Presentation on theme: "Supplier Management – Mystery or Mastery"— Presentation transcript:
1 Supplier Management – Mystery or Mastery Supplier Management – Mystery or Mastery? An Introduction to Supplier ManagementBrought to you by:andpanel:Isaac YoungJim LatimerTim JordanMark Buck
2 Isaac Young Jim Latimer Tim Jordan Mark Buck 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.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.Jim LatimerTim JordanAssociate 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.Mark BuckGlobal 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.
3 Agenda 10:00 – 11:30 Process Preamble Supplier Segmentation Internal Management ArchitectureStrategiesSupplier Performance MonitoringTotal Cost of Ownership (TCO)SummaryQ & ANext up? Options for future presentationsAgenda 10:00 – 11:30ProcessWe will pause periodically through the presentation to answer any questions or take your comments. Please type in your questions as you have them or “raise your hand” via the webinar tool when we pause.If we don’t get through the entire presentation we will look to your feedback whether we conduct a “part 2” or move on to other topics.
4 Emerging biopharmaceutical companies A reactive business environment characterized as:Conflicting priorities – getting to market now versus surviving in the market laterInvestment is in product development, not infrastructurePurchasing “inherits” the supplier listSupply risk is rarely consideredValue of any expertise is in crisis managementMultiple customersInternal:R&DQualityFinanceRegulatory AffairsManufacturingExternal:PatientsDoctorsRegulatorsReimbursement entitiesPoliticians / Society
5 The External Stage Issues: Rapidly changing environments - upstream & downstreamIncreasing operational & security risk in supply chainsExpanding cost pressures / requirements for capital preservationAccelerated innovation / accelerated obsolescenceIncreasing emphasis on environmental impact & sustainabilityMore and more data, but not necessarily more and more knowledgeImperatives:Development of agility as the primary response to continued uncertaintyTolerance for ambiguity must become preparedness for ambiguityDesign for supply must become an integral part of product and business development – availability / scalability / sustainabilityResilience
6 Purchasing versus Strategic Sourcing Historical PurchasingPurchase order managementPrimarily an Administrative role – little to no involvement in corporate or supply chain strategy developmentLittle to no involvement in sourcing processLimited expertise with materials / services procuredNarrow focus on purchase price and deliveryLow consideration of supply riskPredominantly reactiveStrategic SourcingSupplier managementDevelops and implements long term supply strategies aligned with corporate strategyInvolved in supplier selection and development early onValue add resource to internal customersBroad perspective on multiple cost elementsResponsible for managing supply riskDriven to be proactive
7 Have An Articulated Vision Describe what a world class supplier management function would look like at your companyexamples: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 goalsOpportunities 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.
8 Document What You Do What: 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 addsDocuments provide the when and why of the lessons learned so the wheel doesn’t get invented againDocuments articulate the value added and facilitates the communication of that value to the rest of the organizationMakes it “official” – they’re required to stand up in a financial auditHow:Start thin – it’s better to have a document that is weak than to have no document at allConsider 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
9 Supplier Segmentation Isaac YoungJim LatimerTim JordanMark Buck
10 Defining a Supplier Base Formally stratify or categorize your Supplier base to focus resources where they are most valuableManage total cost of acquisitionIncrease operating efficienciesFoster better communicationBetter leverage the knowledgebase of all partiesMinimize riskNurture opportunities for transfer of innovation
11 How to characterize the Suppliers Considerations for classificationCategory of spendWhich commodities are involvedAmount of spendDirect vs. Indirect classificationSingle source / sole source statusCriticality to operationsStrategic importanceLevel of perceived riskBandwidth of your resourcesHow many can actually be managed with the resources available
13 Types of Relationships Example:TRAIT / DOMAINTransactionalCollaborativeAllianceNumber of SuppliersManySomeFewCommunicationNo specificSystemicCompetitive AdvantageNoMed- HighHighContinuous ImprovementOpportunityVIPDifficulty Change/ExitEasyDifficultVery DifficultDuration of RelationshipShort termMid/Long TermLong TermAvoid/Resolve IssuesReactiveDeveloping ProactiveProactiveFocusLowest priceTotal CostBest TCO / Risk MitigationLevel of IntegrationNoneMediumQualityIncoming InspectionCertified QualityJoint LiabilityDedicated ResourcesFew, Low SkillProfessionalDedicatedService LevelLowDeveloping HighForecastsP.O.CommunicatedShared / Co-developedType of InteractionTacticalCooperative / CollaborativeStrategic SynergyConsider how the relationship can be defined and what that means to available resources and the ROI on the effort involved.
