1 establishing & developing buyer-supplier partnerships guest lecture innovation networks and...
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Establishing & developing buyer-supplier partnerships
Guest Lecture Innovation Networks and Alliance Formation
Eindhoven, October 30, 2007
Prof.dr.ir. Bart VosNEVI Chair Purchasing Management
Department Organization & Strategy
Tilburg University
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Lecture Structure
• Collaboration with key suppliers: Why & how?
• DSM Agro case: intra-firm
• KPN-Atos Origin case: inter-firm
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Why Supply Chain Collaboration?• Increasing emphasis on supply chain optimization
relay race as a metaphor
• Outsourcing requires professional selection, management and development of suppliers
professional purchasing management “must”
• More pressure on performance: faster, better, cheaper
• Also puts more pressure on supplier performance: suppliers as “partner”?!?!
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Supplier Development Results(Krause, 1997, Survey of 527 firms, NAPM members)
Before Supplier Development
After Supplier Development
Incoming defects
11.65 %
5.45 %
% on-time delivery
79.85 %
91.02 %
Cycle time (from order placement to receipt)
35.74 days
23.44 days
% orders received complete
85.47 %
93.33 %
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Buyer Captive
Strategic Partnership
Market Supplier Captive
Specific investments customer
Specific investments supplier
Supplier collaboration: with whom? Portfolio model Bensaou
Special, vertical form of alliance
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Examples of specific investmentsTangible• Buildings• Machinery/equipment• Information systems
Less tangible• Exchange of employees (e.g. engineers)• Training programs/workshops• Informal relations
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Supply chain collaboration: How?
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Information transparency
Quality SCM decision-making
Firm performance
History of successful
collaboration
Trust
Habituation
Intensity communication
Openness communication
Gaming
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--TRAVAIL
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TOOLS+
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Bumpy road to closer supply chain links
• It is not only about the content of supplier involvement (e.g. in terms of technological and organizational capabilities)
• Quality of the relationship and the way that it is managed are crucial as well
• And on top of all that perceptual differences on the functioning of a buyer supplier relationship further complicate the story!!
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DSM Case Buyer-Supplier Relationships
• Introduction• Case setting• Main case results• Managerial implications
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Introduction DSM Case
Process industry: specific characteristics• Relatively low level of product variety• High capital investments implying a focus on maximising capacity
utilisation• Prevailing use of inventories as coordination mechanism• Geographic clustering of related processes
PUSH as “logical” Supply Chain planning strategy
Research method• Delphi workshops (“travail”)• Pilot projects: action research
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DSM Case Setting:Intra-firm collaboration
• Aim was to investigate the potential for improved collaboration between 2 DSM Business Units (intra-firm) DSM Agro and DSM Fibre Intermediates
• Ammonium Sulfate (AS) is a residual product in the production of Caprolactam (FI), sold by the Agro unit
• Financial responsibility (FI) versus operational responsibility (Agro);logistics “in between” area
• Centrally “enforced” buyer-supplier relationship
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Joint workshops in DSM Case:Night versus day
Buyer Captive
Strategic Partnership
Supplier Captive
Market Exchange
Supplier’s specific investments
Bu
yer’s
sp
eci
fic in
vest
me
nts
Agro
P DFI
PAgro
Agro = reality DSM FI – DSM Agro relationshipP Agro = Perception AgroP DFI = Perception DSM FI
Agro = reality DSM FI – DSM Agro relationshipP Agro = Perception AgroP DFI = Perception DSM FI
Buyer Captive
Strategic Partnership
Supplier Captive
Market Exchange
Supplier’s specific investments
Bu
yer’s
sp
eci
fic in
vest
me
nts
Agro
P DFI
PAgro
Buyer Captive
Strategic Partnership
Supplier Captive
Market Exchange
Supplier’s specific investments
Bu
yer’s
sp
eci
fic in
vest
me
nts
Agro
P DFI
PAgro
Night
•Tense atmosphere due to misfit in perceptions
•Lots of “travail” needed to change this
Day
•After “partnership notion” more positive sessions
•Need to demonstrate savings
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Closer Ties Between Agro & DFITools to demonstrate potential gains
Base case Fluctuation within 'lung' Reduced sales volume 'lung'
Revenues 1000 978 1061Logistics costs 344 292 334Inventory costs - - 2Working capital costs - - 2Payment term advantage - - 10 ( + )Result 656 686 736
“Lung function”: sales of AS fertilisers on southern hemisphere (e.g. Brazil, South Africa, Australia)
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Managerial implications DSM Case
• “Travail” results in both alignment of perceptions vs. reality and mutual commitment to SCC
• Appropriate (quantitative) tools are vital to increase transparency
• Travail and tools are catalysts in reinforcing trust loop
• Improved mutual trust ultimately leads to increased supply chain performance
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KPN Atos Origin Case:Inter-firm collaboration
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What went wrong • KPN In-sourcing capabilities gone
• Cost only drive, invoking penalties
• No demand organization in place
• Revenue Guarantee leads to complacency
• Current contract form ineffective
• Continued asset utilization drive at Atos (P&L)
Effects• KPN Cost down drive in conflict with Atos’s Revenue aspirations• Complacency at Atos creates major irritation at KPN• No incentive to Atos to enhance asset productivity• KPN Businesses not committed to overall deal
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October 2003: Initiated turnaround• Bend or bust message to Atos• From Penalty to Incentive:
– Remove Revenue Guarantee/ Penalty Exposure– Joint Key Performance Indicators (KPIs), closely connected to KPN’s
Leading Business Indicators– KPIs linked to process outputs/”deliverables”
• Advantages KPN:
─ Better customer service─ Steering/incentive
mechanism─ Improved decision making
• Advantages Atos:
─ Maintain KPN as customer─ Road to new business─ Achieve “strategic
ambitions”
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Concluding Root-Cause analysis Delivery Process: March 2004
• Customer interaction takes place through processes, yet
current way of working is stove-piped (“functional silos”)
• Little prevention, rather “fire fighting” symptoms
• No feedback to Atos on KPN’s customer complaints
• KNP & Atos account managers did not align regularly
• Need to define Process KPIs, i.e. % “Aftercare needs”
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Main conclusion: The (customer) delivery process should be managed as a whole
New approach• Manage the process as a whole from joint (‘smart’) office• KPN and Atos cooperate to improve customer satisfaction • Atos accepts ‘partner in business’ position in this process
Improvement KPI’s:• % Aftercare needs down from +/- 15% to 9 % in 4 months• In May 2007 further reduced to about 5 %
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Lessons learned
• Outsourcing a mess leads to in-sourcing a mess • In these complex settings, there is no clear distinction between
buyer (who delegates) and supplier (who engages)• Complexity of processes and systems inhibit allocating
the burden of non performance towards a single party • In fact buyer & supplier are co-producing
• Joint development of joint KPIs assures commitment • Rewarding both parties (win-win) is key in this concept• Process cannot be managed from helicopter• Ultimately, people (at both sides!) make the difference
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Concluding remarks
• True SC improvements start at operational (process) level, yet alignment with higher management levels is key
• Travail (e.g. dedicated workshops) and tools (e.g. collaborative KPIs) enablers to make change happen
• Be aware of indirect functions “sabotaging” such improvements cross-functional approach essential
• External, trusted parties may act as “catalyst” in developing collaborative buyer-supplier relationships, especially in cases with “perceptual differences”