Supplier Management – Mystery or Mastery?An Introduction to Supplier Management
Brought to you by:
and
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
panel:
http://www.biosupplyalliance.com
Senior Director, Supply Chain Operations, BioMarin Pharmaceutical Inc.: Isaac has 31 years experience in Biotechnology with roles in Manufacturing, Regulatory Affairs, Information Systems, Ethics, Strategic Sourcing, and Supply Chain. Prior to joining BioMarin, Isaac was a Director of Strategy for the Purchasing & Supplier Management Group at Baxter Healthcare’s BioScience Division. He has worked for small biotech startups and for a supplier to the biotech industry. Isaac has an MBA from Babson College.
Associate Director of Supply Chain Management, MAP Pharmaceuticals, Inc.: Tim has over 10 years of Medical Device and Pharmaceutical Supply Chain Management experience with large and small businesses. Tim is a Chartered Engineer with the UK-based IET, and has a Masters degree in Industrial Automation. Tim has worked in manufacturing and R&D groups, as well as a Strategic Sourcing and Supply Chain positions in both corporate and business-unit roles.
Senior Director, Purchasing & Supply Management, Elan Pharmaceuticals Inc.: Jim has over 25 years experience in biopharmaceuticals having held positions at Genentech, Tularik, Amgen, and Gilead. A lifetime C.P.M., Jim has served on the Institute for Supply Management (ISM) Pharmaceutical Forum Board of Directors and was a founding member of the Biotechnology Purchasing Association. Jim has an MS in Procurement & Contract Management from St. Mary’s College of California and a BS in Biology from University of South Carolina.
Global Procurement and Supply Leader, Bio-Rad Laboratories: Mark brings over 21 years private & public sector experience in supply chain management & global sourcing, Lean manufacturing & operations planning, Six Sigma Quality process improvement, acquisition assimilation, organizational change management, complex outsourcing & global sourcing initiatives serving in roles of increasing leadership responsibility with global companies such as NCR, Solectron, Asyst Technologies, Apple Computer, & Celerity Group Inc. Mark holds a BSEE from the University of Illinois in Urbana-Champaign and was commissioned as a Marine Officer. He attended National University graduating with an MBA.
Mark Buck
Jim Latimer
Isaac Young
Tim Jordan
Agenda10:00 – 11:30
• Preamble• Supplier Segmentation• Internal Management Architecture• Strategies• Supplier Performance Monitoring• Total Cost of Ownership (TCO)• Summary• Q & A• Next up? Options for future presentations
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Process
http://www.biosupplyalliance.com
Emerging biopharmaceutical companies
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A reactive business environment characterized as:• Conflicting priorities – getting to market now versus surviving
in the market later• Investment is in product development, not infrastructure• Purchasing “inherits” the supplier list• Supply risk is rarely considered• Value of any expertise is in crisis management• Multiple customers
Internal:• R&D• Quality• Finance• Regulatory Affairs• Manufacturing
External:• Patients• Doctors• Regulators• Reimbursement entities• Politicians / Society
The External StageIssues:• Rapidly changing environments - upstream & downstream• Increasing operational & security risk in supply chains• Expanding cost pressures / requirements for capital preservation• Accelerated innovation / accelerated obsolescence• Increasing emphasis on environmental impact & sustainability• More and more data, but not necessarily more and more knowledge
Imperatives:• Development of agility as the primary response to continued
uncertainty• Tolerance for ambiguity must become preparedness for ambiguity• Design for supply must become an integral part of product and
business development – availability / scalability / sustainability• Resilience
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Purchasing versus Strategic Sourcing
Historical Purchasing
• Purchase order management• Primarily an Administrative role
– little to no involvement in corporate or supply chain strategy development
• Little to no involvement in sourcing process
• Limited expertise with materials / services procured
• Narrow focus on purchase price and delivery
• Low consideration of supply risk
• Predominantly reactive
Strategic Sourcing
• Supplier management• Develops and implements long
term supply strategies aligned with corporate strategy
• Involved in supplier selection and development early on
• Value add resource to internal customers
• Broad perspective on multiple cost elements
• Responsible for managing supply risk
• Driven to be proactive
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Have An Articulated VisionDescribe what a world class supplier management function would look like at your company
examples:• There is a clear delineation of suppliers based on their strategic
importance. • Formal, characterized structures exist that define the relationship
with a supplier.• Supply base strategies exist and are based on robust industry
intelligence.• Supplier relations are structured around common goals• Opportunities for innovation transfer have been maximized and
monitored.• A quality system based supplier performance and development
program is in place.• The supplier base reflects a conscious implementation of
documented policies in support of diversity and sustainability.
Document What You DoWhat:• Policies, procedures, operational design, operational strategies, goals &
achievements, points to consider, supplier performance, total cost evaluations, category strategies, meeting minutes, etc.
Why:• Documents build equity in the form of a knowledgebase, not just short term
value adds• Documents provide the when and why of the lessons learned so the wheel
doesn’t get invented again• Documents articulate the value added and facilitates the communication of
that value to the rest of the organization• Makes it “official” – they’re required to stand up in a financial audit
How:• Start thin – it’s better to have a document that is weak than to have no
document at all• Consider leaving out of quality documentation system (no FDA review, no
deviations if not followed to the letter, etc.) • Do have revision control, revision history, reviewer signoff
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Supplier Segmentation
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
http://www.biosupplyalliance.com
Defining a Supplier Base
Formally stratify or categorize your Supplier base to focus resources where they are most valuable
– Manage total cost of acquisition
– Increase operating efficiencies
– Foster better communication
– Better leverage the knowledgebase of all parties
– Minimize risk
– Nurture opportunities for transfer of innovation
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How to characterize the Suppliers
Considerations for classification– Category of spend
• Which commodities are involved
– Amount of spend– Direct vs. Indirect classification– Single source / sole source status– Criticality to operations– Strategic importance– Level of perceived risk – Bandwidth of your resources
• How many can actually be managed with the resources available
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Example Worksheet
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Criteria Description Weight Scale ValueStrategic Role 25% 7
High 10 >6 Level 1 XMedium 5 4 - 6 Level 2 X
Low 0 2 - 4 Level 3 X<2 Level 4 X
Quality Risk 25% 9High risk 10
Medium Risk 5Low 0
Level 1 XComplexity Risk 15% 6 Level 2 X
High 10 Level 3 XModerate 5 Level 4 X
Low 0
Supply Risk 25% 3High 10
Medium 5 Level 1 XLow 0 Level 2 x
Level 3 xSpend 10% 2 Level 4 x
>$1M 10$250K - $1M 5
< $250K 0
Management Override 1 Level 1 XNotes: Level 2 x
Level 3 xTotal Score 6.9 Level 4 x
Monitoring
Business Reviews
Strategy ReviewsSupplier Class Qrtrly Bi-annual Annually static
Supplier Class Qrtrly Bi-annual Annually
Internal Only
Supplier Class
Qtrly Scorecard
Annual Scorecard
No Scorecard
Total Score
Supplier Class
Qualificationannual audit
2 year audit
survey only
not required
assessment of the potential impact of a quality failure on a patient
level of sophistication / intricacy of a material or service including any I.P. protection or other esoteric factors
projected spend for material or service over next year or other appropriate time period
the extent to which the material or service factors into the overall success of corporate goals and objectives
assessment of the potential for interruption to the continuity of supply and its impact on operations
Supplier Classification
TRAIT / DOMAIN
Transactional Collaborative Alliance
Number of Suppliers Many Some Few
Communication No specific Systemic Systemic
Competitive Advantage No Med- High High
Continuous Improvement No Opportunity VIP
Difficulty Change/Exit Easy Difficult Very Difficult
Duration of Relationship Short term Mid/Long Term Long Term
Avoid/Resolve Issues Reactive Developing Proactive Proactive
Focus Lowest price Total Cost Best TCO / Risk Mitigation
Level of Integration None Medium High
Quality Incoming Inspection Certified Quality Joint Liability
Dedicated Resources Few, Low Skill Professional Dedicated
Service Level Low Developing High High
Forecasts P.O. Communicated Shared / Co-developed
Type of Interaction Tactical Cooperative / Collaborative Strategic Synergy
Types of Relationships
Consider how the relationship can be defined and what that means to available resources and the ROI on the effort involved.
Example:
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Segmentation Profile Example
Tier 4 Tier 3 Tier 2 Tier 10
50
100
150
200
250
300
# o
f su
pp
lier
s
Office SupplyJanitorial ServicesComputer software
suppliers
• eTools• Price / Service
Agreements• RFP’s
Mechanisms
Examples
Commodity based, cost only focus
Characteristics
Lab SupplyFreight forwardersEmployee benefits
providers
• Annual reviews• Service
agreement• Internal surveys• Benchmarking• Risk mgmt plan
Commodity, higher impact on operating environment
Clean room garments
Testing Laboratories
• Scorecards• Category Teams• Bi-annual
Business Reviews
• Bi-annual audits• Risk profiles• BC / DR Plans• Inventory Plan• Change Control
Agreement
High importance, widely available, readily changed
Critical raw materials
Contract Manufacturers
• Scorecards• Technical
Category Teams• Qtrly Business
Reviews• Bi-annual audits• Financial
monitoring• Risk profiles• BC / DR Plans• Inventory Plan• Supply
Agreement
Critical impact, high cost of change
Collaboration ContinuumTransactional Engaged
Defining a Supplier Base• Goals:
– More engagement for suppliers that play a higher value role in your operations
– More expedient development of management strategies based on “where a supplier fits”
• Be cautious in the use of terms such as preferred supplier / key supplier / primary supplier as descriptors / labels without considering the ramifications of existing connotations
• Repeat periodically (defined) to re-class Suppliers as appropriate
• Pre-screen the vendor master– It is probably populated with every payee the company has
ever written a check to – not a good starting point• Available resources may influence tier volume – work with what
you have
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Internal Management Architecture
Supplier SegmentationEnd of:
Next:
pause for questions
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
http://www.biosupplyalliance.com
Selecting An Operating Model
Define how procurement activity and supplier interaction across the entire organization is structured both now and where it could / should be in the future:• Decentralized
– Procurement activity, including any policy or other governance, is disbursed across the organization without any centralized oversight (typically just financial controls)
• Centralized– All procurement activity / third party interaction occurs in a single group
• Hybrid– A significant, defined subset of procurement activity is centralized to a
single group with the balance being fully decentralized• Center-Led
– A single group is responsible for policy and oversight of any decentralized activity, setting standards, consolidating volumes, driving compliance, etc. with decentralized transactional activity across the organization
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Supplier Management Mechanisms• Category Managers (sometimes referred to as
Commodity Managers)• Category Management Teams• Business Reviews• Category Strategies• Performance Monitoring / Supplier Scorecards• Executive Oversight• Corporate Strategy Development Process• Process / Technology
– Sourcing tools (i.e RFx, planning forecasting tools, iRFx, eProcurement engines, reverse auctions, etc.)
– Data sources (D&B, ISM, CAPS, CPI, Web, Suppliers, etc.)– Supplier portals
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Category Management Teams• Cross-functional (and cross site if applicable) teams are
the standard, and for good reason:– Increases breadth of expertise applied to the category– Provides deeper visibility into current and future spend– Instills a greater awareness of the internal customer requirements– Improves acceptance / compliance of agreements– Fosters credibility internally and with Suppliers– Creates greater access for Suppliers to focused areas in the
company to improve collaboration and understanding of the customer’s requirements
– Facilitates greater opportunity for management of innovation transfer from the Supplier
– Promotes more awareness of the complexity and magnitude of other team members roles, aiding in the breakdown of organizational silos
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Category Management Teams
• Output is the articulated category & supplier strategies & tactics• Team constituency should bring the technical knowledge base together
for current and future activity but also get upstream sufficiently to impact product and process design for supply risk reduction within that category – Design for Supply
• Stakeholders are not necessarily the Subject Matter Experts (SME’s) – SME’s may be found in some unlikely places
• Team constituency can be dynamic – an opportunity to broaden skill sets, increase the diversity of input, and adapt current category strategy
• Remain sensitive to conflicting priorities– Diversity in function to function focus and priorities
• Transparency – no hidden agendas• Supplier councils (steering committees) – when a Supplier has multiple
inroads into your organization
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Agenda Example:• Company Updates • Commodity Review• Sales History Review• Business Forecast Updates • Supplier Performance (Scorecard Presentation)
– Quality Issues– Delivery Issues– Service Issues
• Pricing Issues• Project Updates• Opportunities
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Business Reviews
And document the meeting minutes as well as any pre-meetings and / or debriefs
Periodic, formal, proactive engagement for review of the relationship to assure alignment and optimization.
Supplier Business Review Criteria Worksheet - Template
Supplier Name Commodity Products/Services
Annual Spend
> $1mil (10pts)
Annual Spend $250K-
$999K (8 pts)
Annual Spend $100K-
$249K (6 pts)
Sole Source
GMP Material (10 pts)
Multi Dept
Impact (5 pts)
Product Portfolio -
Volume and
Diversity (5 pts)
GMP Material/Service (5 pts)
Mgmt Overide (n pts)
Total Points Frequency
Tosoh Chem/Bio resin 8 10 5 5 5 20 53 Qtrly
Invitrogen Chem/Bio media 6 5 5 5 0 21 Annual
Sigma Aldrich Chem/Bio chemicals 8 3 5 5 10 31 Bi-annual
CDW IT hrdw/sftw IT hrdw/sftw 0
Dell IT hrdw/sftw IT hrdw/sftw 0
World Courier Logistics/Freight Logistics/Freight 0
Flow Comp Prod Disposables hoses,fittings 0
Fedex ERS Logistics/Freight Logistics/Freight 0
Doe & Ingalls Chem/Bio mfg chemicals 0
SBM Gen/Ops Sev cleaning services 0
Staples Gen/Ops Sev office supplies 0
Cole-Parmer Prod Disposables tubing/fittings 0
SAFC Chem/Bio media 0
Millipore BPC, Filters bags, filters 0
Pall Filters filters 0
Sartorius Filters filters, bags 0
VWR Lab Equip/Supplies lab equip/supplies 0
HyClone Prod Disposables BPC 0
Praxair Gen/Ops Sev specialty gases 0
GE Healthcare Resin resin 0
3M Filters filters 0
Prudential Gen/Ops Sev cleanroom gmnts 0
POINTS LEGEND:
Total Points Review Frequency
>50 Quarterly
30 - 50 Bi-Annual
< 30 Annual
2011 Supplier Business Review Schedule
Vendor Name Category Product (s) 2010 spend Frequency Date Buyer
Cole-Parmer Prod Disposables tubing/fittings $ 5,000 Bi-Annual IYCorp Express/Staples Office Supplies office supplies $ 10,000
Contract Renewal 14-Feb IY
CUNO/3M Filters filters $ 50,000Bi-Annual
9-Feb IY
Doe and Ingalls Chem/Bio chemicals $ 500,000 Qtrly 25-Jan IY
Flow Components Prod Disposables process hoses, connectors $ 250,000 Annual IY
GE Healthcare Resin resin/columns $ 1,000,000 Annual 11-Mar IY
HyClone BPC BPC $ 500,000 Bi-Annual 9-Feb IY
Millipore Filters, BPC Filters, BPC $ 250,000 Annual 4-Jan IY
Pall Filters filters $ 500,000 Bi-Annual 7-Feb IY
Praxair Gen/Ops Sev lab/specialty gases $ 300,000 Annual 10-Mar IY
Process HQ Prod Disposables Process hoses $ 100,000 Annual IY
Prudential Gen/Ops Sev Cleanroom garments $ 250,000 Annual 4-Mar IY
