Copyright © 2011, Supply Chain Education, Inc. Have You Hugged Your Supplier Today? The Benefits as a PREFERRED CUSTOMER Presented to ISM-San Antonio, April 26, 2012

Copyright © 2011, Supply Chain Education, Inc. What major event happened in the year 2000? The first person to run up to me and give me the correct answer will win a: Diamond Clip!!!!! Kick Off Question

Copyright © 2011, Supply Chain Education, Inc. What major event happened in the year 2000? A) The world as we knew it came to an end. Kick Off Question

Copyright © 2011, Supply Chain Education, Inc. What major event happened in the year 2000? A) The world as we knew it came to an end. B) The San Antonio Spurs beat the Dallas Mavericks in the NBA Championship. Kick Off Question

Copyright © 2011, Supply Chain Education, Inc. What major event happened in the year 2000? A) The world as we knew it came to an end. B) The San Antonio Spurs beat the Dallas Mavericks in the NBA Championship. C) Bobby Thomas turned 10 years old. Kick Off Question

Copyright © 2011, Supply Chain Education, Inc. What major event happened in the year 2000? A) The world as we knew it came to an end. B) The San Antonio Spurs beat the Dallas Mavericks in the NBA Championship. C) Bobby Thomas turned 10 years old. D) This presentation was made at the 85th NAPM International Conference in New Orleans. Kick Off Question

Copyright © 2011, Supply Chain Education, Inc. What major event happened in the year 2000? A) The world as we knew it came to an end. B) The San Antonio Spurs beat the Dallas Mavericks in the NBA Championship. C) Bobby Thomas turned 10 years old. D) This presentation was made at the 85th NAPM International Conference in New Orleans. Kick Off Question

Copyright © 2011, Supply Chain Education, Inc. OBJ1: Understand The True Meaning Of A: PREFERRED CUSTOMER OBJ2: Describe The Benefits Of Giving, In A Give-And-Take Relationship OBJ3: Ascertain The Damage From A Take Only Philosophy The Three Key Objectives The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. OBJ1: Understand The True Meaning Of A: PREFERRED CUSTOMER OBJ2: Describe The Benefits Of Giving, In A Give-And-Take Relationship OBJ3: Ascertain The Damage From A Take Only Philosophy The Three Key Objectives The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Strategic partnering is a relationship within the supply chain based on trust, shared risk and rewards aimed toward achieving a competitive advantage. What is a Partnership? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Strategic partnering is a relationship within the supply chain based on trust, shared risk and rewards aimed toward achieving a competitive advantage. What is a Partnership? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Isnt It Like A Marriage? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Have You Selected The Right Partner? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. The Ten-Tale Tale Signs Of A Poor Supplier 1.Cost Increase Passers Vs. Cost Cutters 2.Order Terms And Conditions Are Ignored 3.Minimal To Zero Sales Visits 4.Procurement Is Bypassed In Favor Of Other Departments 5.Lack Of Management Support

Copyright © 2011, Supply Chain Education, Inc. The Ten-Tale Tale Signs Of A Poor Supplier 6.An Unresponsive Customer Service Staff 7.Customer Treated According To Sales $ 8.Emphasis On Use As Is 9. No Innovation 10. Their QA Department Is Your QA Department

Copyright © 2011, Supply Chain Education, Inc. The Ten-Tale Tale Signs Of A Poor Supplier 1. C ost Increase Passers Vs. Cost Cutters 2. O rder Terms And Conditions Are Ignored 3. M inimal To Zero Sales Visits 4. P rocurement Is Bypassed In Favor Of Other Departments 5. L ack Of Management Support 6. A n Unresponsive Customer Service Staff 7. C ustomer Treated According To Sales $ 8. E mphasis On Use As Is 9. N o Innovation 10. T heir QA dept. Is Your QA dept.