14 Segmentation Profile Example Commodity based, cost only focusCommodity, higher impact on operating environmentHigh importance,widely available,readily changedCritical impact,high cost of changeCharacteristicsOffice SupplyJanitorial ServicesComputer software suppliersLab SupplyFreight forwardersEmployee benefits providersClean room garmentsTesting LaboratoriesCritical raw materialsContract ManufacturersExampleseToolsPrice / Service AgreementsRFP’sAnnual reviewsService agreementInternal surveysBenchmarkingRisk mgmt planScorecardsCategory TeamsBi-annual Business ReviewsBi-annual auditsRisk profilesBC / DR PlansInventory PlanChange Control AgreementScorecardsTechnical Category TeamsQtrly Business ReviewsBi-annual auditsFinancial monitoringRisk profilesBC / DR PlansInventory PlanSupply AgreementMechanismsTransactionalCollaboration ContinuumEngaged
15 Defining a Supplier Base Goals:More engagement for suppliers that play a higher value role in your operationsMore 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 connotationsRepeat periodically (defined) to re-class Suppliers as appropriatePre-screen the vendor masterIt is probably populated with every payee the company has ever written a check to – not a good starting pointAvailable resources may influence tier volume – work with what you have
16 pause for questions Supplier Segmentation End of:Supplier Segmentationpause for questionsNext:Internal Management ArchitectureIsaac YoungJim LatimerTim JordanMark Buck
17 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:DecentralizedProcurement activity, including any policy or other governance, is disbursed across the organization without any centralized oversight (typically just financial controls)CentralizedAll procurement activity / third party interaction occurs in a single groupHybridA significant, defined subset of procurement activity is centralized to a single group with the balance being fully decentralizedCenter-LedA 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
19 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 categoryProvides deeper visibility into current and future spendInstills a greater awareness of the internal customer requirementsImproves acceptance / compliance of agreementsFosters credibility internally and with SuppliersCreates greater access for Suppliers to focused areas in the company to improve collaboration and understanding of the customer’s requirementsFacilitates greater opportunity for management of innovation transfer from the SupplierPromotes more awareness of the complexity and magnitude of other team members roles, aiding in the breakdown of organizational silos
20 Category Management Teams Output is the articulated category & supplier strategies & tacticsTeam 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 SupplyStakeholders are not necessarily the Subject Matter Experts (SME’s) – SME’s may be found in some unlikely placesTeam constituency can be dynamic – an opportunity to broaden skill sets, increase the diversity of input, and adapt current category strategyRemain sensitive to conflicting prioritiesDiversity in function to function focus and prioritiesTransparency – no hidden agendasSupplier councils (steering committees) – when a Supplier has multiple inroads into your organization
21 Business ReviewsPeriodic, formal, proactive engagement for review of the relationship to assure alignment and optimization.Agenda Example:Company Updates Commodity ReviewSales History ReviewBusiness Forecast UpdatesSupplier Performance (Scorecard Presentation)Quality IssuesDelivery IssuesService IssuesPricing IssuesProject UpdatesOpportunitiesAnd document the meeting minutes as well as any pre-meetings and / or debriefs
23 pause for questions Internal Management Architecture Strategies End of:Internal Management Architecturepause for questionsNext:StrategiesIsaac YoungJim LatimerTim JordanMark Buck
24 Supplier Tactics and Responses – Examples: Going direct to end user – excluding PurchasingInclude end user on Category TeamsEstablish “facilitation” policies with guidelinesFocus on upstream product development to get into hard-to-change regulatory filingsGet involved in Product Development process, involve Product Development on Category TeamsEstablish contractual agreements early on in relationshipMake prolific use of the term “or equivalent” in regulatory filingsGetting “sticky”, getting into multiple areas / categories making it more difficult to switch supplier outManage supplier within one Category team but monitor / report on all category involvementsRolled up scorecard (all areas) is basis for business reviews
25 Response: Category Management Best-in-class strategic sourcing organizations add value in numerous areas, not just in lowering prices:Policy development and monitoringGuidance for non-procurement related interactionsReduced time to marketStandardization of specificationsWorking capital reductionReduced inventories, vendor managed inventoriesExtended payment termsDemand reduction / managementPromoting alternativesMatching procurement to requirementsProcess optimization across the Supply ChainFacilitating innovation transfer from suppliersRisk reduction / change control / continuity of supply
26 Category Management Process There are multiple models that have been published supporting endless academic discussions. All work towards the same goals.DefinitionCategoryAnalysisStrategyImplementationReviewExample of a 5 step model:Example of a 8 step model:
27 Category Management Process Strategy DevelopmentPerform Strategic AnalysisGenerate and Evaluate OptionsGenerate Source PlanObtain Strategy ApprovalStrategy RealizationImplementation PlanCommunication planSourcing planRFPSupplier SelectionEvaluate QuotationNegotiation plan / performAgreementImplementManage + MaintainSpend AnalysisMaterial/Service AnalysisUtilization/DisseminationMarket / Industry AnalysisCategory AssessmentCategory StrategyCategory SourcingSupplier ManagementSupplier Development ProgramNegotiations and ContractsSupplier EvaluationSupply ManagementSupply Chain improvementRisk AssessmentRisk MitigationMonitor, Measure and CommunicateSupplier Review MeetingSupplier ImprovementStakeholder Feedback
28 Supporting elements of the process Demand analysis / spend analysisCurrentFutureUse category / commodity codes to support future analysesMaterial / Service analysisOriginCompeting demandTechnology directionMarket / industry knowledge – must think globalFragmented / concentrated / side line or strategic focusRegulatory concernsBenchmarkingCompany cultureAppetite for changeThe curse of success - If it ain’t broke don’t fix itSupplier cultures
29 Strategic statements - examples Consolidate number of suppliers to increase leverage & reduce costsIncrease number of suppliers to increase competitionLeverage Group Purchasing OrganizationsCollaborate to reduce supply riskFacilitate innovation transfer / Integrate suppliers into product development processImprove sustainability profileFocus on other total cost elementsManage demandStandardize specificationsOutsource / in-source material or serviceInvest in key suppliersBecome customer of choice for supplierExpand the currency of the business
30 Gap Analysis ExampleSet strategies over interim time periods (i.e. 1 year, 3 years, 5 years) and measure progress to close the gaps
31 Supplier Relationships Category strategies and supplier strategies drive each other in an iterative processBuyer Dominant RelationshipInterdependentRelationshipBuyer Strength Independent RelationshipSupplier Dominant RelationshipSupplier Strength Secure the relationship and leverage the valueStructure towardsCollaboration / AllianceValue of relationship CommoditizeRemedy or replaceComplexity / Effort of relationship
32 Culture Internal culture / Supplier culture alignment Focus horizon (short versus long term)Similarity of valuesOver focus on select, key staffConcomitant sensitivity to all stakeholder challengesEthicsCommitment to corporate reputationsAwareness / approach to risk“Far Side” versus “Dilbert”