SAFC Chem/Bio media $ 2,000,000 Qtrly 15-Mar IY
Sartorius Filters filters $ 1,500,000 Qtrly 11-Feb IY
SBM Gen/Ops Sev Cleanroom cleaning/janit $ 300,000 Annual 17-Feb IY
VWR Lab Equip/Supplies lab supplies/chemicals $ 3,000,000 Qtrly 27-Jan IY
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Business Reviews
Strategies
End of:
Next:
pause for questions
Internal Management Architecture
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
http://www.biosupplyalliance.com
Supplier Tactics and Responses – Examples:• Going direct to end user – excluding Purchasing
– Include end user on Category Teams– Establish “facilitation” policies with guidelines
• Focus on upstream product development to get into hard-to-change regulatory filings– Get involved in Product Development process, involve Product
Development on Category Teams– Establish contractual agreements early on in relationship– Make prolific use of the term “or equivalent” in regulatory filings
• Getting “sticky”, getting into multiple areas / categories making it more difficult to switch supplier out– Manage supplier within one Category team but monitor / report
on all category involvements– Rolled up scorecard (all areas) is basis for business reviews
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Response: Category Management
Best-in-class strategic sourcing organizations add value in numerous areas, not just in lowering prices:
• Policy development and monitoring• Guidance for non-procurement related interactions• Reduced time to market• Standardization of specifications• Working capital reduction
– Reduced inventories, vendor managed inventories– Extended payment terms
• Demand reduction / management– Promoting alternatives– Matching procurement to requirements
• Process optimization across the Supply Chain• Facilitating innovation transfer from suppliers• Risk reduction / change control / continuity of supply
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Category Management Process
Categor
yDefinitio
n
Analysis
Strategy
Implementation
Review
There are multiple models that have been published supporting endless academic discussions. All work towards the same goals.
Example of a 5 step model:
Example of a 8 step model:
Category Management Process
Supplier Management
Supplier Development Program
Negotiations and Contracts
Supplier Evaluation
Supply Management
Supply Chain improvement
Risk Assessment
Risk Mitigation
Monitor, Measure and Communicate
Supplier Review Meeting
Supplier Improvement
Stakeholder Feedback
Category Assessment Category Strategy Category Sourcing
RFPSupplier SelectionEvaluate QuotationNegotiation plan / performAgreementImplementManage + Maintain
Spend Analysis
Material/Service Analysis
Utilization/Dissemination
Market / Industry Analysis
Strategy Development• Perform Strategic Analysis• Generate and Evaluate Options• Generate Source Plan• Obtain Strategy Approval
Strategy Realization• Implementation Plan• Communication plan• Sourcing plan
Supporting elements of the process• Demand analysis / spend analysis
– Current– Future– Use category / commodity codes to support future
analyses• Material / Service analysis
– Origin– Competing demand– Technology direction
• Market / industry knowledge – must think global– Fragmented / concentrated / side line or strategic focus– Regulatory concerns
• Benchmarking• Company culture
– Appetite for change– The curse of success - If it ain’t broke don’t fix it
• Supplier cultures
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Strategic statements - examples• Consolidate number of suppliers to increase leverage & reduce costs• Increase number of suppliers to increase competition• Leverage Group Purchasing Organizations• Collaborate to reduce supply risk• Facilitate innovation transfer / Integrate suppliers into product
development process• Improve sustainability profile• Focus on other total cost elements• Manage demand• Standardize specifications• Outsource / in-source material or service• Invest in key suppliers• Become customer of choice for supplier• Expand the currency of the business
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Gap Analysis Example
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Cycle Time
Sustainability
Cost
Agility
Quality
Risk
Strategic Performance by Focus Area
Current Target
Set strategies over interim time periods (i.e. 1 year, 3 years, 5 years) and measure progress to close the gaps
Supplier Relationships
Secure the relationship and
leverage the value
Commoditize
Structure towards
Collaboration / Alliance
Remedy or replace
Complexity / Effort of relationship
Val
ue o
f re
lati
onsh
ip
Buyer Dominant Relationship
Independent Relationship
Interdependent
Relationship
Supplier Dominant Relationship
Supplier Strength
Buy
er S
tren
gth
Category strategies and supplier strategies drive each other in an iterative process
Culture
Internal culture / Supplier culture alignment– Focus horizon (short versus long term)– Similarity of values– Over focus on select, key staff – Concomitant sensitivity to all stakeholder
challenges – Ethics– Commitment to corporate reputations– Awareness / approach to risk– “Far Side” versus “Dilbert”
Relationship Sophistication• Alignment of goals - Shared vision
– Common definition of success and the path to get there
• Shared customer focus• Cooperation / collaboration• Trust
– performance to commitment– Predictability– Consistency
• Open & effective communication• Leverage competencies of both parties• Long term focus on mutual benefits• Dedication to innovation and continuous improvement• Acknowledgement of external pressures
Set Goals
Plan
Execute
MeasureImprove
React
Collaborate
Optimize Supplier Relationships
Deliver Operational Excellence across the
partnership / across the supply chain
Notes• Category strategies, if authored by appropriate cross-functional teams,
are more readily implemented and refined as the stakeholders have already been involved and continue to be the champions
• How much money are you going to spend in trying to save money?• Remember the zero-sum game concept
– If your gain is your supplier’s or customer’s loss, it may not be sustainable– Shifting costs to other areas does not represent value add for the Company
• Even if it can’t be measured, it still can be improved and reported• Beware going after measurable dollars by taking on immeasurable risk• Fundamental change across the supply chain is real legacy value
• Standardization of specifications• Economies of scale• Leveraging core competencies wherever they are• Lean processes• Cost of Quality• Resilience
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Supplier Performance Monitoring
StrategiesEnd of:
Next:
pause for questions
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
http://www.biosupplyalliance.com
Supplier Performance Measurements
A common tool for most environments with demonstrated results
Supplier Performance Measurements
Why
&
What
Measurements
Measurement Needs of CEOs/PresidentsThe CEOs/presidents of the 1,000 largest firms (500 manufacturing and 500 service) and 200 best small firms, when surveyed on their need for purchasing measures, said the most-needed measures primarily were non-financial in nature. The five most-needed measures, in order, were:
1.Quality of purchased items2.Key supplier problems that could affect supply3.Supplier delivery performance4.Internal customer satisfaction5.Purchase inventory dollars
Center for Advanced Purchasing Studies
Example 1:
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Example 1:
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What has worked and what hasn’t• Suppliers took notice and some even used the scorecards internally
for communication and improvements• It did (sometimes) drive focus to areas that needed it• Measurements were rather easy to generate, and generally, looked
pretty good• It played well with the wave of Six Sigma and Lean initiatives that
were sweeping business• Some Suppliers waved their high scores around like some victory
banner• Some Buyers did the same• The scorecard frequently did not reflect how either party looked at
the relationship – a good scorecard sometimes did not mean a good relationship
• A (too precious) few saw an opportunity for a deeper dialog and a vision of real improvement for the Supply Chain
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Misuse of Supplier Metrics
• Worse than no metric? Not knowing what to do with the tool and its results before implementing it
• Does the metric matter (i.e. 3/1 window on delivery)?
• Ease of creation useable value
• Does the metric reflect what it implies (Quality)?
• Precision accuracy
• The metric, unto itself, cannot be the sole deciding factor in formulating action, as numbers do not yet tell all
• Be careful attempting to “formulate” a significant element of your responsibility – If your job could be automated….
• Einstein’s theorem: “Not everything that can be counted counts, and not everything that counts can be counted.”