Copyright © 2011, Supply Chain Education, Inc. You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives: X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces For the last 100 years, your sole source supplier: Roturteethout has had a 100% on time delivery record. Over the last year, it has dropped to 50%. Does this mean that you are no longer a PREFERRED CUSTOMER? You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives: X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces For the last 100 years, your sole source supplier: Roturteethout has had a 100% on time delivery record. Over the last year, it has dropped to 50%. Does this mean that you are no longer a PREFERRED CUSTOMER? Case Study: From Bitter To Sweet

Copyright © 2011, Supply Chain Education, Inc. The Underlying Problem The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. A Key Preferred Customer Tool: Benchmarking To develop a best-in-class standard by which to measure your supplier(s) and to quantify and weight each standard according the importance to your firm and to form the basis of the rating category. To develop a best-in-class standard by which to measure your supplier(s) and to quantify and weight each standard according the importance to your firm and to form the basis of the rating category. The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. PERFORMANCE PROCESS Benchmarking Management Delivery QA Financial Pricing

Copyright © 2011, Supply Chain Education, Inc. Key Benchmarking Questions – QA-Quality Assurance 1.Does your supplier have a formal system in place? 2.Is SPC part of their system? 3.Is there evidence of continuous improvement? 4.Does the supplier set quality objectives with metrics?

Copyright © 2011, Supply Chain Education, Inc. Key Benchmarking Questions – Management 1.Does your supplier have a formal business plan? 2.What is your suppliers Mission Statement? 3.Does the suppliers management possess good skills?

Copyright © 2011, Supply Chain Education, Inc. Key Benchmarking Questions – Financial 1.Does the supplier conduct annual financial audits? 2.Is your supplier willing to share key financial data?

Copyright © 2011, Supply Chain Education, Inc. Key Benchmarking Questions – Delivery 1.Is your supplier aware of your delivery goals? 2.Does your supplier support delivery changes? 3.Are acknowledgements timely and accurate? 4.Are there joint plans for lead-time reduction?

Copyright © 2011, Supply Chain Education, Inc. Key Benchmarking Questions – Pricing 1.Can your supplier reduce/control its operating costs? 2.Are processes in place to manage their suppliers? 3.Do they possess knowledge of industry trends?

Copyright © 2011, Supply Chain Education, Inc. A Key Preferred Customer Tool: Contracts With Teeth To develop a best-in-class standard by which to measure your supplier(s) and to quantify and weight each standard according the importance to your firm and to form the basis of the rating category. To develop a best-in-class standard by which to measure your supplier(s) and to quantify and weight each standard according the importance to your firm and to form the basis of the rating category. The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Boilerplate Ts & Cs 1.Force Majeure 2.Comity 3. Patents 4. Copyrights 5. Restraint Of Trade/ Anti-trust 6.Assignability 7.Indemnification 8.Limitation of Liability 9.Waiver of Consequential Damages 10.Reservation of Right 11.Termination 12. Warranty

Copyright © 2011, Supply Chain Education, Inc. Specific Clauses - Cost Reduction Cost Reduction Goals Supplier agrees to provide customer with total annual cost reductions of ___ % under this agreement. Cost reductions will be measured on the total value of products purchased under the agreement on an annual basis. If supplier does not provide the agreed cost reduction percentage in a given year, supplier will rebate the amount of the shortfall to the customer within 45 days after the applicable year. The parties will share cost reductions in excess of ___% equally, as described below. The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Pre- Qualified Pre- Qualified Approved Certifiable Certified PartnersPartners Preferred Types of Supplier Categories The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. OBJ1: Understand The True Meaning Of A: PREFERRED CUSTOMER OBJ2: Describe The Benefits Of Giving, In A Give-And-Take Relationship OBJ3: Ascertain The Damage From A Take Only Philosophy The Three Key Objectives The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. What are the benefits of establishing and maintaining good supplier relationships? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. BIC Suppliers BIC Suppliers Improved SCM Improved SCM Leverage Lower TCO Lower TCO Reduced Risk Reduced Risk Pursue Value-Add Pursue Value-Add Six Optimization Benefits The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Periodic top management meetings Periodic top management meetings Conduct supplier surveys Conduct supplier surveys Ensure suppliers understand your customer functions Ensure suppliers understand your customer functions Treat suppliers equally Provide suppliers training Provide suppliers training Encourage Confidentiality Encourage Confidentiality Pay suppliers on time Enhance two-way communication The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Three Types of Supplier Relationships Transactional Low value, price type purchases Collaborative Strategic Alliance Longer commitment, blanket order Long Term agreement, VMI/VOI

