hcm works -_supplier_management_programs_webinar_april_2010

Accurate Facts Lead to Accurate Decisions.

Cost Saving Partners not Cost Cutting Adversaries

Supplier Management Programs

Accurate Facts Lead to Accurate Decisions.Copyright 2010 HCM Works Inc.

Tara LamboleyModerator

Marketing communications strategy and businessdevelopment consulting firm.

Partners with industry-leading companies to developand deliver best-of-breed Webinar content focused onbusiness growth.

For more information, go to:

www.integratedmarcom.com

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Today’s seminar will focus onWhy a Supplier Management Program is essential to increasedperformance and reduced risk

Proven strategy for effective supplier management segmentation

Key components of an effective Supplier Management Program

Strategies to balance cost reduction withsupplier innovation

How proactive management of supplierperformance and contracts drives bottom-line results

"It's interesting that the moretechnically sophisticated we get, themore it is about enabling relationships.Win-win is replacing the old idea ofbeating up your suppliers. You can'tcost-cut yourself into prosperity."

Carol Park, Vice President of Industry Strategy for PeopleSoft/Oracle


Kimberly SmokeyDirector of Value Creation

SVP and Director of Corporate Services SupplierManagement with Wachovia Bank with responsibility for 21Indirect Services categories

20 Years Finance, Insurance, REtail (FIRE) and governmentindustry experience;

11 years global sourcing and procurement strategies

Extensive global management experience in 17 countriesthroughout North America, South America, EMEA, andASPAC

Proven record of success for developing effective strategiesand operational efficiencies to drive profitable businessgrowth


Ted WeynManaging Partner

Over 20 years Indirect Services ProcurementExperience

Entrepreneurial Innovator for organizations whopioneered Staffing Industry VMS Software, Statementof Works electronic processing and req-to-checkprocurement systems.

Founded HCMWorks to help organizations betterleverage the opportunities within Indirect ServicesProcurement

Consulted to dozens of Fortune 500 and InternationalOrganizations in gaining greater efficiencies withinindirect services processing.

Consulted to firms such as:


Who is HCMWorks?HCMWorks helps procurement departments gain greater control over indirect& expenditures to gain a competitive advantage in their industry.

A consulting, advisory and outsourced services provider focusing on theanalysis, strategic direction, implementation and management of indirectservices expenditures.Founded on the basis that Indirect Services Expenditures were an untappedopportunity.Seasoned experiences with a track record of proven success.Recognized Pioneers in the vendor management industry.

http://www.td.com/index.jsp

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Poll Question 1

0% 10% 20% 30% 40% 50% 60%

Don't Have a Program

Ineffective

Somewhat Effective

Effective

Extremely Effective

How would you rate the effectiveness of your Supplier Management Program?


Supplier Management Program (SMP)

As a company develops into a capable globalcompetitor, it often restructures its supply baseto optimize competitive advantage. Theprimary focus of the restructuring effort shouldbe on reduction of total cost, not purchaseprice. In addition to reducing total cost,improvements in supply base service levels,quality, reliability, and access to technology arealso achievement goals.

Excerpt from HCM white paper series, Supplier Management Programs


To develop and implement a world class supplier management programthat promotes needed to createa .

“We strive for nothing less than excellence in quality.It may take time to obtain the level of quality werequire, but we expect our supplier’s goal to be forcontinual improvement. We won’t accept anyoneremaining at status quo if the level of quality is lessthan perfect.”

Supplier Management Vision


Program Components

The constructs of developing an effective SupplierManagement program include:

Supplier SegmentationRisk ManagementMetrics ManagementExpense ManagementPerformance ManagementDemand Management


Mitigate riskStandardize services and pricing

Enhance the business relationshipEnsure quality products/services are received

Develop long and short term strategies

Manage performance with clear objective performance targets and periodicassessment

Program Objectives


Supplier Segmentation

Strong supplier relationships are characterizedby a high level of trust, mutual respect, openand efficient communications, shared risksand rewards, commitment to each other'ssuccess, and the ability to constructively dealwith differences.



