG 4th Edition, http://www.aiag.org/

31. Social Responsibility Definition

32. Social Responsibility Definition:
A concept where a company takes responsibility for social
and environmental effects of its business operations.
It applies to company efforts that go beyond what is required by law and
regulation

33. 1100 Dead
Rana Plaza, Bangladesh, April 2013
Multiple small clothing factories making clothes for companies in developed countries.

34. Labor Issues
• Coerced labor*
• Children
• Adults
• Uncoerced child labor
• Worker safety
• Excess overtime
• Freedom to associate and unionize
Social Responsibility
Issues at Suppliers

35. Social Responsibility
Issues at Suppliers
Environmental Issues
• Pollution
• Air
• Water
• Land
• Humane treatment of animals
• Carbon/energy/sustainability
• Supplier processes
• Shipping to you

36. Social Responsibility
Political Issues
• Corruption and bribery
• By supplier
• By your company
• Conflict minerals
• Ores for tungsten, tin, tantalum and gold
• Law: Dodd-Frank Act
• Small and disadvantaged suppliers
• Exporting jobs
Issues at Suppliers

37. Social Responsibility
Consider Leveraging a Supplier Code of Conduct
• Describes how you expect suppliers to act
• Usually referred to in contracts
• Length varies from two to eight pages
• Introduction should address extended supply chain requirements
• When should your supplier require its suppliers to comply with your code?
Conduct Auditing

38. Digitization – Part 2
Studies show that in the most advanced procurement departments are
considering the leverage of the following:
- Use of Digital Assistants 52%
- Adopting Robotics Processes 48%
- Adopting Blockchain Technology 30%