Joint Service Agreements
Ron Basuweb: www.rbcon.co.uk
The 2005 JCF SeminarContact- Collaboration- Co-ordination
London, 13 July 2005
EL Performance Excellence Ltd
P
Agenda
• Industry drivers for outsourcing and partnering• Advantages and disadvantages of standard contract
supply agreements• Joint Service Agreements• JSA case example• JSA for partnerships
- incentives and penalties- tools and processes
• Supplier-Partnering Hierarchy
EL Performance Excellence Ltd
P
SUPPLIER CUSTOM ER
Receiving M anufacture Packing Distribution
Purchasing Scheduling
MPS Demand Management
Sourcing and Supply
ERP
e- Supply Chain
Physical Flow
Information Flow
Shift Of Performance Criteria
ENTERPRISE INTEGRATED SUPPLY CHAIN
Autonomous and adversarial
Opaque to the outside world
Internally focused site centric
Strategically long-term
Hierarchical and information hoarding
Technologically constrained
Enterprise excellence
Networked and collaborative
Transparent to customers and partners
Externally focused market centric
Strategically agile
Knowledge creating and sharing
Web enabled
Network Excellence
Shift towards collaborative e-Business culture
EL Performance Excellence Ltd
P
Main benefits of IT outsourcing
Source: PMP Research 2004
Don’t know
Access to a wide range of IT skills
Measurable cost savings
Improvement in service level
Able to use IT more strategically
Access to more innovative capabilities
More rapid response to business change
Other
56
52
45
44
38
35
5
8
Industry drivers for outsourcing
• Increasing costs of goods• Global manufacturing capability at lower cost• E-supply chain and collaborative economy• Relaxed regulatory control – trade, branding, GMP• Faster product transfer from R&D to manufacturing• Transfer pricing and tax benefits• Growth in generic products’ market share• Release of key resources to focus in key initiatives
We want to optimise cost,capacity,flexibility and cycle time
EL Performance Excellence Ltd
P
Risks and concerns for outsourcing• Danger of giving away ‘family silver’ (manufacturing
advantage)• Issues of project management, communications and
quality• Possible delay in regulatory approval• Political issues of ‘globalisation/exploitation’• Loss of label (e.g. ‘made in UK’)
• We don’t want to throw the baby out with the bathwater
EL Performance Excellence Ltd
P
Outsourcing strategy criteria• Core competence should be kept in house• No compromise with quality, on-time delivery and
price• Communication issues (e.g. time zones, languages)
must be resolved• IT systems should be integrated (web enabled)• Service agreements must be in place• Rigorous project management approach
• Regular review and follow-up
The rule is to be world class
EL Performance Excellence Ltd
P
A global sourcing model
EL Performance Excellence Ltd
P
PATENT LIFE
VOLUME
Retain competitive advantage of new products
Divest/Third Party
ContractPartnership
OwnManufacture
Own GlobalNetwork
H
HL
L
A Product Life-cycle model
EL Performance Excellence Ltd
P
Align sourcing strategy with product life cycle
Own Global Network
Volume
TimeOwnManufacture
ContractPartnership
Divest/Third Party
Gro
wth
Lau
nch
Ma
turit
y
De
clin
e
Partnership by service level agreements
EL Performance Excellence Ltd
P
Supplier
Product Market
Market
Market Product
Product
Supplier
Supplier
CoManCO
PharmaCOPharmaCO
PharmaCO
CoManCO
Joint SLA
In-house
Standard SLA
P EL Performance Excellence Ltd
P
Standard Service Agreement:Key Features
• Quality- specification control- regulatory approval- GMP and validation
• Supply Chain- forecasting, ordering and delivery- service levels
• Total Cost of Acquisition- cost plus x%- fixed delivered price
• General- payment terms- confidentiality- termination
P EL Performance Excellence Ltd
P
Standard Service Agreement:Customer Perspective
• Advantages- well defined terms and conditions- low risk of deviation in quality and cost
standards
• Disadvantages- little opportunity for continuous
improvement- less flexibility and responsiveness- limited knowledge of supplier strengths
and weaknesses
P EL Performance Excellence Ltd
P
Strategies of Collaborative Partnership
• Partnership by Joint Service Agreements
• Strategy of learning organisation• Dual project management in technology
transfer• Interfacing ICT systems• Participation in Sales and Operations
Planning• Participation in ERP/TQM/Six Sigma
P EL Performance Excellence Ltd
P
Joint Service Agreement:Key Features
• Quality- similar to Standard Service Agreement- joint review and audit
• Supply Chain- sharing of forecasting and planning- combined continuous improvement initiatives- collaborative KPIs and incentives
• Total Cost of Acquisition- cost incentives
• General- similar to Standard Service Agreement- partnership and flexibility
P EL Performance Excellence Ltd
P
Joint Service Agreement:Customer Perspective
• Advantages- higher and more adaptive customer service- higher quality assurance- lower total cost of acquisition- competitive advantage of flexibility and
responsiveness- sustainable partnership with fewer
suppliers• Disadvantages
- more time and resources to manage?- possible know-how risk?
Case Example: ZYBANValue Chain Strategy
P EL Performance Excellence Ltd
P
PrimaryManufacture
SecondaryManufacture
SecondaryPackaging Markets
Catalytica
Technochem
Latin America
Zebulon
Zebulon
Boronia
Poznan
Aranda
Mexico
USA
Canada
Asia Pacific
CEE
EU
Africa, ME
Case Example: ZYBAN
• PRIMARY MANUFACTURE
- Drug substance: Bupropion Hydrochloride- Two stage process and a final crystallisation- Bupropion is manufactured under licence by Catalytica Inc. USA
• STRATEGY
- Retain Catalytica Inc.- Include Technochemie GMBH as an alternative source
P EL Performance Excellence Ltd
P
Case Example: ZYBAN
P EL Performance Excellence Ltd
P
• Joint Service Agreement process with Catalytica Inc.
- FMEA and risk assessment carried out- Capacity analysis showed no bottleneck- Regulatory requirements accomplished
including FDA approval- Regular review as part of Global Demand
& operations Planning process- Designated supplier in Global Supply
Chain project (Manugistics)- Joint Service Agreement formalised
P EL Performance Excellence Ltd
P
JSA for partnerships:incentives and penalties (1)
• Key Performance Indicators- customer compensates for better actual
than target- supplier compensates for worse actual
than target• Vendor Managed Inventory
- customer gives access to forecast and MPS
- supplier maintains the agreed inventory level
P EL Performance Excellence Ltd
P
JSA for partnerships: incentives and penalties (2)
• Primary Manufacture- customer owns the IP of API- higher added value of API to suppliers
• Technology Transfer- dual project management- sharing of resources, technical and
regulatory expertise• Interfacing ICT systems
- Interfacing SCM/CRM and remote access to ERP
-Extranet link to KM and e-Procurement
P EL Performance Excellence Ltd
P
JSA for partnerships:Financial Incentives
0 25 50 75 100 125 150
Pay curve
Earned Value curve
Guaranteed minimum
Performance
Earnings
Customer gain
Supplier gain
175
JSA for partnerships:
Tools and Processes
• ERP/SCM/CRM
• ECM: Enterprise Contract Management
• Balanced Scorecard
• Sales & Operations Planning
• Six Sigma programme
ECM: Enterprise Contract Management
• ‘80% of all business transactions are based on contracts’ (Accenture)
• ECM stores contracts in a repository to track actual revenue against contracted revenue
• Integrate ERP and ECM- gap in ERP- single set of data- visibility and reliability
• I-many system can handle 100,000 + contracts
P EL Performance Excellence Ltd
P
The Supplier-Partnering Hierarchy
Understand how your suppliers work
Turn supplier rivalry into opportunity
Supervise your suppliers
Develop suppliers’ technical capabilities
Share information intensively but selectively
Conduct joint improvement activities
Source: Liker & Choi, HBR, Dec 04
P EL Performance Excellence Ltd
P
EXCHANGE IDEAS IN JSAs
• If you have a cent and I have a cent and we exchange cents, you will still have one cent and I still have one cent.
• But if you have an idea and I have an idea and we exchange ideas, you now have two ideas and I now have two ideas.