Segmentation ModelsA segmentation model needs to be developed to uniquely address each companies businessimperatives. Many models have been created to address differentiating factions, such as:

Growth-Focused: Relationships able to drive growth through innovation and fund growththrough cost cutting.Three Dimensional: Initial segmentation used to allocate scarce resources, second dimensionis to determine relationship type and the third dimension is to tailor a relationship approachneeded to maximize results.Risk Management: Targeted approaches addressing specific/potential risk drivers.Multi-Dimensional: Segmentation created using multiple variables including spend,relationship, and product complexity.Potential-Based: Look towards large, aligned suppliers for potential strategic advantage.Product Development: Relationships leading to development of commercially viabletechnology.Performance Based: Clear decision rules around supplier segment mobilityMaterial Based: Commodity-based tiering places suppliers according to their product's life cycleand strategic value.Sourcing Process Step: Used as a standard opportunity analysis step in each strategicsourcing initiative


Selection Criteria• Production/Service facilities and capacity

Age, type of equipment, and personnel, etc

• Financial stability • Product/Service quality and corresponding

philosophy• Technology compliance to Bank systems

requirements• Operating efficiency• Cost and overhead structure• Joint Venture / Co-Development capability

Off-Shore requirements and CapabilitiesBusiness policies for contingency and continuityAbility, process and base line for handling, rush and off-hour requestsIndustry rankingMajor customers and suppliersManagerial skills and performanceSub-contracting requirementsCommitment to diversity initiatives

Right price

Right quality

Right quantity

Right time

Right source

Once all the above has been gathered and analyzed, the selected supplier(s) should qualify for the 5 “rights

The single most important outcome in the strategic sourcing process is the selection of the right supplier


Selection ConsiderationsBuild and maintain internal alignment. Before entering a partnership, identify stakeholders and involve them. Evaluate the “relationship fit”. Look beyond traditional buyer-supplier relationship to how potential partners fit strategically and financially with your company.Build a strong relationship while negotiating an optimal deal. Success is difficult to achieve if the relationship is adversarial.Establish common ground rules, processes and protocols.Have dedicated Alliance Managers to include responsibility of managing day-to-day relationship issues, not just operations and business strategies.Encourage collaboration in conflict resolution, negotiation, problem solving, and conducting difficult conversations. A collaborative mindset needs to be established at the corporate level so problems are mutually addressed, not framed as “ours” or “theirs”.Identify and discuss multiple Supplier relationships. Sometimes a partner is also a competitor, customer and/or supplier so determine the breadth of the relationship and manage accordingly.Periodically review the health of the alliance by conducting joint reviews to assess business goals and the quality of the working relationship.Identify and manage change. Significant business changes, such as executive moves, organization restructuring, or shifts in competitive or regulatory environment is inevitable. Plan for how changes will be communicated and managed.

Segmentation Categories

Value from different types ofsuppliers are achievable onlyafter suppliers have beenmapped to an appropriate

High

mapped to an appropriatestrategy and should beaccording to the strategicvalue of the relationship. This

Collaborative Relationship

Strategic Supplier Alliance

ake /

ortance

methodology should beinstitutionalized at all levels ofSupplier Management andSourcing to minimize resource

Transactional Relationship

Custom Relationship

Value

at Sta

Strategic Im

po

Sourcing to minimize resourceallocation on non-strategicsupplier relationships. Fourcommonly used segment

t i li t d b l

Low HighCost / Difficulty of Switching Suppliers

Accurate Facts Lead to Accurate Decisions.Accurate Facts Lead to Accurate Decisions.Copyright 2010 HCM Works Inc.

categories are listed below


Segmentation Category

StrategicAlliance

Collaborative Custom Transactional

• Cross-firm• Limited alternatives• Important to

corporate strategy• Solid performance• Strong market

standing• Long term contract• Spend

concentration• Client relationship• Joint revenue and

venture strategies

• Cross-firm• Low/moderate

switching costs• Important

commodities• Solid performance• Good market

standing• Mid-term contracts• Category spend

concentration• Client relationship• Limited long-term

co-investment potential

• LOB-specific or concentrated

• Large spend• Important

commodities• Switching costs

assessed by project• Experience with

LOB• Inter-dependency

with other utilized suppliers

• Limited long-term co-investment potential

• May or may not be market leader

• Commodity easily replaced

• Solid performance • Contracts of varying

lengths, but on average < 1yr

• May be LOB niche or enterprise, but low switching cost

• Product/Service little/no customizing


Category Overview


Supplier Risk Management

The leaner and more integrated supplychains become, the more likely it is thatuncertainties, dynamics and accidents in onelink will affect other links in the chain.



