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Importance of Supplier Relationship Management in Contracting for Large Weapon System Sustainment 1 1 Breakout Session 702 Jim Wright Jonathan Selter.

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Presentation on theme: "Importance of Supplier Relationship Management in Contracting for Large Weapon System Sustainment 1 1 Breakout Session 702 Jim Wright Jonathan Selter."— Presentation transcript:

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2 Importance of Supplier Relationship Management in Contracting for Large Weapon System Sustainment 1 1 Breakout Session 702 Jim Wright Jonathan Selter Jim McIntosh July 21, :00am – 11:45am

3 Table of Contents 2 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study Concluding Thoughts

4 World class SRM are based on open customer-supplier communications… The Need for Weapon System SRM The Tenets of Weapon System SRM  Few suppliers are currently managed at the Cross Platform, LCMC or AMC level  Item- or subsystem-level management leads to an inefficient, decentralized and tactical approach to managing suppliers that can be alleviate through SRM  World class SRM is based on open communication, pro-active supply chain management and collaboration  SRM based on these principles increases supplier performance, reduces risk and improves the value of the supplier relationship Black Hawk SRM Case Study  The key success factors of the Black Hawk SRM program are: -Collaborative development of metrics and scorecards -Careful weighting of scorecards KPIs -Identification of appropriate performance targets 3

5 Table of Contents 4 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study Concluding Thoughts

6 Item Subsystem Platform Cross Platform LCMC AMC …but few suppliers are currently managed at the Cross Platform, LCMC or AMC level… …with the majority of suppliers being managed at the Subsystem or Item level Weapon System suppliers can be managed at several points within the Army sustainment hierarchy… 5 Item- or Subsystem-level management creates a complex system with numerous points of contact between the customer and the supplier

7 Item- or subsystem-level management leads to an inefficient, decentralized and tactical approach to managing suppliers  Within a single platform, multiple Item Managers have individual relationships with supplier POCs  Looking across multiple platforms, numerous Item Managers within the sustainment enterprise have individual relationships with supplier POCs Existing weapon system acquisition……is decentralized and tactical Supplier A Item Managers Platform Supplier BSupplier C Suppliers These inefficient can be alleviated through an enterprise-level Supplier Relationship Management Program 6

8 Table of Contents 7 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study Concluding Thoughts

9 World class SRM is based on open customer-supplier communications… Description Existing SRM Practices Open Communication  Periodic communication with suppliers to share information and identify opportunities for supply chain improvements  Information-sharing only as needed, with communication largely focused around performance appraisals  Operational and upstream supply chain data largely not shared Best-in-Class SRM Practices  Open and honest information sharing to create value and allow collaborative supply chain improvements  Suppliers are considered to be supply chain partners, with a collaborative rather than combative relationship 8

10 …pro-active supply chain management… Description Existing SRM Practices Pro-Active Supply Chain Management  Identify and measure factors that can transform supply chain management from a reactive to a pro-active model  Mainly reactive, if any, consideration of supplier indicators, such as finances and facilities  Often not considered a part of Supplier Relationship Management programs Best-in-Class SRM Practices  Monitor factors (operational, financial, economical, environmental etc.) that are leading indicators of future supply chain disruptions  Mitigate and/or solve supply chain disruptions before the occur 9

11 …and customer-supplier collaboration Description Existing SRM Practices Collaboration  Work collaboratively with suppliers to identify ways to drive value across the supply chain  Share best practices and work for both customer and supplier cost savings  Little collaboration and minimal effort to jointly identify improvement opportunities  Interactions focused on price negotiations and/or performance management Best-in-Class SRM Practices  Focus on pursuing cost savings opportunities that benefit both the client and the suppliers  Regular meetings with supplier  Creates incentives for all parties to participate 10