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The Role of Supplier Performance Metrics
• Education– Performance visibility / improvement guidance– Identify inefficiencies / continuous improvement
• A language for communication– Revelations– Set & communicate standards / goals
• Alignment• Objective evidence for contrasting against subjective
perspectives• Decision support – guidance, not mandate• Risk mitigation• Supplier selection – competitive evaluations
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Example 2:
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Example 2:Qtr 1 points possbl Qtr 2 points possbl Qtr 3 points possbl Qtr 4 points possbl
1 3 1 2 4 2 2 4 2 2 4 2 2
2 4 2 2 4 2 2 4 2 2 4 2 2
3 3 1 2 3 1 2 4 2 2 4 2 2
4 Supplier consistently communicates changes in advance 3 2 4 4 4 4 4 4 4 4 4 4
5 Supplier provides transparent insight into their strategy and business operations 4 2 2 4 2 2 4 2 2 4 2 2
6 Supplier provides stable, long term pricing 4 4 4 4 4 4 4 4 4 4 4 4
7 3 1 2 4 2 2 4 2 2 4 2 2
8 1 n.a. 0 1 n.a. 0 1 n.a. 0 1 n.a. 0
9 4 2 2 4 2 2 4 2 2 4 2 2
10 Supplier has not declared a force majeure or other supply interruption 4 2 2 4 2 2 4 2 2 4 2 2
Qtr 1 points possbl Qtr 2 points possbl Qtr 3 points possbl Qtr 4 points possbl
11 1 n.a. 0 3 1 2 4 2 2 4 2 2
12 1 n.a. 0 4 2 2 4 2 2 4 2 2
13 1n.a. 0
1n.a. 0
1n.a. 0
1n.a. 0
Qtr 1 points possbl Qtr 2 points possbl Qtr 3 points possbl Qtr 4 points possbl
14 3 1 2 4 2 2 4 2 2 4 2 2
15 4 2 2 3 1 2 3 1 2 4 2 2
16 4 2 2 4 2 2 4 2 2 4 2 2
Qtr 1 points possbl Qtr 2 points possbl Qtr 3 points possbl Qtr 4 points possbl
17 4 2 2 4 2 2 4 2 2 4 2 2
18 4 2 2 4 2 2 4 2 2 4 2 2
19 4 2 2 4 2 2 4 2 2 4 2 2
Performance % points possbl Performance % points possbl Performance % points possbl Performance % points possbl
82% 28 34 92% 35 38 97% 37 38 100% 38 38
Packing slips and/or other required shipping documentation is included
with shipments including P.O. #.
Shipments are packaged according to delivery requirements and local notification
or other delivery procedures are followed
Invoices are accurate and legible
Supplier accommodates information requests in a timely manner
Invoice Evaluation – 6 points
Statement
Purchase Order is identified on the invoice
Receiving Evaluation – 6 Points
Statement
Shipments arrive in a safe and satisfactory condition
Shipments are suitably packaged and labeled to facilitate inspection
and sampling
Supplier provides satisfactory responses to material issues consistent with the urgency of the issue
Statement
Required Quality Documentation is accurate and available in a timely manner
communications
RUSH orders are accommodated with efficiency and accuracy
Supplier is proactive in suggesting opportunities for value improvement and
works closely to realize that value
Supplier has formal and tested risk mitigation and contingency plans in place
Supplier has documented and effective initiatives on sustainable practices ("green" initiatives)
Purchasing Evaluation - 24 Points Possible
Statement
Sales representative keeps Purchasing informed and involved with regular
Supplier shares cost savings and / or insight into cost factors.
Inspection Evaluation – 8 points
Sometimes =1
Consistently = 2
Sometimes =1
Consistently = 2
Consistently = 2
Consistently = 2 Consistently = 2
Consistently = 2
Sometimes =1
Consistently = 2
Consistently = 2
Consistently = 2
Sometimes =2
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
Consistently = 2
Consistently = 2 Consistently = 2Sometimes =1 Consistently = 2
Not Applicable
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
Sometimes =1 Consistently = 2Not Applicable Consistently = 2
Consistently = 2 Consistently = 2Not Applicable Consistently = 2
Consistently = 4 Consistently = 4 Consistently = 4
Consistently = 4Consistently = 4Consistently = 4Consistently = 4
Not Applicable Not Applicable Not Applicable Not Applicable
Not Applicable Not Applicable Not Applicable Not Applicable
Sometimes =1 Sometimes =1Consistently = 2 Consistently = 2
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
Sometimes =1 Consistently = 2 Consistently = 2 Consistently = 2
Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2
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Qtr 1 points possbl
11 4 2 2
12 4 2 2
134
4 4
Qtr 1 points possbl
14 4 2 2
15 3 1 2
16 3 1 2
Qtr 1 points possbl
17 4 2 2
18 3 1 2
19 4 2 2
Performance % points possbl
88% 37 42
Packing slips and/or other required shipping documentation is included
with shipments including P.O. #.
Shipments are packaged according to delivery requirements and local notification
or other delivery procedures are followed
Inspection Evaluation – 8 points
Receiving Evaluation – 6 Points
Invoices are accurate and legible
Supplier accommodates information requests in a timely manner
Statement
Purchase Order is identified on the invoice
Invoice Evaluation – 6 points
Statement
Shipments arrive in a safe and satisfactory condition
Shipments are suitably packaged and labeled to facilitate inspection
and sampling
Supplier provides satisfactory responses to material issues consistent with the urgency of the issue
Statement
Required Quality Documentation is accurate and available in a timely manner Sometimes =1Consistently = 2
Consistently = 2Consistently = 2
Consistently = 4
Sometimes =1Sometimes =1
Consistently = 2Sometimes =1
Consistently = 2Consistently = 2
Consistently = 2Sometimes =1
Consistently = 2Consistently = 2
Consistently = 2
Example 2:
Risk of Rolled Up Scores
An aggregate score masks the issues – you’re looking for the low numbers, not the weighted mean
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Example 3:BioU, Inc.