Risk Management StrategyThe concept of supplier risk management is still relatively new, as business strategies go. But in the era of global sourcing and volatile markets, supplier risk management is rapidly becoming every bit as necessary to global supply chains as in-house corporate risk management.

Today’s supply chains face risks from many factors, including:Increased globalization through outsourcing, which elongates end-to-end supply chainsAdditional regulatory compliance imposed by government entities, further complicating international tradeIncreased levels of economic uncertainty, which create additional variability in demand and supply and make it more difficult to accomplish demand supply balancingShorter product lifecycles and rapid rates of technology change, which increase inventory obsolescenceDemanding customers who have created additional time-to-market pressures by requiring better on-time delivery, order fill rates and overall service level efficiencies.Supply side capacity constraints, making it more difficult to meet demand requirements.Natural disasters and external environmental events, which can wreak havoc on global supply chains.Potential regulatory risks posed from supply chain practices associated with future regulatory non-compliance, e.g. environmental regulation changes


Risk Management Categories

Category Examples

Operational/Technological

Forecast errors, component/material shortages, capacity constraints, quality problems, machine failure/downtime, software failure, imperfect yields, efficiency, process/product changes, property

losses (due to theft, accidents, etc.), transportation risks (delays, damage from handling/transportation, re‐routing, etc.), storage risks (incomplete customer order, insufficient holding space, etc.), budget overrun, emergence of a disruptive technology, contract terms

(minimum and maximum limit on orders), communication/IT disruptions

Social

Labor shortages, loss of key personnel, strikes, accidents, absenteeism, human errors, organizational errors, union/labor relations, negative media coverage (reputation risk), perceived quality,

coincidence of problems with holidays, fraud, sabotage, pillage, acts of terrorism, malfeasance, decreased labor productivity

Natural/HazardFire, wild fire, severe thunderstorm, flood, monsoon, blizzard, ice storm, drought, heat wave, tornado, hurricane, typhoon, earthquake, tsunami, epidemic, famine, avalanche, volcanoes

Economy/Competition

Interest rate fluctuation, exchange rate fluctuation, commodity price fluctuation, price and incentive wars, bankruptcy of partners, stock market collapse, global economic recession

Legal/PoliticalLiabilities, law suits, governmental incentives/restrictions, new regulations, lobbying from customer groups, instability overseas, confiscations abroad, war, tax structures, customs risks (inspection delay,

missing data on documentation)


Risk Management Models1. Deterministic analytical models, which include mathematical programming

models (e.g. linear, nonlinear, integer, dynamic programming). Applications tosupply chain include scheduling production, distribution planning, raw materialsourcing, facility location, inventory level setting, replenishment timing andorder quantity specification, and resource balancing.

2. Stochastic analytical models, where at least one of the variables involvesuncertainty, and is assumed to follow a particular probability distribution.Examples of supply chain applications include inventory and productionmanagement problems, where demand and yield are represented as randomvariables respectively.

3. Economic models, which tend to be focused on buyer-supplier relationships.These models have a traditional base in determining the financial risks toeither sellers or buyers, given various assumptions.

4. Simulation models, which are (usually) data driven representations facilitatedby sampling from specified probability distributions.


Metrics Management

One of the key goals of businesses todayis the collection and delivery of themetrics decision makers need to maketimely, informed and well-reasonedchoices. The quality of these metricsdepends on three factors: accuracy,timeliness and presentation.

Excerpt from HCM white paper series, Supplier Management

Programs


Metrics Objectives

Establish an operating model which allows you to scale better

Understand the key drivers of output

Consistently managing the unit to your operating model

Identify a set of early warning signs that can focus your attention

Opportunity to move to best practices

Know when you need to add staff or other resources


Metrics DeliveryLinkage Between Goals and Metrics: Fundamental to a successful performance measurement system is a foundation in measurable goals that are tightly linked to the most critical corporate objectives.

Controllable and Measurable Metrics: Setting clear performance targets for each metric gives owners an unambiguous achievement standard with a high level of internal accountability by providing instant, granular visibility into its effectiveness.

Individual Accountability: When an individual is assigned responsibility for each metric, the notion of accountability moves from theory to practice. With direct visibility into individual performance (and potential implications for linked compensation), incentives are aligned to force problem ownership and speedy resolution.