12 An SRM program based on these principles can help the sustainment enterprise capture three primary benefits 11 SRM programs improve supplier performance through -The incorporation of Performance Incentives into contracts and supplier relations -Better communication of customer needs, leading to Service Quality Optimization SRM programs improve supplier performance through -The incorporation of Performance Incentives into contracts and supplier relations -Better communication of customer needs, leading to Service Quality Optimization SRM programs can help enterprises with two dimensions of supply risk -The risk of a supplier becoming insolvent (Supplier Risk) -The risk of disruption in the supply of a key part or raw material (Supply Disruption Risk) SRM programs can help enterprises with two dimensions of supply risk -The risk of a supplier becoming insolvent (Supplier Risk) -The risk of disruption in the supply of a key part or raw material (Supply Disruption Risk) SRM outreach fosters greater collaboration, knowledge sharing and information sharing, allowing -Supply Chain Visibility into the upstream supply chain -Joint Innovation to collaboratively improve performance SRM outreach fosters greater collaboration, knowledge sharing and information sharing, allowing -Supply Chain Visibility into the upstream supply chain -Joint Innovation to collaboratively improve performance Supplier PerformanceSupply RiskRelationship Value Improved Supplier Performance Risk Assessment & Mitigation Increased Relationship Value

13 Table of Contents 12 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study -The Road to SRM -SRM Program Design Concluding Thoughts

14 The Black Hawk helicopter is one of Army’s most important weapon platforms 13 Army’s primary transport helicopter, providing dramatic improvements in troop capacity and cargo lift capability compared to the UH-1 Series "Huey" Provides air assault, general support, aeromedical evacuation, command and control and special operations support Black Hawks continue to serve in Afghanistan and Iraq Army’s primary transport helicopter, providing dramatic improvements in troop capacity and cargo lift capability compared to the UH-1 Series "Huey" Provides air assault, general support, aeromedical evacuation, command and control and special operations support Black Hawks continue to serve in Afghanistan and Iraq Description and History

15 Table of Contents 14 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study -The Road to SRM -SRM Program Design Concluding Thoughts

16 The path toward SRM began with an analysis of the Black Hawk program 15 Help Black Hawk Program Management Office analyze Black Hawk Sustainment Sourcing for future sourcing opportunity identification Overview …supplied by 179 unique vendors The team identified 816 parts across the seven Black Hawk systems… System Description Number of Suppliers Airframe145 Turbine Engine32 Engine22 Alt. Turbine Engine7 Airframe Components12 TACSAT2 Clearance Vehicle4 System Description Number of Parts Airframe703 Turbine Engine65 Engine22 Alt. Turbine Engine1 Airframe Components18 TACSAT2 Clearance Vehicle5

17 The Black Hawk analysis uncovered three supplier management challenges 16 ChallengeDetailsImplication Large Number of Parts 819 unique parts relate to the Black Hawk platform Parts managed individually or in small numbers by individual item managers Relationships within a platform managed by multiple item managers Large Number of Systems The Black Hawk platform includes seven unique systems, (e.g. Airframe and Engine) If multiple parts are managed jointly, they tend to be managed at the weapon system level Relationships across system managed separately by individual systems Large Number of Suppliers The Black Hawk program includes suppliers that provide spare part and repair services Across both categories the Black Hawk program manages 179 vendors with 461 contracts Suppliers are managed by several stakeholder within the Black Hawk program office Spend for each Black Hawk supplier was managed by a series of silos within the program office

18 The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers 17 SUPPLIER SEGMENTATION MATRIX Each quadrant suggests a different supplier relationship strategy -Standard Suppliers: suppliers of low-cost, off-the-shelf items, with short lead teams and multiple sources of supply Each quadrant suggests a different supplier relationship strategy -Standard Suppliers: suppliers of low-cost, off-the-shelf items, with short lead teams and multiple sources of supply KEY FACTS & INSIGHTS Standard Suppliers Key Suppliers Commodity Suppliers Strategic Suppliers Spend Switching Costs Little or no SRM outreach