Copyright © 2011, Supply Chain Education, Inc. What is Supply Base Innovation? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. INNOVATION: What do you think about: 1. Ford = Fix or repair daily 2. Ford = Found on the road dead 3. Ford = A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. OBJ1: Understand The True Meaning Of A: PREFERRED CUSTOMER OBJ2: Describe The Benefits Of Giving, In A Give-And-Take Relationship OBJ3: Ascertain The Damage From A Take Only Philosophy The Three Key Objectives The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Have you ever heard of Ignatio Lopez? The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Six Negative Relationship Factors 1.Demanding more than the relationship should cover. 2.Always berating your supplier(s). 3.Micro-managing the customer-supplier relationship.

Copyright © 2011, Supply Chain Education, Inc. Six Negative Relationship Factors 4. Arguing w/ every criticism/feedback of you as customer. 5. Giving lip service only to the contract. 6. Entertaining Sharp Practices with your supplier.

Copyright © 2011, Supply Chain Education, Inc. 10. Your supplier will promote your company to the business world as one who displays both fairness and high ethical principles. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 10. Your supplier will promote your company to the business world as one who displays both fairness and high ethical principles. 9. In our changing business marketplace, if your supplier should also become your customer, then you have strengthened the relationship for future growth. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 8. As your relationship continues and grows, you will eliminate or minimize the costs of trying to locate replacement sources of supply. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 8. As your relationship continues and grows, you will eliminate or minimize the costs of trying to locate replacement sources of supply. 7. By saving the time in trying to find replacement sources of supply, you can now focus on other strategic projects. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 6. Your partnered supplier(s) will be willing to share new ideas & new opportunities with its key customer – you (innovation). The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 6. Your partnered supplier(s) will be willing to share new ideas & new opportunities with its key customer – you (innovation). 5. By utilizing good buyer-supplier relationships, your company will have an edge over the competition who may still be practicing the Lopez approach. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 4. With contract clauses such as: 50/50 share, your supplier now has incentive & will/should make improvements. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 4. With contract clauses such as: 50/50 share, your supplier now has incentive & will/should make improvements. 3. Since your relationships are positive, this could lead to a lower stress level with happier SM employees. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 2. Since their supplier relationships are positive, this should also lead to a lower stress level with happier supplier employees. The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. 2. Since their supplier relationships are positive, this should also lead to a lower stress level with happier supplier employees. 1. As your supplier works to assist you, its: PREFERRED CUSTOMER, in reducing the costs of purchases, this goes straight to the: BOTTOM LINE!!!! The Top Ten Reasons To Become A Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Any Final Questions? Copyright © 2011, Supply Chain Education, Inc. The Preferred Customer

Copyright © 2011, Supply Chain Education, Inc. Meet the Presenter: Patrick S. Woods, CPSM,CPSD,C.P.M.,CPIM Phone: , Web: Patrick (Pat) S. Woods is President of Supply Chain Education, founded ten years ago, to provide professional development in supply chain and materials management. He has spent the past 15 years in the employ of such corporations as Colt Industries, Intergraph, Emerson Electric and EDS. He has held key positions from materials expeditor to buyer/planner to supply chain manager to training director. Pat is a CPSM, CPSD and C.P.M. through ISM and is Certified in Production and Inventory Management (CPIM) though APICS -The Association for Operations Management. In addition to his own clients, Pat is a national trainer for both and travels the U.S. presenting credentialing programs and workshops for the membership. Pat was the President of ISM-Dallas.