Forced Trend Analysis: Forcing regular data-based assessments of progress against a suite of metrics helps detect emerging challenges in a timely fashion, rather than relying on intuition or deferring to anecdotal explanations of “what happened last year.” Simultaneously, this approach enables the function to provide a cogent and holistic situational assessment of marketing performance to the wider organization at any given time.


Metrics Collections


Poll Question 2

0% 10% 20% 30% 40% 50%

Zero

From: 1% - 4%

From: 5% - 9%

From: 10% - 12%

12% Above

What were your above contractcost savings last year?


Expense ManagementBAD habits are developed in GOOD times,GOOD habits are developed in BAD times!

Operating changes, such as developingindividual accountability and improving dataanalysis, can drive benefits now. Structuralchanges, such as simplifying operations andimproving processes, can deliver sustainablevalue.



Overview

Expense management actively employs market trending to identifychanging utilization, product enhancements, altering market structuresand supplier mergers/acquisitions/divestitures to evolve existingrelationships, where applicable.

With scrutiny on cost reduction, expense management professionals arein a prime position to drive transformational changes that result in bothImmediate savings as well as sustainable long-term value.


Expense Management has to be done as a partnership between Global Supply Chain,the business unit leads and the supplier managers to ensure consistent measurementcriteria are applied to all suppliers and process.

Expense Management Process

Step 1: Analysis

Step 2: Trend

Review

Step 3: Goal

Setting

Step 4: Planning & Organizing

Step 5: Follow Up & Control


Supplier Performance Management

Supplier performance management sets theexpectation that the suppliers understandthe customer needs and expectations, toresult in performance and competencygrowth and foster a value add strategicpartnership.



Overview

Supplier performance management brings together the components ofsupplier segmentation, risk management metrics management andconsequence management, to actively manage important supplierrelationships in a consistent, objective method that provides actionable datato make informed decisions on supplier selection.

A disciplined performance management program is the best venue forsuppliers to contribute to most advantageous outcomes of expensemanagement and demand management strategies, as they interact withsupply chain and business unit leaders.


Program Benefits

Enables stakeholders to understand where the performance gaps lie and

supplier’s trended performance

Offers sourcing managers increased objective data during supplier

negotiations

Offers senior management an overall, objective view of best and worst

performing suppliers


Scorecard Structure

Quantitative SLAs and KPIs

45%

Qualitative Customer Surveys from

LOBs and Sourcing Mgrs30%

Strategic Partnership Cost Avoidance/Savings and Product/Service Leadership

15%

Process Compliance

Sourcing, Diversity Billing, HR, Reporting and Misc. processes

10%

This category is uniquely designed to constantly promote best in class behavior, competitive advantage

with our preferred supplier community and continual growth in

Professional Services delivery.


Demand Management

Demand management takes supply chainmanagement to the next level by enabling anautomated “ecosystem” that simultaneouslymaps demand forecasting against factors likesupply restrictions, customer commitments,inventory counts, financial predictions, as wellas patterns of behavior that can affectdemand at any given time.



Demand planning begins with a clear and complete business requirements definition. Good business requirements enables the organization to develop the most appropriate sourcing strategies, select the best suppliers and manage the category or service.

Components to consider include:Client strategic direction and growthService objectives, sales growth forecasts, business efficiency goals, budgetary constraintsImpact on purchasing process, supplier management, purchase volumes, specificationsClient procurement goals and objectivesPerformance objectives, customer serviceNew product/service introductionsImpact on new supply market requirements

Supplier diversity status and utilizationMarket standingProduct differentiationCustomer ImpactSpeed to market

Industry trends

Demand Planning


Demand management is a more proactive approach than its predecessors – relying on highly sophisticated quantitative analytics and advanced modeling techniques to preset tolerance levels, predict and pinpoint problem areas, monitor and adjust strategies dynamically, and achieve real-time visibility and synergy across all channels.

Some of the considerations for a comprehensive demand management solution include:

Forecast only the products and components that make sense from a profit and/or strategic perspective Utilize best-of-breed statistical forecasting techniquesPerform real-time data synchronization.

Employ automated, closed-loop, industry-specific workflows based on best practices

Demand Modeling


Implementation

Most companies will need to make both aresource and financial commitment to establisha Supplier Performance Program, howeverindustry trends from respected researchcompanies, such as Accenture, VantagePartners and Ernst & Young have documentedvia industry surveys that the resulting costsavings can be as great as 40%.



Implementation ModelComplexity

Valu

e

Increased Relationship Return on Investment (ROI)

Focused/appropriate Supplier interactionsOptimal performance metrics collection, analysis and behavioral modification processesPerformance Scorecards completed for only strategic suppliers (critical few)

Build commodity strategies with SSG, LOBs and strategic supplier participationDevelop and consistently apply Relationship Value Index criteriaImplement risk/reward strategies to build participant success factors

Share business plans, and financial strategies Co-investment and co-brandingIntrinsically tied together Joint success goals

Increased Operational Efficiency

Strategic Multi-DimensionalSupplier Relationships

Strategic Milestones

Focu

sed

Ent

erpr

ise

Part

icip

atio

n

Point of Departure

Point of Arrival

1. Better definition of performance metrics

2. Development of segmentation definition

3. FTE re-allocation for greater ROI on activity

4. Redirect LOB communication to focus on high-impact relationships

1. Implement demand planning sessions to included strategic Suppliers

2. Define two party benefit with an increased value based relationship

3. Facilitate operational and stakeholder readiness activities

1. Research joint venture opportunities with select suppliers to affect financial and market standing

2. Define opportunity for joint client approach to solutioning

3. Modify sourcing processes to recognize/leverage joint increased buying power


The savviest companies leverage insights about demand gained through disciplinessuch as forecast optimization to actively influence and shape demand.

"It's interesting that the moretechnically sophisticated weget, the more it is aboutenabling relationships. Win-win is replacing the old idea ofbeating up your suppliers. Youcan't cost-cut yourself intoprosperity.“

Carol Park, VP of Industry Strategy for PeopleSoft/Oracle Vantage Partners conducted a survey with 115 procurement

professionals responding when asked how much more value(in terms of cost savings, innovation, quality, etc.) is deliveredby suppliers with whom a company has a strong workingrelationship than by suppliers with whom the company has apoor working relationship. Almost half of the respondents saidthat strong working relationships deliver at least 50%greater value than poor ones.

Accenture’s research shows thatcompanies who transform theirbusinesses during a recessionwill see sustainable advantageswhen the economy improves.

Industry trends from respected research companies, such asAccenture, Vantage Partners and Ernst & Young havedocumented via industry surveys that the resulting cost savingscan be as great as 40%.

Even more compelling, is these same survey results haveconfirmed that effective implementation of these programscreate sustained cost savings due to the trulytransformational design of well implemented suppliermanagement program.

Industry Demand Trends


Key “Take-Aways”

Operational and supplier metrics is THE foundation of success for any component of Supplier Management.Creating a supplier performance program with an objective foundation that can be used to not only track contracted supplier performance, but establish a venue for suppliers to contribute and be held accountable for strategic innovation and continuous improvement Defining supplier segmentation criteria and effectively completing the process so appropriate resources can be assigned to the right suppliersLeading the overall change management toensure adoption and sustainabilityDon’t start at the finish line, evolution of each ofthe program components is integral to theprocess and the success.


How can HCMWorks help?

HCMWorks has experienced personnel and a proven track record in:

Analysis and trend/utilization reportingStrategy definition

Communication StrategyChange Management

ImplementationMetrics identification

Category Management Outsourcing

Industry statistics support that implementing a comprehensive Supplier Management Program, with a focused output of Expense and Demand

Management, can provide between 10 – 40% in cost savings.

For More Information Contact:

Kimberly SmokeyDirector, Value [email protected] x 300

mailto:[email protected]


HCMWorks’ Blueprint SeriesRelease 1 - Segmenting the Supply Base to Improve Resources Allocation

Develops the ideology of a supplier management program and more fully details supplier segmentation. One of the most critical steps in the exercises.

Release 2 - Assessing Supplier Performance: Supports procurement staff in developing metrics and dashboards to critically assess supplier performance.

Release 3 - Driving Continuous Supplier Improvement:

Supports procurement staff in developing metrics and dashboards to critically assess supplier performance and ensure that the measurement process is efficient, consistent, and transparent.

Release 4 - Collaborating with Suppliers to Create New Value:

Assists Procurement in building collaborative partnerships with suppliers and between suppliers that drive value and innovation.www.hcmworks.com/news/blueprint

http://www.hcmworks.com/news/blueprint

hcm works -_supplier_management_programs_webinar_april_2010

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