Part Two: Supply Management Handbook

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Source One Management Services, LLC Presents
Lesson 7 Knowledge-Based Supply
Management Lesson 8 Supply Chain
Self-Measurement
www.SourceOneInc.com
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Lesson 7 Knowledge-Based Supply Management
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Knowledge-Based Supply Management

• A process driven by factors that influence the
  ability of supply to contribute to the long term
  success of the business

• Factors
• Knowledge about customers
• Organizational strategy
• The economy
• Supply base

• Supply is in a unique organizational position to
  process input from

• Internal Business Partners
• The Supply base
• The Customer Base

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Contemporary Sourcing Models

• Spend-Driven Sourcing
• Risk-Driven Sourcing
• Strategy-Driven Sourcing

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Contemporary Sourcing Models
Spend-Driven Sourcing
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Contemporary Sourcing Models
Spend-Driven Sourcing

• Starts with spend analysis
• What is being bought
• For whom
• In what quantities
• Ts Cs

• Resources allocated to highest spend
• Leads to wider application of the structured
  sourcing process to nontraditional purchases
• Benefits
• Energy
• Travel

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Spend-Driven Sourcing
Manage Stakeholders Supplier Relationships
Conduct spend analysis
Implement Strategy
Source Select Suppliers
Conduct Market Analysis
Determine needs
Develop Category Strategy
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Spend-Driven Sourcing
Determine Needs
Conduct Spend Analysis
Conduct Market Analysis
Develop Category Strategy
Source Select Suppliers
Implement Strategy
Manage Stakeholders Supplier Relationships
Manage Stakeholders Supplier Relationships
Conduct spend analysis
Implement Strategy
Source Select Suppliers
Conduct Market Analysis
Determine needs
Develop Category Strategy
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Spend-Driven Sourcing

• Better understanding of spend by category
• Policies tailored to each category
• Categories prioritized
• Categories more easily defined

• Target Supply Management Knowledge Base to
  Appropriate Spend Category

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Spend-Driven Sourcing

• BASICALLY
• Getting the right person to find the right thing
  for the right place at the right time for the
  right price from the right supplier with the
  right level of service!

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Risk-Driven Sourcing

• Sourcing begins identifying the risks to the
  company supply
• Assess risk and institute risk mitigation
  strategies
• Know the company mission
• Understand the impact of supply strategies and
  programs
• This puts the focus on the root causes of risk
• New suppliers
• Riskier supply chains (overseas)
• High levels of customization

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Risk-Driven Sourcing
Bottleneck
Strategic
Noncritical
Leverage
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Risk-Driven Sourcing

• Medium-High Risk
• Bottleneck
• Unique specifications
• Suppliers technology important
• Substitution is difficult
• Unpredictable usage
• Few sources of supply

Strategic
Noncritical
Leverage
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Risk-Driven Sourcing
Bottleneck

• Medium-High Risk
• Strategic
• Availability essential
• Supplier technology important
• Few suppliers
• Supplier switch difficult
• Substitution difficult

Noncritical
Leverage
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Risk-Driven Sourcing
Bottleneck
Strategic

• Low-Medium Risk
• Noncritical
• Standard spec or commodity item
• Easily substituted
• Many sources

Leverage
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Risk-Driven Sourcing
Bottleneck
Strategic
Noncritical

• Low-Medium Risk
• Leverage
• Standard spec or commodity item
• Volume price breaks (price is key)
• Substitution possible
• Several sources

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• It is important to know what approach best fits
  your company!

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Risk-Driven vs. Spend-Driven
Brand X
Brand Y

• Spend
• Aluminum 14.7m
• Copper wire 8.3m
• Plastic molding 7.6m
• Microchips 7.3m
• Speakers 5.7m

• Light sensors 1.3m

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Strategy-Driven Sourcing

• Start with A company-wide Strategic Plan
  incorporating input from all the relevant
  stakeholders
• Resources are allocated to purchases that have
  the greatest potential impact
• Maximize opportunities
• Minimize risk

• Is a purchase strategic or operational?
• Operational has little effect on final customers
• Strategic impacts final customers or has
  significant impact on companys bottom line.

Apply a strategy to fit the purchase
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Evaluating Selecting Suppliers

• Too few suppliers often leads to sub-par results
• Properly specifying the requirement is essential
• Two step process
• Identify suppliers that could be considered
• Narrow the list to perform a better analysis

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First-Cut Strategic Considerations

• Develop criteria for finding sources
• Classify purchases according to strategy
• Immediate considerations
• Incumbent performance
• Single source vs. multiple suppliers
• Vendor size/capabilities
• Location
• Supplier relationship desired
• Contract length
• Type of supplier
• External considerations
• Financial viability

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Narrowing the Field
Evaluate a Suppliers Ability to Perform

• Quality assurance
• Operational capability
• Logistics and distribution
• Service
• Finances
• Organization/Management
• Labor issues
• Legal issues

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Narrowing the Field
Analyzing Supplier Performance

• A formalized performance measurement program
  increases discipline and consistency

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Narrowing the Field
Analyzing Supplier Performance
Characteristics of a Successful program

• Key Performance Indicators
• Designed Metrics to distinguish suppliers
• Aligned with organizational strategy
• Clearly defined and prioritized
• Encourage desired behaviors

• Price Cost and Metrics
• Different ways to measure
• Overemphasis may miss bigger financial picture
• Full cost analysis leads to more robust
  understanding

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Narrowing the Field
Analyzing Supplier Performance
Characteristics of a Successful program

• Quality
• Does it meet specifications?
• Value of exceeding specs?
• Cost of underperformance?

