To Commercial Relationships

1

• Introduction
• To Commercial Relationships

2
Overview - Key Indicators for SCM
Key indicators that indicate effective supply
chain management are

• Order Excellence
• From when customer places an order til time
  order is delivered there are
• no errors,
• no deviations or
• no exceptions to the system
• inc. invoicing and payment

• Outsourcing
• Recognition use of most cost effective
  resource
• internal or external
• Characterised by extensive use of 3rd party
  carriers warehouses quick customer response
  integrated supply systems.

3
Overview - Key Indicators for SCM
Key indicators that indicate effective supply
chain management are

• Information Technology
• Information is available across supply chain
  distribution network in real time.

• Integrated Operations
• minimal amount of inventory
• that will not be consumed immediately
• much increased time to market over non
  coordinated operations
• flexible manufacturing widely employed.

4
Overview - Key Indicators for SCM

• Customer Focus and Innovative Programs
• Customer focus groups widely employed
• with all employees contributing

• Performance Measurement
• People measured on a cross functional process
  related basis,
• inc. time to market, landed cost and overall
  service levels

• Customer Driven Purchasing/Materials and
  Distribution
• Selecting utilising a team approach to
  demonstrate effectiveness strategic advantage
  the organisation offers through its supply
  distribution management.

5
5 Stage Procurement Process
Define User Needs Profiles
Conduct Market Review
Develop Procurement Strategy
Evaluate Negotiate Offers
Implement Manage Agreement
Usage Prices Trends Suppliers Constraints KPIs
Cost Drivers Players Capabilities Environment Comp
etition Linkages
Positioning Analysis Process Review Bid
approach Agenda Key criteria
Documentation Evaluation Clarification Negotiation
Selection Docs
Communication Assistance Problem
resolution Monitor KPIs Review performance
6

• Supplier Perception Matrix
• how supplier views the buyer

high attractiveness of the account
Core
Development
Cosset (protect) client Defend vigorously High
level of service High responsiveness
Nurture client Expand business Seek new
opportunities
low relative value of business
high
Exploitable
Nuisance
Drive premium price Seek short term
advantage Risk losing customer
Give low attention Lose without pain
low
7

• Buyer Supplier Relationships

1) Single source
1) Many suppliers
2) No knowledge sent to supplier
2) Visits, technical support training
3) Supplier not a resource
3) Savings shared
4) Suppliers are a liability
4) Supplier as long term partners
5) Supplier lead times 6-20 weeks
5) Lead times 1-10 days or less
6) Mutual trust
6) Suppliers are not to be trusted
7) Certification
7) Incoming inspection
8

• Buyer Supplier Relationships

8) Target cost agreed
8) Three quotes system for purchases
9) Large buffer/safety stocks
9) Scheduled delivery
10) Purchasing a separate function
10) Integrated team approach
11) Purchasing an overhead burden
11) A resource to continually improve cost,
quality and cycle time
12) KPIs - price and budget variation
12) Total cost (price, quality delivery, etc.)
Total cycle time
13) Purchasing a manual paper function
13) Electronic trading
14) Relationship managers
14) Purchasing a clerical function
9

• Buyer Supplier Continuum

Co-destiny
Arms length
Neutral
Partnership
Transactional
Adversarial
More mutual concern
less concern for other player
10
Question
Examples of an a) adversarial and b) co-destiny
relationship?
11

• Open Book Relationships

• Ideal situation

• Total cost transparency
• SC members exchanging cost info.

• Speeds up negotiation

• Reduces cost of doing business

• Mutual trust

• supply chain optimisation

12

• Open Book Relationships

So why dont we all practice it?
Knowledge Power
13

• Commercial Relationships
• II

14
Supplier-Buyer Relationships
Transactional relationships

Supplier
Buyer
goods
15
Supplier-Buyer Relationships
Transactional relationships
Another term for arms length relationship
Typically products, services or utilities in
plentiful supply with low barriers to entry for
new market entrants and ease of
interchangeability Aiming at short term benefits
e.g. price availability
16
Supplier-Buyer Relationships
Transactional relationships

• Examples
• off the shelf software
• gas, electricity, water
• office furniture
• building services
• parcel delivery services

17
Supplier-Buyer Relationships
Definition of Transactional relationships
A relationship between buyer and seller whereby
two parties do not get closely involved with
each other but simply exchange goods or services
for payment
(CIPS approved)
18
Supplier-Buyer Relationships
Mutual relationships
confidence
technology
information
Supplier
Buyer
efficiency
commitment
support
goals
19
Supplier-Buyer Relationships
Mutual/collaborative relationships
Aiming at a win/win situation
Both parties benefit from the relationship
20
Examples of a mutual/collaborative relationship

• Boeing BA

• Corus (British Steel) a can manufacturer

• Mars cocoa powder supplier

21

• Buyer Supplier Relationships

• Nature of buyer/seller relationships can change
• It depends on
• type of goods sold
• volume of goods sold
• potential for repeat business
• i.e whether or not the sale is based on a one
  off sales price

22
Volume Pyramid
Codestiny commitment mutual support
volume
Relationship continued vendor support critical
least total cost some service aspects e.g WP
System
lowest price commodity
23

• Market complexity vs buying company
  attractiveness matrix

high supply market complexity
Bottleneck items
Strategic items
Must haves Difficult to buy power with
seller (Shimano gears)
Central to companys success High impact/high
cost typically contract based (Rolls Royce
Engines airline company)
low buying company attractiveness
high
Leverage items
Non-critical items
High impact items on the buying
organisation small price savings important high
contribution low risk
Everyday inexpensive items Easy to buy simple
transactions
low
24

• Value of purchase vs
• importance of purchase matrix

high value of purchases
low importance of purchases
high
low
Positioning of collaborative and transactional?
25

• Value of purchase vs
• importance of purchase matrix

high value of purchases
collaborative relationships
high
low importance of purchases
transactional relationships
low
26

• Partnership Sourcing Ltd

PSL Est. by CBI, funded by DTI Why? To
promote partnership sourcing Mission Bring
about fundamental change in companies
philosophy, leading to the widespread knowledge,
understanding and implementation of partnership
sourcing within the UK
27

• Partnership Sourcing Ltd

7 step process for arranging developing
commercial relationships strategy
Understand your needs
Sell the idea
Audit the supply base
Select a pilot supplier
Define style of relationship
Begin first relationship
Make partnership work
28

• Partnership Sourcing Ltd

Understand your Needs

• 1. Identify your strategy for partnership
  sourcing
• i.e. the suppliers of your products and the
  markets that you sell to

29

• Partnership Sourcing Ltd

Sell the Idea
2. Sell concept to senior management that long
term stable and continuously improving supplier
base is a source of competitive advantage.
3. Sell concept to the rest of the organisation.
4. Sell concept to potential partners.
30

• Partnership Sourcing Ltd

Audit the Supply Base
5. Identify major suppliers that can contribute
to the success of your company 6. Define
criteria for selecting partners 7. Assess
attitude of suppliers decision makers towards a
partnership 8. Audit understand strategies of
suppliers and their future direction
31

• Partnership Sourcing Ltd

Select a pilot supplier
9. Make a selection, following on from previous
steps
32

• Partnership Sourcing Ltd

Define styles of the relationship
10. Agree on style, content and context of
relationship 11. Agree on objectives, use of
SLAs, areas of potential joint savings, etc. 12.
Agree on areas of the relationship that will
require continual improvement and how this can be
achieved.