BioSupplier
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Example 3: Comparing SuppliersSupplier X Supplier X
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Example 4: RAW MATERIALS SUPPLIER SCORECARD 2011SUPPLIER NAME: BioSupplierPERIOD: JAN 1-MAR 31 Rating This Period ………………> 90
ANNUAL REVIEW StatusBusiness continuity plan is in place Yes Rating:Risk mitigation plan is in place for key materials Yes 95-100: ExcellentSupplier has a supplier management program in place Yes 85-94: SatisfactoryAudit status Compliant 85<: Needs ImprovementContract in place NoI. SERVICE
Metric
Always = 5 Most Often = 3 Sometimes = 1 Never = 0 Weight Total Points
Rush orders are accommodated with efficiency and accuracy 1 1 1Technical support is readily available 5 2 10Sales rep keeps Purchasing informed on regular basis 3 1 3Pricing is stable, with minimal adjustments 5 2 10Orders adhere to established lead times 3 1 3Market conditions are communicated to Purchasing 5 1 5Customer Service is responsive and knowledgeable 3 1 3Shipments arrive in a safe and satisfactory condition 5 1 5Packing Lists are included with shipments 5 1 5Changes are consistently communicated in advance 5 2 10Opportunities for value improvement are proactively suggested 5 2 10Purchase order is identified on the invoices 5 1 5Requests for information are accurate and timely 5 1 5
TOTAL SERVICE POINTS (85 points possible) 75II. DELIVERY
GMP Products OnlyNumber of Shipments On Time Delivery Rating
1 1 100%95-100% = 5 90-94% = 4 84-89% = 2 84% < = 0 Weight Total Points
TOTAL DELIVERY POINTS (15 points possible) 5 3 15III. QUALITY
GMP Products OnlyNumber of Shipments
Major (-500) Moderate (-300) Minor (-100) None (0) Quality Rating
TOTAL QUALITY POINTS 1 0 0COMMENTS:
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Example 5 – Supply Risk Scorecard: SUPPLY RISK SCORECARD 2010
Supplier Name: BioSupplierManufacuring/Distribution Location: U.S. Based
Risk Description
Probability Rating Frequent = 10 Occasional = 5 Rare = 2 Inprobable = 0
Severity Rating Catastrophic = 10 Significant = 7 Marginal = 4 Negligable = 1
Total Probability and Severity
Points
Shortage in Supply Market 2 10 20
Natural Disasters 2 10 20
Man Made Disasters 2 10 20
Border Closings 2 7 14
Labor Actions 2 7 14
IT/Communication Failures 2 7 14
Legal Liabilities 2 7 14
Inability to accommodate volume increases 2 10 20
Political Risk (i.e. tariffs, regulations, FDA, etc.) 2 7 14
Transportation/Logistics 2 7 14
Financial Failures 2 7 14Other: Sole source, no supply agreement 10
TOTAL POINTS 188
Risk Assessment Rating<100 Acceptable101-179 Acceptable with Mitigation Plan>180 Unacceptable
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Assessing and Engaging Suppliers• Focus on constructive, not adversarial information /
presentation– Scorecards should not be “scarecards”
• Use all internal resources – every opinion counts• Balance long term direction with short term performance• Use subjective areas as well (innovation, risk, culture, etc.)• Don’t confuse precision with accuracy• Don’t roll up the scores into one reportable number• Consider making category specific – not one template for all• If your scorecards are always running in the 95% - 100% range,
you’re measuring the wrong things• Use scorecard templates to identify new suppliers• If “metrics that matter” can help inspire and drive continuous
improvement, then why wouldn’t we have our suppliers measure us? Consider actionable metrics for both parties and use them.
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Total Cost
Supplier Performance MonitoringEnd of:
Next:
pause for questions
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
http://www.biosupplyalliance.com
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Total Cost
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• Purchase Price• Sales / Use Tax• Freight• Handling charges• Packing charges• Hazardous materials charges• Customs filings charges• Value Added Tax• Installation costs• Disposal costs• Impact on operations• Consulting / engineering / implementation
costs• Cost of supplies / consumables / spare parts• Cost of maintenance / service / calibration• Cost of licenses or other fees
• Cost of training• Salvage value• Cost of upgrades• Validation• Compliance qualification• Supplier qualification• Prototyping• Ongoing testing & compliance – Cost of
Quality• Distribution costs• Warranty cost• Cost of doing business with (new) Supplier• Cost of change if required in the future• Lead times / cost of required inventory• Exchange rates• Anticipated price inflation
All factors impacting the value of the acquisition must be considered:
Consult all stakeholders when assessing costs, not just the end user:
• Finance, EH&S, QA/QC, Validation, Legal, Supply Chain, Manufacturing, Regulatory Affairs, Compliance, Sales & Marketing, Business Development, etc. – all may have a stake in the choices you make
Economic & FinancialEconomic CollapseCurrency DevaluationLabor unrest, strikesLabor ShortageMajor Market FluctuationsQuick Decline in earningsHostile TakeoverNegative Cash FlowBankruptcyFinancial/Bank CollapseOther investment failings
Political & SocialGovernment Policy ChangeImprisonment of employees or family membersRegulatory ChangeCivil UnrestMartial Law
Brand/Org ReputationProduct & Service Liability, recall & failure Obsolescence CounterfeitingOrganization Ethics or Moral
Violations Improper Business Legal Issues Black Market Dealings
Weather & NatureHurricanes, Cyclones, Tornadoes & High WindsTyphoons / Torrential RainsEarthquakes & VolcanoesRising Water, Tidal Waves & TsunamisExtreme Heat/ColdGlobal Climate ChangeWildfireMudslides and Sink Holes
Environment & Human ConditionChemical, biological, radioactive & nuclear spillFire/ExplosionWater ContaminationPublic Utility FailureEmissions & waste Clean-upMold and AsbestosInfestations and pest controlWater Leaks/Levy breaksPhysical Structure Collapse
Criminal & TerroristProduct TamperingTerrorist Acts/ThreatsArson & BombingIndustrial EspionageSabotageKidnapping or ExtortionFraud & TheftProduct Use by TerroristWorkplace ViolenceCounterfeiting
InformationalLoss of IP, Confidentiality or Trade secrets (Tribal knowledge)Information Integrity or Quality of dataLoss of key customer, supplier, production data
TechnologicalCorporate Hardware FailureEnterprise SW failure or corruptionCapacity IssuesBandwidth or services issueLegacy or relevance issues
StrategyUnknown competitionProduct Irrelevance or misplacementPoor Marketing PlansSales Force Target MarketsPoor Acquisition StrategyFailure to innovateCustomer Perception FailureImproper Supply Chain Alignment
OperationalOut of StockPoor Forecast for marketSourcing FailurePricing MisalignmentProduction Shortage/FailurePoor Change ControlProduct/Project Mgt FailureTransportation/Log AccidentWorkforce StoppageDisruption/Delay to workRestricted Access to facility
Compliance and GovernanceNon-Compliance• Statutory• Regulatory• Legal• ContractClass Action/LawsuitsCorporate Governance IssuesExecutive Misdeed, bribes, security & code of conductOversights, errors, improper practice
Health & LaborEpidemic or PandemicLong-term Health issuesDefections and lost knowledgeUnattractive market or company for talentSkills shortageWorkplace harmony
Total Cost Models Must Account for Risk
• Subjective assessment is better than leaving it out because “it’s hard to measure”
• An absolute requirement when comparing sources / options
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Examples:• Filter Housings
– Capital layout for one Supplier may be substantially less, but the housing will only fit their filters and they happen to be quite a bit more expensive or provide inferior performance
• Purification resins– Any marginal difference in the cost of the resin won’t compare to
any yield differences in performance• Major software purchase
– Implementation / validation / training / ongoing license and maintenance costs typically outweigh the purchase price
• Hazardous chemicals– Cost of disposal of any excess or the containers may outweigh
the savings from a particular Supplier’s offering• API
– Heparin
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Summary
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Summary comments
• If you can’t articulate your vision, it’s a hallucination
• Don’t let precision mask the absence of accuracy
• Pace the implementation of Supplier Management – the organization is ready for you to start but may not be ready to proceed at the same pace as you are
• Creation of a value add knowledge base that can be built upon is a great legacy, but it must be documented
• “Everything should be made as simple as possible, but not one bit simpler” (Einstein)
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Engage:http://www.biosupplyalliance.com
Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]
Options for future webinars:
o Supply Chain Risk Assessment and Mitigationo World Class Purchasing – Articulating Your Visiono Others?
To provide feedback, or if interested in becoming a member of this group, please contact Bill Coakley at 650-358-3434, or [email protected]
“Because life depends on usTM, the Bio Supply Management Alliance supports continuous learning and improvement of bio supply management professionals and the enhancement of the efficacy of the supply chain of the industry through collaboration.”
Our Mission• To build effective and efficient supply chain STRATEGY for the biotech,
biopharma, pharma and biomedical device industries by developing, advancing, and disseminating best practices, knowledge, and research.
• To encourage and promote supply chain INNOVATION within the biotech, biopharma, pharma and biomedical device industries for the highest quality and clinical outcomes in patient care and welfare.
• To create a supply chain COMMUNITY of thought and practice leaders from the business, professional association and academic sectors for information exchange, shared services, and collaboration.