why traditional supplier relationship management is now obsolete
DESCRIPTION
Traditional SRM focuses on operational excellence by measuring supplier performance with scorecards and software to manage all interactions with a supplier. Just Google the term supplier relationship management and check out the first page to verify this. What today's economy needs are critical suppliers who can create value with you through activities such as the co-production of goods and services to improve outcomes for you and them; create agile and flexible supply chains to respond to today's "pull" economy of mass customisation and consumer choice; working with you to strategically manage costs through cost down and cost out activities; and assume some of the responsibility for managing the risk in your supply chains. To do this you need a new concept - that of Power Partners. There are five critical steps that you and your key suppliers must take together to turn your relationship into a Power Partner relationship. This presentation introduces these five steps.TRANSCRIPT
The 5 Steps You Must Take With Your Critical Suppliers to Create Power
Partners in 2013 and Beyond
Presented by Steve Carter
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What we will cover today
• Why traditional supplier relationship management programmes are now obsolete
• Why you need Power Partners, what that means and what benefits it brings
• The 5 steps you and your critical suppliers must take to create a power relationship
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So what is SRM?
CIPS defines SRM as ‘the process for managing these two aspects* in the interaction between two entities - one entity is the supplier of goods or services and the other entity is the customer/end-user organisation’.
* a) Clear commitment between the two parties involved b) the objective of understanding, agreeing, and whenever possible codifying the interactions between the two parties
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Another definition
Supplier relationship management (SRM) is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. Wikipedia
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We are often driven by short term savings targets orientated around price measures to do things we know do not make sense
… even more disturbingly we have periodically negotiated so aggressively with our key suppliers that we knew we were depriving them of the margin they needed to operate a healthy business
Senior Sourcing Executive, reported in CPO Agenda
Problem #1: Price focus
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• Forecast need
• Right place, right time
• Planning, design and implementation kept internal
• Customer one step removed
Problem #2: “Push” Economy
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• Customer focussed
• Agile and flexible
• Examples: Levi Strauss Swatch Dell The Experience Economy
• Understand capabilities of your supply chain
“Pull” Economy
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Customer
segment #1
Customer
segment #2
Customer
segment #3
Value propositi
on #1
Value propositi
on #2
Value propositi
on #3
Key activitie
s
Key resource
s
Part
ners
Customer relations
hips
Channels
Costs Revenues
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Value proposit
ion
OUTCOME
Product or Servi
ce
OUTPUT
Key activiti
es
PROCESS
Key resour
ces
INPUT
Your outcomes
SUPP
LIER
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Problem #3: Motivating suppliers
• Away motivation – because you have to
• Scorecards and contracts are away motivation
• Towards motivation – because you want to
• Car showroom versus training course
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What science knows that business doesn’t
• One group is simply timed and the second group is offered rewards.
• Second group take three and a half minutes longer than the first group
• If mechanical skill only involved, rewards mean better performance
• if any rudimentary cognitive skill is needed, a larger reward means a worse performance
• London School of Economics have also found that financial incentives can result in a negative impact on performance
Dan Pink
Dan Ariely
Introducing Power PartnersYou need Power Partners because the relationship with them:-
• creates the right environment for tackling immediate issues with contract / service delivery
• addresses the enablers of good contract / service delivery and lays the foundation for continuous improvement
• encourages suppliers to treat you as “customer of first choice” for innovations
• creates the framework for managing supply risk
• enables costs to be strategically managed (cost down and cost out) rather than be the victims of market forces
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Definition of a PPR
A Power Partner Relationship is about motivated and empowered PEOPLE working in TEAMS of key
supplier and buying staff to SOLVE PROBLEMS or DELIVER OPPORTUNITIES that in turn create VALUE
for both parties
The key to successful PPR is having the right people, the right process and the right Sponsor
to lead and drive change pan-Client so that value is created and not destroyed.
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Change bid criteria
Better align incentives of buying organisation
Access to stakeholders outside of Procurement
Measure supplier performance differently
Access to senior management
Establish longer term relationship
Share more information
0 20 40 60 80 100 120
BuyerSupplier
How buyers could drive more value from key suppliers
Source: Vantage Partners (CPO Agenda)
What’s in it for suppliers?