33 Relationship Sophistication Alignment of goals - Shared visionCommon definition of success and the path to get thereShared customer focusCooperation / collaborationTrustperformance to commitmentPredictabilityConsistencyOpen & effective communicationLeverage competencies of both partiesLong term focus on mutual benefitsDedication to innovation and continuous improvementAcknowledgement of external pressures
34 Optimize Supplier Relationships Set GoalsPlanExecuteMeasureImproveReactCollaborateDeliver Operational Excellence across the partnership / across the supply chain
35 NotesCategory 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 championsHow much money are you going to spend in trying to save money?Remember the zero-sum game conceptIf your gain is your supplier’s or customer’s loss, it may not be sustainableShifting costs to other areas does not represent value add for the CompanyEven if it can’t be measured, it still can be improved and reportedBeware going after measurable dollars by taking on immeasurable riskFundamental change across the supply chain is real legacy valueStandardization of specificationsEconomies of scaleLeveraging core competencies wherever they areLean processesCost of QualityResilience
36 pause for questions Strategies Supplier Performance Monitoring End of: Next:Supplier Performance MonitoringIsaac YoungJim LatimerTim JordanMark Buck
37 Supplier Performance Measurements A common tool for most environments with demonstrated results
39 Measurements Measurement Needs of CEOs/Presidents The 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:Quality of purchased itemsKey supplier problems that could affect supplySupplier delivery performanceInternal customer satisfactionPurchase inventory dollarsIt did make a definitive step in meeting the requirements identified in the CAPS studyCenter for Advanced Purchasing Studies
42 What has worked and what hasn’t Suppliers took notice and some even used the scorecards internally for communication and improvementsIt did (sometimes) drive focus to areas that needed itMeasurements were rather easy to generate, and generally, looked pretty goodIt played well with the wave of Six Sigma and Lean initiatives that were sweeping businessSome Suppliers waved their high scores around like some victory bannerSome Buyers did the sameThe scorecard frequently did not reflect how either party looked at the relationship – a good scorecard sometimes did not mean a good relationshipA (too precious) few saw an opportunity for a deeper dialog and a vision of real improvement for the Supply Chain
43 Misuse of Supplier Metrics Worse than no metric? Not knowing what to do with the tool and its results before implementing itDoes the metric matter (i.e. 3/1 window on delivery)?Ease of creation useable valueDoes the metric reflect what it implies (Quality)?Precision accuracyThe metric, unto itself, cannot be the sole deciding factor in formulating action, as numbers do not yet tell allBe 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.”
44 The Role of Supplier Performance Metrics EducationPerformance visibility / improvement guidanceIdentify inefficiencies / continuous improvementA language for communicationRevelationsSet & communicate standards / goalsAlignmentObjective evidence for contrasting against subjective perspectivesDecision support – guidance, not mandateRisk mitigationSupplier selection – competitive evaluations
45 Example 2:Moved to quarterly tracking – monthly is too burdensome and “nervous”Added tracking of meeting quoted lead timesAdded tracking of post-approval usage quality issues and audit statusEnhanced service assessment
53 Assessing and Engaging Suppliers Focus on constructive, not adversarial information / presentationScorecards should not be “scarecards”Use all internal resources – every opinion countsBalance long term direction with short term performanceUse subjective areas as well (innovation, risk, culture, etc.)Don’t confuse precision with accuracyDon’t roll up the scores into one reportable numberConsider making category specific – not one template for allIf your scorecards are always running in the 95% - 100% range, you’re measuring the wrong thingsUse scorecard templates to identify new suppliersIf “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.
54 pause for questions Supplier Performance Monitoring Total Cost End of: Next:Total CostIsaac YoungJim LatimerTim JordanMark Buck
55 Total CostAll factors impacting the value of the acquisition must be considered:Purchase PriceSales / Use TaxFreightHandling chargesPacking chargesHazardous materials chargesCustoms filings chargesValue Added TaxInstallation costsDisposal costsImpact on operationsConsulting / engineering / implementation costsCost of supplies / consumables / spare partsCost of maintenance / service / calibrationCost of licenses or other feesCost of trainingSalvage valueCost of upgradesValidationCompliance qualificationSupplier qualificationPrototypingOngoing testing & compliance – Cost of QualityDistribution costsWarranty costCost of doing business with (new) SupplierCost of change if required in the futureLead times / cost of required inventoryExchange ratesAnticipated price inflationConsult 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
56 Total Cost Models Must Account for Risk Environment & Human ConditionChemical, biological, radioactive & nuclear spillFire/ExplosionWater ContaminationPublic Utility FailureEmissions & waste Clean-upMold and AsbestosInfestations and pest controlWater Leaks/Levy breaksPhysical Structure CollapseWeather & NatureHurricanes, Cyclones, Tornadoes & High WindsTyphoons / Torrential RainsEarthquakes & VolcanoesRising Water, Tidal Waves & TsunamisExtreme Heat/ColdGlobal Climate ChangeWildfireMudslides and Sink HolesSubjective assessment is better than leaving it out because “it’s hard to measure”An absolute requirement when comparing sources / optionsEconomic & FinancialEconomic CollapseCurrency DevaluationLabor unrest, strikesLabor ShortageMajor Market FluctuationsQuick Decline in earningsHostile TakeoverNegative Cash FlowBankruptcyFinancial/Bank CollapseOther investment failingsStrategyUnknown competitionProduct Irrelevance or misplacementPoor Marketing PlansSales Force Target MarketsPoor Acquisition StrategyFailure to innovateCustomer Perception FailureImproper Supply Chain AlignmentCriminal & TerroristProduct TamperingTerrorist Acts/ThreatsArson & BombingIndustrial EspionageSabotageKidnapping or ExtortionFraud & TheftProduct Use by TerroristWorkplace ViolenceCounterfeitingPolitical & SocialGovernment Policy ChangeImprisonment of employees or family membersRegulatory ChangeCivil UnrestMartial LawBrand/Org ReputationProduct & ServiceLiability, recall & failureObsolescenceCounterfeitingOrganizationEthics or Moral ViolationsImproper BusinessLegal IssuesBlack Market DealingsInformationalLoss of IP, Confidentiality or Trade secrets (Tribal knowledge)Information Integrity or Quality of dataLoss of key customer, supplier, production dataTechnologicalCorporate Hardware FailureEnterprise SW failure or corruptionCapacity IssuesBandwidth or services issueLegacy or relevance issuesOperationalOut of StockPoor Forecast for marketSourcing FailurePricing MisalignmentProduction Shortage/FailurePoor Change ControlProduct/Project Mgt FailureTransportation/Log AccidentWorkforce StoppageDisruption/Delay to workRestricted Access to facilityCompliance and GovernanceNon-ComplianceStatutoryRegulatoryLegalContractClass Action/LawsuitsCorporate Governance IssuesExecutive Misdeed, bribes, security & code of conductOversights, errors, improper practiceHealth & LaborEpidemic or PandemicLong-term Health issuesDefections and lost knowledgeUnattractive market or company for talentSkills shortageWorkplace harmony
57 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 performancePurification resinsAny marginal difference in the cost of the resin won’t compare to any yield differences in performanceMajor software purchaseImplementation / validation / training / ongoing license and maintenance costs typically outweigh the purchase priceHazardous chemicalsCost of disposal of any excess or the containers may outweigh the savings from a particular Supplier’s offeringAPIHeparin
59 Summary commentsIf you can’t articulate your vision, it’s a hallucinationDon’t let precision mask the absence of accuracyPace 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 areCreation 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)
60 Engage:Isaac YoungJim LatimerTim JordanMark BuckOptions for future webinars:Supply Chain Risk Assessment and MitigationWorld Class Purchasing – Articulating Your VisionOthers?To provide feedback, or if interested in becoming a member of this group, please contact Bill Coakley at , or
61 “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 MissionTo 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.