19 The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers 18 SUPPLIER SEGMENTATION MATRIX Each quadrant suggests a different supplier relationship strategy -Commodity Suppliers: suppliers of low-cost, low-complexity, with short lead teams and multiple sources of supply Each quadrant suggests a different supplier relationship strategy -Commodity Suppliers: suppliers of low-cost, low-complexity, with short lead teams and multiple sources of supply KEY FACTS & INSIGHTS Standard Suppliers Key Suppliers Commodity Suppliers Strategic Suppliers Spend Switching Costs Hands-off Performance Management

20 The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers 19 SUPPLIER SEGMENTATION MATRIX Each quadrant suggests a different supplier relationship strategy -Key Suppliers: suppliers of high or medium-cost, high-complexity, with long lead teams and limited sources of supply Each quadrant suggests a different supplier relationship strategy -Key Suppliers: suppliers of high or medium-cost, high-complexity, with long lead teams and limited sources of supply KEY FACTS & INSIGHTS Standard Suppliers Key Suppliers Commodity Suppliers Strategic Suppliers Spend Switching Costs Collaborative Supplier Development

21 The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers 20 SUPPLIER SEGMENTATION MATRIX Each quadrant suggests a different supplier relationship strategy -Strategic Suppliers: suppliers of high-cost, high-complexity, with long lead teams and few, if any, alternative sources of supply Each quadrant suggests a different supplier relationship strategy -Strategic Suppliers: suppliers of high-cost, high-complexity, with long lead teams and few, if any, alternative sources of supply KEY FACTS & INSIGHTS Standard Suppliers Key Suppliers Commodity Suppliers Strategic Suppliers Spend Switching Costs Strategic Partnership

22 The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers 21 SUPPLIER SEGMENTATION MATRIX A majority of weapon system suppliers were determined to be Key Suppliers or Strategic Supplies -Weapon system parts are technically complex -Weapon system parts are high-cost items -Weapon system parts have long lead times -Weapon system parts have few sources of supply A majority of weapon system suppliers were determined to be Key Suppliers or Strategic Supplies -Weapon system parts are technically complex -Weapon system parts are high-cost items -Weapon system parts have long lead times -Weapon system parts have few sources of supply KEY FACTS & INSIGHTS Standard Suppliers Key Suppliers Commodity Suppliers Strategic Suppliers Spend Switching Costs Because the majority of weapon system suppliers are Key Suppliers or Strategic Suppliers, there were several viable candidates for an SRM pilot

23 “Vendor D” was determined to be a Key Supplier because of its medium spend and high switching costs 22 …and high Sole Sourced spend indicated extensive switching costs “Vendor D” is AMC’s fourth largest helicopter vendor… AMC HELICOPTER SPEND (2008) BY VENDOR VENDOR D SPEND (2008) BY SOURCING TYPE As a Key Supplier, Vendor D’s SRM outreach was designed around collaborative supplier development

24 More than 95% of “Vendor D’s” helicopter spend occurred on contracts that expire before FY12 23 “VENDOR D” HELICOPTER SPEND (2008) BY CONTRACT EXPIRATION Contracts expiring in FY08 and FY09 covered 59 NSNs, which collectively support each of the four helicopter platforms Contracts expiring in FY10 and FY11 cover 10 NSNs, which collectively support each of the four helicopter platforms Contracts expiring in FY12 or later cover 5 NSNs, which collectively support each of the four helicopter platforms Contracts expiring in FY08 and FY09 covered 59 NSNs, which collectively support each of the four helicopter platforms Contracts expiring in FY10 and FY11 cover 10 NSNs, which collectively support each of the four helicopter platforms Contracts expiring in FY12 or later cover 5 NSNs, which collectively support each of the four helicopter platforms KEY FACTS & INSIGHTS The vast majority of “Vendor D’s” spend occurs on contracts that expire in the short term, allowing new contracts to support an SRM program

25 Table of Contents 24 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study -The Road to SRM -SRM Program Design Concluding Thoughts