t-15
1 2 3 4 5 6 7 8 9 10
15
1716
1312
10
76
4
1
1 2 3 4 5 6 7 8 9 10
% of total companyprofits
Largest 10%of customers
Smallest 10%of customers
Customer decile groups
1 2 3 4 5 6 7 8 9 10
-3
26
29
2220
8
4
-3 -3
1 2 3 4 5 6 7 8 9 10
% of total companyprofits
Largest 10%of customers
Smallest 10%of customers
Customer decile groups
t.o
Adapted from: ‘Profitable Customers’ by Charles Wilson
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The widening rift between profitable and unprofitable customers
Behaviours of a Power Partner
But often they remain passive and uninvolved, with significant service and quality problems and the focus on short-term and
cost-focused approaches
Power Partners should:-
Provide the highest levels of value for money
Act as true business partners
Provide superior customer service
Deliver high quality products and services
Co-design and co-deliver your products or service
Have the same agenda as you
Be integrated into your organisation
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Multiple interactions with a purpose
Supervisors
Clerks
Operators
Managers
Directors
PurchasingManager
Supervisors
Clerks
Operators
Managers Key AccountManager
SellingSellingCompanyCompany
BuyingBuyingCompanyCompany
Directors
Selling Company Buying CompanyMgrs Mgrs
Operations
Administration
Board
Operations
Administration
Board
Key AcctMgr
Maincontact
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StrategicBottleneck
LeverageTactical
The Buyer’s View
StrategicDevelop
ExploitNuisance
The Supplier’s View
N E D S
T
L
B
S Potential Power Partners
No basis for a relationship No need for a
relationship
Fit with outcomes
Abili
ty to
inno
vate
Low
Low
High
Hig
h POWER PARTNERS
SRM PARTNERS
SRM PARTNERS
SRM PARTNERS
How to find Power Partners
IDENTIFY PROBLEM OR OPPORTUNITY TO ADD VALUE
DATA COLLECTION / ANALYSISCOST-BENEFIT CASE
SOLUTIONIMPLEMENTATION PLAN
Continuous Improvement ProcessHigh performance teams set up to address specific opportunities
CONTRACT LETTING
CONTRACT DELIVERY
CONTRACT REVIEW
Contracts let in such a way as to support the agreed Account Plan
Problems or opportunities identified during or after delivery of the contract are fed into the Account Manager led process
Regular presentations from Account Managers to Sponsors on progress against plans/targets and emerging issues
SPONSOR REVIEW MEETINGS
Key
Account Manager led
Sponsor led
Contract Manager led
BENEFITS TRACKER
WORKSHOP #1Goal alignmentMission statement Objectives
WORKSHOP #2StrategyMeasuresTargets
Baseline
Update during annual planning cycle
ACCOUNT PLAN
Account Plan and commercial model set from strategy and Client demand plan (from Category Manager)
The PPR Process
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The 5 Steps to a Power Partnership
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MPASSCOllateralCOM SS
PArtnerCOMPAS
SponsorCOMPASS
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PRISM
SM
PRIorities
PRI M
BaSeline
PRIS
Map
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Baselining a relationshipSupplier’s
view of the supplier
Buyer’s view of the buyer
Buyer’s view of the
supplier
Supplier’s view of the
buyer
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Mission Statement for the SRM Partnership with that supplier
Standard against which we can assess future
improvement projects• Build on synergies• Manage tensions
Lower unit costs
Maximise value from spend
Faster engagement process
Improve processes
Linked to corporate goals to demonstrate how PPR
adds value
Increase fee rates
Lower cost base
Increase margins
Improve confidence in delivery
Buyer Supplier
Goals Alignment
Tension
Synergy
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DE-MIST
DE- IST
MissionDE-M ST
VIsionDE-MI
STrategy
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TRIPOD
RIPOD
ToolsTR POD
InnovationTRI D
PrOblem
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Tools for getting startedQuickly explore and understand
the problem, opportunity, situation etc.
Tools for checking aroundGet insights from those involved to
get ideas, identify needs and solutions that are suitable
Tools for breaking it downOrganise, categorise and associate insights or findings around an idea
Tools for breaking freePrevious tools identify boundaries of the problem. These help you to
break free and generate ideas
Tools for evaluationDefine your criteria and evaluate
ideas to select only the best
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SKIING
KIING
StabiliseSK ING
ImproveSKI NG
Innovate
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Q & A
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The Power Partners Online Bootcamp
Go to www.A4PE.com and click the icon
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Go to www.A4PE.com and click the icon
What is the bootcamp? Online coaching and training in the 5 Steps to Power Partners
Five weeks in duration
Monday is a webinar on one of the steps
Friday is a live Q&A
Tuesday, Wednesday and Thursday are tasks for you to carry out
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Go to www.A4PE.com and click the icon
What is the bootcamp? Online area for you to write your notes and upload
documents
Forum for you to share thoughts with other bootcampers
Area for you to log your questions for me
Continuing access to learning (webinars and Q&A sessions are saved to your personal learning space) and forum for 12 months