GEOP 4355 Supply Networks: Supplier management Outline Supplier selection Supplier management Supplier certification Sources/references used in the preparation of this presentation are listed in the Introduction presentation

Supplier selection Supplier management starts with supplier selection. Key message of supplier selection: supplier vision, mission, and performance must be aligned with the buying company’s priorities. Criteria to select suppliers Cost / Discounts/ Payment terms Quality Lead time and on-time reliability Capacity and volume flexibility Technology, innovation, experience Firm size, financials, … Ethical problems, history of bad press, Systems and Information compatibility Political stability of country where the supplier is located.

Supplier selection The importance of supplier selection relates to the particular item you are purchasing Standard/commodity items Less critical/ relevant Intermediaries/ industrial distributors who sell similar items Designed to company specifications More important, higher dependencies Direct relationship with the company that makes it for you: direct collaboration.

Supplier management Number of suppliers (vendors) Sole versus multiple sourcing Sole: strong partnership, less variability, but risk of failure. Multiple: competition between suppliers, risk mitigation, but more variability and no partner approach. There has been a strong push for many years to reduce the number of suppliers. To simplify sourcing.

Supplier Base Management: This relates to: Supplier management Supplier Base Management: This relates to: management of relationships with suppliers, the evaluation of suppliers, scouting new ones. Determining the number of suppliers is an essential funcion of supplier base management.

Supplier management Risk Number of suppliers Relationship, Ordering and Transportation Costs Contingency/ failure costs Procurement costs slow few Number of suppliers

Supplier selection/management Total costs Relationship, Ordering and Transportation Costs Contingency/ failure costs Procurement costs few Number of suppliers

Supplier management Site based supplier selection/ management Each unit/site selects suppliers based on its needs/local requirements Uses local know-how Direct communication between buyer-source Unified/ company wide supplier selection/ management Benefit from economies of scale for contract negotiation (prices and terms) Use of global know-how

Supplier management Can be part of a strategic process to enter a market Company X wants to sell product Y in country Z Country Z will allow it if some components of product Y are made by companies in country Z, Part of long term relationships Boeing outsourced significant sections of its latest airplane to companies in Japan. Japan is a major buyer of Boeing aircraft.

Supplier management ABC Classification of suppliers “AA” and “A” Suppliers = strategically important suppliers Provide critical components Large purchase volumes in terms of $ Their materials go into the buyer’s best selling / highest value products Few alternatives available / Few qualified sources of supply Design to company specifications/ very complex specifications requiring complex manufacturing or service process (not easily replaceable) Therefore the buying organization will focus on creating strong relationships with these; tracking their performance closely.

Supplier management The “B” suppliers The “C” suppliers In between…. Low risk/ Low cost items Standard specifications Many existing alternatives, Many sources Therefore the buying organization will not spend significant resources on creating strong relationships with these, or in tracking their performance.

Supplier management Pareto Principle (80 – 20 rule) Well known principle, applies to all types of decision processes and analysis

Supplier management For the last 10-20 years the trend has been to reduce the supplier base (the set of suppliers used by the organization) Reduce administrative/management cost Focus on a few relationships (collaboration, negotiation, better terms) Consolidate transportation/ purchasing operations Standardize procured items Risk: when a supplier has problems/fails it has a higher impact on operations.

Supplier management Supplier management includes Measurement/ Tracking Total costs Quality On time delivery Team-based value-engineering efforts (improve sourced item’s value) Supplier development

Supplier management Supplier certification Programs designed to evaluate suppliers Goal is to track long term performance that allows some suppliers to become “partners” Partner suppliers (benefits) Priority for new items being sourced No need for incoming inspection Higher level of information sharing “Kodak’s Supplier Certification Program recognizes suppliers, who meet or exceed Kodak established requirements and are producing excellent levels of cost, quality and delivery performance. To be considered for this recognition, suppliers must show evidence of a sound and effective quality management system, provide Kodak with assurance and flexibility with delivery, lead time, and demonstrate world-class product/service quality levels”

Supplier management Supplier certification Scorecards: system to evaluate supplier on a consistent basis (list of KPIs) Defect rate Fill rate (complete orders) On time rate (on time versus total orders) # of Corrective Actions Last Quarter Average Response and Resolution time for Corrective actions # of Rework Hours due to Supplier Components # of Customer Complaints due to Supplier Components