26 Supplier scorecards are typically part of performance management SRM, but they can be useful supplier development tools 25 Because “Vendor D" was determined to be a Key Supplier, the SRM pilot will focus on continuous improvement through supplier development Focus on Joint performance monitoring to drive collaborative improvement Supplier Development Identify, prioritize Key Performance Indicators Set Performance Targets Identify, prioritize Key Performance Indicators Set Performance Targets Scorecard Development Regular assessment of performance in conjunction with supplier Scorecard Assessment Continuous monitoring Joint improvement identification Continuous monitoring Joint improvement identification Scorecard Assessment Focus on assessing past performance to inform supplier selection decisions Performance Management Identify, prioritize Key Performance Indicators Set Performance Targets Identify, prioritize Key Performance Indicators Set Performance Targets Scorecard Development Infrequent, internal review of past performance Scorecard Assessment Short-term improvement Data for supplier selection decisions Short-term improvement Data for supplier selection decisions Scorecard Assessment

27 Army Goals and Performance Indicators AMC Goals and Performance Indicators LCMC Goals and Performance Indicators PMO Goals and Performance Indicators Goals and performance indicators from all stakeholders must be captured and assessed The supplier scorecard for “Vendor D” will be developed collaboratively 26 Example Performance Scorecard Quality PO Requirements Met Incoming Quality Quality Documentation Delivery Delivery Timeliness Accurate Delivery Accurate Documentation Cost Competitive Pricing Cost Reduction Actions Cost Controls Tracking Stakeholders meet to prioritize, weight and tier performance indicators Stakeholders determine appropriate performance targets for each performance indicator

28 Vendor D’s scorecard will target each of three primary SRM benefits with several Key Performance Indicators (KPIs) 27 Example Performance Scorecard Quality PO Requirements Met Incoming Quality Quality Documentation Delivery Delivery Timeliness Accurate Delivery Accurate Documentation Cost Competitive Pricing Cost Reduction Actions Cost Controls Tracking Example Risk Scorecard Finances Market Share Order Backlog Profit Margins Facilities Adequate Capacity Adequate Equipment Regulatory Requirements Met Example Relationship Scorecard Ordering Ordering Review Procedures Return Procedures Timely Ordering Service Quality Complaint Handling Process Timely Communication Customer Satisfaction Weighting and tiering KPIs allows scorecards to reflect the diversity and relative importance of stakeholders involved in a supplier relationship

29 The team will also select appropriate performance targets for each of the KPIs on “Vendor D’s” supplier scorecard 28 KPI Just-in-Time Target Traditional Target % Not too Early96.0%90% % Not too Late99.5%90% Manufacturers with a just-in-time business model will have more stringent delivery needs than more traditional manufacturers, leading to different performance targets for the same KPI Example Performance Scorecard Quality PO Requirements Met Incoming Quality Quality Documentation Delivery Delivery Timeliness Accurate Delivery Accurate Documentation Cost Competitive Pricing Cost Reduction Actions Cost Controls Tracking KPI Aerospace Target Manufacturing Target % Defects99.5%95.0% Aerospace manufacturers have higher performance requirements than other manufacturing firms, leading to different performance targets for the same KPI The selection of KPIs is crucial to a successful SRM program, as there is generally a trade-off among the different KPIs

30 Table of Contents 29 Executive Summary The Need for SRM in Weapon System Sustainment The Tenets of Weapon System SRM Black Hawk SRM Case Study Concluding Thoughts

31 The SRM program outlined above requires a fundamental change in how supplier relationships are viewed Open Communications Pro-Active Management  Increase the amount of information that is shared with suppliers  Open communication is necessary for pro-active management and collaboration  Use SRM tools to identify supply chain problems before they occur  SRM can facilitate risk management and transform supply chain management into a pro-active, strategic function Collaboration  View suppliers as partners in supply chain management  Collaborative problem solving can be more effective than individual efforts  Win-win solutions are possible 30

32 31 Questions?


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