• Delivery
• Freight Costs
• Improper delivery
• inventory

• Price Cost and Metrics
• Different ways to measure
• Overemphasis may miss bigger financial picture
• Full cost analysis leads to more robust
  understanding

• Service
• Problem Resolution
• Support availability
• Clearly defined prior to Quote
• Objective scoring

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Narrowing the Field
Analyzing Supplier Performance
Supplier Performance Rating Methods

• Categorical Method
• keep a records of all suppliers and their
  products and services
• Establish a list of factors to grade
• Periodic evaluation

• Cost-Ratio Method
• Identifies all costs to the value of each
  shipment
• The lower the ratio, the higher the rating

• Weighted-Point Method
• Each factor assigned a weighted value
• Each factor graded
• Our approach for AmeriGas

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Market IntelligenceSustainable intelligence is
required to successfully and continually turn
information and data into usable and actionable
knowledge

• Three key areas
• Identification of supply opportunities
• Prediction of future trends
• Identification of lower cost alternatives to meet
  requirements

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Chapter 8 Supply Chain Self-Measurement
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Supply Chain Self-Measurement
The fall of communism
Market driven economies in Southeast Asia
End of African Colonialism
innovation
Technology
Robust Global Economy
The world was both stable and experiencing
unprecedented growth
Terrorism
War
Rising Gas Prices
Global Uncertainty
The World is now at Risk
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Supply Chain Self-Measurement
Globalization requires supply professionals to
manage risk better
The World is now at Risk
Supply Management is NOT exempt
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Globalization requires supply professionals to
manage risk better
Globalization requires supply professionals to
manage risk better
Supply Professionals no longer have the luxury
of not knowing what best practices are and how
their operations (and Supply chains) compare to
those practices.
Formalize expectations
Understand potential risk
Have measurement protocols in place
Pre-qualify sources of supply
Avoid Disruptions to supply!
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Globalization requires supply professionals to
manage risk better
Know Your Role! Know Your Place! Know Your Plan!
Supply Professionals no longer have the luxury
of not knowing what best practices are and how
their operations (and Supply chains) compare to
those practices.
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Know Your Role! Know Your Place! Know Your Plan!
Differentiate between the levels of value and
risk to identify operational importance and to
manage risk
Operational
Critical
Transactional
Commodity
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Scope of measurement and evaluation process

• Collaborative Process
• Interdisciplinary (external Internal)
• Involve all stakeholders
• Supply must orchestrate requirements and
  expectations

No longer is supply just going through a buyer or
purchasing department
There are now multiple points of contact across
multiple levels of the company
It is, therefore, now necessary to assess both
supplier performance and also measure how well
supply manages the supply chain
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Scope of measurement and evaluation process
Supply Profiles
Supply management should set standards for
qualitative and quantitative criteria to evaluate
form
fit
functionality

• The supply professional must understand
• Concept of supply management
• How measurements are applied
• Elements and implications of measurement
• How this will improve profits, efficiency, and
  progress
• When incentive-based performance measurements are
  appropriate
• Impact of supply management on development and
  long-term relationships

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Supply Profiles
The emphasis of Supply measurement is the
development of supplier assessment and evaluation
profiles that quantitatively and qualitatively
measure capabilities and performance
Key questions when developing a profile

• Organizational structure where do functions and
  process reside
• Information systems and operating protocols
• Locations, physical assets, location capabilities
• Supply chains to supply chainslooking further
  down the line
• Financial stability of the supplier/protections
  in place
• Management team

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Supply Profiles
This profile will show how the supply chain
manages
Order Management
Personnel Development
Customer Service
Quality
Compliance
Cash Flow
Commitment
Supply Commitment
Social Responsibility
Research Development
Logistics
Cost Competitiveness
Finances
Inventory
Project Management
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Supplier data baseline profile

• Evolving and ongoing process
• Self-assessment of capabilities and attributes
• Comparative analysis in order to rank
• Create benchmarks
• Competitive analysis for future RFP
• Identify new opportunities

• Research what the experts and industry leaders
  think
• Then do your own

better
good
worse
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Key supplier performance matrices

• Deliver requested materials or services on time
• Delivery performance measurements
• Cost-effective materials and services
• Inventory accuracy

• Two basic tenants
• Quantitative performance
• Qualitative performance
• Supplys responsibility to formalize measurement
  process
• Weekly surveys
• Actual performance
• Current concerns to specific situation
• Open-ended questionaire

Supply chain performance against changing
stakeholder requirements
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Cycle time reductions in processes and resources

• Reduction in process cycle times exposes process
  problems
• Improves resource management
• Reduces overall costs
• Is a Critical success factor
• Lowering inventories
• Improving customer service
• Improving quality
• More efficient

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So whats it all mean?
Knowledge-Based Supply Management
A process of using the skills and information
available to the supply team to best tailor a
supply initiative to the specific supply
opportunity.
Supply chain self measurement
Allows the supply management team to ensure that
the supply initiatives it has instituted are
successful by creating a means to objectively
measure performance
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Part Two
ResourcesThe Supply Chain Management Handbook
7th Edition

• Going To Market With Todays Crucial Imperatives