Materials Management BUS 3 – 141 Supplier Relations Week of Apr 23, 2007

Page 2 2 Agenda –Term Paper –Understanding Supplier Lead Time and Operations –Supplier Relations –Partnerships with Suppliers

Understanding Supplier Lead Time and Operations

Page 4 4 Suppliers are an extension of the Buyer’s Operation –Component costs –Manufacturing and Assembly costs –Issues and delays –Lead Times –Data and Report visibility and timeliness Converting an item to “Buy” from “Make”, or outsourcing manufacturing to a Third Party, does not remove the Supply Manager’s responsibility to understand and influence the production process Key Considerations:

Page 5 5 Elements of Lead Time A critical requirement for buyers is influencing supplier Priority First Buy (No forecast) Regular Buys (w / forecast) Pull In open Order(s) Expedite Delivery

Page 6 6 Lead Time Example: Eyeglass Manufacturing (Surfacing) First Fine Polish Grinding Second Fine Coat Prep Layout Block Tool Selection De-Block & Cleaning Glass Fine Glass Polish

Page 7 7 Lead Time Example: Eyeglass Manufacturing (Finishing) Tint Edge Test & Prep Chem Treat Drop Ball Test Bevel Inspect Edge Insert

Page 8 8 Lead Time Example: Eyeglass Mfg (Finishing at Lens Crafters) Tint Test & Prep Bevel EdgeInsert Inspect  Days of Lead Time become hours  Expediting no longer necessary. Value Added Activities are co- located, with minimal inventory and re-prioritizing queues

Supplier Relations

Page Visits to and from Key Suppliers –Understand Major Supply Chain processes Production flow Planning and priority Standard capacity and constraints Flex capacity and ability to respond to upside and downside requests –Personalize the relationships Associate faces with names Future interaction is with a “person” instead of a “representative” –First hand observation, instead of receiving controlled information –Ability to see opportunities for new spend Major Objectives to visits to Suppliers:

Page Visits to and from Key Suppliers –Reinforce a customer satisfaction perspective Making the effort demonstrates a commitment Efficient use of Customer time (no plane trips; short meetings instead of full day away from office) Greater understanding of usage / application of the item supplied Increased mind share for future customer spend –Personalize the relationships Associate faces with names Future interaction is with a “person” instead of a “representative” –First hand observation, instead of receiving controlled information –Ability to see opportunities for new offerings Major Objectives to visits from Suppliers:

Page Satisfaction Matrix * From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page Actions to Influence Supplier Behavior –Increased spend for good performance –Working together to solve problems –Shared benefits in cost savings –Participation in long term planning Rewards –Cancel Orders –Issue no new orders –Refuse to accept shipments –Refuse to pay bills –Lawsuits, or threats of lawsuits Punishments

Partnerships with Suppliers

Page Working with Strategic Partners vs. Transaction Suppliers * From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin Relationship Investment Required Reward Obtained

Page “Paradigm Shift” in Buyer – Seller Relationship * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin Traditional –Lowest price –Specification-driven –Short-term, reacts to market –Trouble avoidance –Purchasing’s responsibility –Tactical –Little sharing of information Partnership * –Total cost of ownership –End-customer driven –Long-term –Opportunity maximization –Cross-functional teams and top management involvement –Strategic –Both supplier and buyer on both sides share short- and long-term plans –Shared risk and opportunity –Standardization –Joint ventures –Share data Not Partnership as a Legal Entity, but as a description of the Relationship

Page Indications of a Successful Partnership Effort –Formal communication processes –Commitment to our suppliers’ success –Mutual profitability –Stable relationships, not dependent on a few personalities –Consistent and specific feedback on supplier performance –Realistic expectations –Employee accountability for ethical business conduct –Meaningful information sharing –Guidance to supplier in defining improvement efforts –Non-adversarial negotiations and decisions based on total cost of ownership –Continued desire to do business together * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin