Supply Management Handbook

Supply Management Handbook
INTRODUCER IAN

Facilities Lunch Telephones Timetable PRESENTER #1 IAN 2
Rest Rooms Smoking Breaks PRESENTER #1 IAN 1. 2 2

AGENDA #1 Day 1 Fundamentals of Supply Management Business Process
Developing a Macro Plan Understanding Supply Market Analysis Reviewing Sourcing Strategy Designing a SESpa (Supplier Evaluation, Selection and Performance Appraisal) Framework #1

AGENDA Day 2 Building a Request for Information/Request for Quotation Corrective Action sesPA Supplier Account Management #1

Workshop Objectives Understand the basic concepts of the Supply Management Business Process. Understand the importance of building effective Supply Management teams and critical points for project communication Develop a Macro Plan through Team Efforts Develop the SESpa framework based upon the Macro Plan Build an RFI (Request for Information) Learn how to plan and implement the supplier selection decisions #1 IAN 1. 5 5

Workshop Objectives Recognize the processes and tools which will help to establish long term supplier relations Determine how to work with suppliers in the joint development of new products and services to meet customer needs Determine how you can best contribute to the successful implementation of the tools and processes of the Supply Management Business Process Understand the Supplier Account Management process Understand how to apply the workshop concepts to your work. #1 IAN 1. 7 5

Purchasing roles Purchasing roles can be broken down into 3 categories: Transactional: Focused on issuing purchase orders, expediting. Tactical: Focused on quoting and negotiating with specific suppliers. Management of suppliers locally, also includes global sourcing & commodity management. Plant level focus Strategic: Considers commodity management, segmentation of suppliers, categorization of market & business risks, long term supplier agreements. Global sourcing and leveraging global suppliers across business units. Defines Sourcing and commodity strategies

Stages of Supply Management
Supplier Optimisation Joint Product/ Service Development +5% % % STAGE ONE STAGE TWO STAGE THREE Standardisation/ Simplification Incremental Benefit Change in Behaviours Required The S curve is the foundation of Supply Management, understanding that we have different levels of involvement with suppliers based on market and business needs IAN 1. 7 7

STAGE ONE STAGE TWO STAGE THREE Supplier Optimisation Standardisation/ Simplification Joint Product/ Service Development LOCAL SM SOLUTION· CONVENTIONAL LEVERAGING WHAT CURRENTLY EXISTS REDUCING SUPPLIERS SUCCESS IS SAVINGS DRIVEN· PURCHASING IN ISOLATION OF BUSINESS PROCESSES· COMMODITY NOT ACCOUNT MANAGEMENT THINKING PRICE NOT COST PROACTIVE NOT REACTIVE· CROSS BUSINESS TEAMS· LONG TERM ARRANGEMENTS FOCUS OF TOTAL COST OF OWNERSHIP (SERVICE OR PARTS IN PRODUCTION CYCLE) SHARED RISKS/AGREEMENTS· SHARED OUTCOMES· SHARED LEARNING· FULL PARTNERSHIP LONG TERM VISION SHARED RISKS/AGREEMENTS LOWEST TOTAL COST CAPITALIZE ON CORE COMPETENCIES MUTUALLY AGREED PERFORMANCE MATRIX SECURITY OF SUPPLY MUTUALLY BENEFICIAL INTEGRATED SYSTEMS AND BUSINESS PROCESSES Change in Behaviours Required WE have suppliers in all three categories, as you move right, the relationship deepens and the business impact increases IAN +5% % % Incremental Benefit 8

Supply Management as a Business Process
Supplier Selection Implementation Continuous improvement Joint development Macro Planning Confirm solution sesPA CSF’s and KPI’s Specification process Build SESPA model Project Management Initiative Prioritisation Supplier Selection Supply Market Analysis Project Implementation Corrective Action Implementation Request for Information Corrective Action Process Certification The slide show the business process of SM, following a logical methodology Define sourcing strategy STEP II STEP III STEP IV STEP I Consistently applicable processes Team management Communications Account management Improvement tools 1. 9 9

Focus of Workshop #1 Macro Plan Supplier Evaluation and Selection
RFI (Request for Information) Sourcing Strategy and SMA (Supply Market Analysis) Team Management Communications Improvement Tools Corrective Action sesPA (Performance Appraisal) Supplier Account Management #1 1. 10 10

Benefits of the Macro Plan
Applies discipline and structure to projects Outlines the project’s objectives Focuses on benefits Identifies team members Ensures any initiative is thoroughly researched and planned Is used as a tracking tool to manage the project Helps gain buy-in from Stakeholders and Sponsors Communication tool within the broader SM and business communities The macro plan is an outline for the project or commodity. It should define the project 2. 2 1

Macro Plan Process Communication & Team Management are the underpinning themes throughout the process. 1. Determine the need or opportunity 2. Identify applicable team members and sponsors 3. Solicit sponsor(s) support 4. Form the project team 5. Develop the Macro Plan (research for additional information if necessary) 6. Communicate Macro Plan to sponsors for buy-in and sign-off 7. Begin the SESpa process #1 After this and before next slide hand out and ask participants to read Case Study. 2. 3 2

Using Force Field Analysis
Determine driving and restraining forces (Force Field Analysis) Identify sponsor(s)/stakeholders Here we are talking about internal influences on a sourcing/purchasing project. What forces will try act upon decisions or supplier selection. Lead times, local vs. global. Customer DALE Identify ideal team members 2.4

Example of a Force Field Analysis
Driving Forces Restraining Forces Outdated technology Need for growth High costs of R&M Customer Demand New Service Offerings Unproven technology Disruption during Transition High Investment Cost New staff requirement Last update relatively recent #1 Flip Chart Exercise HANDOVER TO PRESENTER #2 DALE 2. 5 4

Macro Plan Process Communication & Team Management are the underpinning themes throughout the process. 1. Determine the need or opportunity 2. Identify applicable team members and sponsors 3. Solicit sponsor(s) support 4. Form the project team 5. Develop the Macro Plan (research for additional information if necessary) 6. Communicate Macro Plan to sponsors for buy-in and sign-off 7. Begin the SESpa process The macro plan is simply a written understanding the project 2. 6 5

Team Building Communicator facilitator, process oriented gets people to talk, consensus building excellent interpersonal skills deals with conflict resolution prone to question and raises tough issues can save team from making mistakes encourages team to take risks very task oriented may be the Subject Matter Expert detail oriented, sets high performance standards goal oriented gets group on track sees big picture Challenger Contributor Here we recognize how different people interact and contribute to a cross functional team Collaborator 2. 7 3

Macro Plan Template OBJECTIVES TITLE CURRENT SITUATION TIMING PRODUCT AVL VOB This is an example of a macro plan. This is a formal project template. Most projects do not use this level of fomality EXERCISE – MACRO PLAN STATUS BENEFITS SIGN OFFS 2. 8 6

Macro Plan Summary Communication & Team Management are the underpinning themes throughout the process. 1. Determine the need or opportunity 2. Identify applicable team members and sponsors 3. Solicit sponsor(s) support 4. Form the project team 5. Develop the Macro Plan (research for additional information if necessary) 6. Communicate Macro Plan to sponsors for buy-in and sign-off 7. Begin the SESpa process #2 2. 9 7

Purpose of SESPA Supplier Evaluation, Selection, Performance appraisal
To provide guidelines for: Evaluating and selecting new suppliers, and appraising the ongoing performance of selected suppliers: SESPA templates here can be used for non traditional sourcing projects. Each facility must have process for evaluating, selecting and measuring supplier performance for suppliers related to production This is a basic ISO requirement

What is SESPA? SESPA is two tools in one.
SESPA provides transparency and objectivity to the selection of suppliers and a measurement tool in the supplier performance management process. SESPA is Supply Management principles ordered into logical process steps. SESPA is a generic process providing a consistent approach to supplier selection and evaluation

Facilitates quality assessment and risk management
SESPA is… A business driven transparent evaluation and selection of suppliers that is objective (less subjective) Facilitates quality assessment and risk management Performance management and Ongoing improvement – gap identification (actual vs. expectations/ promise) A basis for reliable and objective communication Supply base optimisation The deselecting of suppliers not meeting the agreed needs / criteria Shortlist of suppliers to consider for selection A means to qualify suppliers for “approved supplier list”

When to Use SESpa Does the choice of supplier have a significant bearing on IMA s Safety performance? Consideration to be made by the sourcing team or Supply Management. Where uncertain should be referred to SHEQ New product or supplier with the potential to grow to >$100,000 annual spend within the next 24 months? When only one supplier exists may be worthwhile to conduct SESPA to assist with negotiation and performance Is there a commercial or Business risk with a possible financial impact > $100K of selecting the wrong supplier? Risk assessment made by the team or Supply Management through: What could go wrong versus the probability of it occurring Ref: risk guidelines for SESPA (see Appendix 1) See next slide

When to Use SESpa You also need to use SESpa in the following circumstances: The supplier is chosen by more than one person, e.g. in a cross functional situation where SM is not the sole decision maker There is disagreement or potential disagreement over the supplier selection decision, and SESPA is then used as an objective decision maker Further advantages may result from the choice of supplier (i.e. it is not just the lowest bid), and there is a need to balance various aspects When there is a special need to show objectivity (e.g. Pension Fund advisors etc.,)

Supplier Evaluation and Selection Process (SESpa)
1. Determine business needs for a given supply opportunity 2. Identify attributes suppliers must exhibit to allow IMA to satisfy each business need 3. Decide indicators for each attribute 4. Match attributes to a standard set of seven generic characteristics 5. Weight attributes for the purpose of supplier selection agree scoring definitions 6. Use Indicators to word unambiguous questions for suppliers compile Request for information 7. Score suppliers against their demonstrated ability in each attribute 8. Issue RFQ to short listed suppliers 9. Negotiate, confirm selection, and agree final contract terms What Criteria for an ideal supplier, Service, technology, Proximity, Lead time, Language, Cost, Quality

Process links SESpa process
Sourcing Strategy Supply Market Analysis SESpa process Sourcing strategy is related to internal and external forces. Request for Information Request for Quotation 3.5 5

Process links Supply Market Analysis SESPA SESpa Sourcing Strategy RFI In a formal Sespa the template can be used. For more general sourcing good purchasing practice should be applied No1 DALE SESpa scoring 2.1 5

Supply Market Analysis
POTENTIAL SUPPLIERS INDUSTRY ENVIRONMENT To consider a sourcing strategy you need to know the influence from the market DALE 2.2 5

POTENTIAL SUPPLIERS INDUSTRY E P T
No1 DALE 2.3

STEP Analysis T E P No1 ACTIVITY- STEP ANALYSIS
Social : socio/cultural issues with a potential supplier impact Technological : potential changes/advances in the supplier market Economic : economic issues in the supplier country Political : political issues, including legislation, regulations T E No1 ACTIVITY- STEP ANALYSIS DALE P 5

Competitive Forces Questions
1. Potential entrants: how strong is the threat of new entrants who can overcome barriers to entry? 2. Substitute products: how strong is the threat of substitutes from outside? 3. Customers: how strong is customer bargaining power? 4. Suppliers: how strong is supplier bargaining power? 5. Industry competition: how intense is the competition? No1 ACTIVITY – COMPETITIVE FORCES QUESTIONS DALE 2.7 5

Industry competition Potential entrants Suppliers Customers No1
DALE Substitute products 2.8

ENVIRONMENT INDUSTRY POTENTIAL SUPPLIERS No1 DALE 2.9

Assessing a Potential Supplier
Generic strategy model Value chain model Assessment of products/services Growth strategy matrix Strategic development policy No1 DALE 2.10

Competitive advantage
Generic Strategies Competitive advantage Cost leadership Differentiation Broad target Competitive scope Cost leadership Differentiation Narrow target No1 DALE 2.11

Human resource management Technology development
Value Chain Model Primary activities Support activities Inbound logistics Operations MARGIN Infrastructure Human resource management Technology development Procurement Outbound logistics Marketing and sales Service No1 DALE

Value Questions Does the supplier do something which competitors don’t offer? Are they better at something than their competition? Is it something we (the customer) desire? No1 DALE 2.13

Growth/Market Share Matrix
HIGH Market growth rate No1 FLIPCHART EXERCISE DALE HIGH Relative market share

Growth Strategy Matrix
Market Product Existing New Market penetration Product development Market extension Diversification No1 DALE 2.15

ENVIRONMENT INDUSTRY POTENTIAL SUPPLIERS No1 DALE 2.16

Analysing the Outputs Strengths Weaknesses Opportunities Threats No1
ACTIVITY – SWOT ANALYSIS DALE Opportunities Threats 2.17

Supply Market Analysis Summary
The external environment The industry itself Potential suppliers Generic strategy model Value chain model Assessment of products/services Growth strategy matrix Strategic development policy No1 DALE 2.18 5

Process links No1 Supply Market Analysis SESpa Sourcing Strategy RFI
SESpa scoring

Two Stage Approach 1. Select ideal sourcing strategy Assess impact of product or service on profitability Review Supply Market Analysis, SESpa and RFI outputs 2. Assess feasibility No1 3.1

Range of Sourcing Strategies
Adversarial leverage Preferred supplier(s) Single sourcing partnership Network sourcing Joint venture/strategic alliances Merger/acquisition/organic growth No1 3.2

Trends in SM Strategies
local multi-sourcing adversarial ‘beat them round the head’ global sourcing with fewer suppliers co-operation, partnership No1 3.3

Degree of Control Adversarial leverage Preferred supplier(s)
LOW Adversarial leverage Preferred supplier(s) Single sourcing partnership Network sourcing Joint venture/strategic alliances Merger/acquisition/organic growth DEGREE OF CONTROL The sourcing strategiees range from ones which give us very little control to ones which give us a high degree of control. With adversarial leverage there is no guarantee of future business so the supplier has no incentive to be loyal or to work with BOC. At the other end of the scale, with an in-house department, BOC has total control to dictate production priorities and determine future development programmes. The bextent to which we want control depends upon the extent to which is affects our profitabiliy. HIGH 3.4

Impact on Profitability
Adversarial leverage Preferred supplier(s) Single sourcing partnership Network sourcing Joint venture/strategic alliances Merger/acquisition/organic growth LOW LOW required degree of control over supply impact on profitability The more that a product impacts upon our profitability the more control we should be able to exert over its supply. If a product is core to the business and therefore our profitability we musb minimise the risk of a failure in supply> The product should be provided internally or perhaps through a joint venture/alliance. On the other hand a non-core product or service is unlikely to be a significant contributor to our profitability so we wouldn’t need the same degree of control. It is best provided by a business which specialisesin that product or service and can therefore provide it more cost effectively. Thus prefferd supplier or adversarial leverage may be best. HIGH HIGH 3.5

Assessing Impact on Profitability
1. How big is the opportunity for cost advantage? 2. How much does the product contribute to sustainable differentiation? 3. How much does the product contribute to customer perceived value? 4. How big is the opportunity for future advantages to grow from this product? 5. How high is the cost of administering provision of the product? 6. What is the likelihood of product failure, how severe is the financial consequence? No1 EXERCISE So what is the ideal sourcing strategy for the reprographics system 3.6

LOW Adversarial leverage Preferred supplier(s) Single sourcing partnership Network sourcing Joint venture/strategic alliances Merger/acquisition/organic growth impact on profitability No1 HIGH 3.7

No1 ‘Ideal’ Sourcing Strategy (stage 1) Supply Market Analysis SESpa
RFI ‘Optimal’ Sourcing Strategy - taking account of supply market and supplier constraints (stage 2) No1 SESpa Selecting the suppliers to support the sourcing strategy 3.8

Degree of Control No1 LOW DEGREE OF CONTROL HIGH Adversarial leverage
Preferred supplier(s) Single sourcing partnership Network sourcing Joint venture/strategic alliances Merger/acquisition/organic growth DEGREE OF CONTROL No1 HIGH 3.9

Adversarial leverage Preferred supplier(s) Single sourcing partnership Network sourcing Joint venture/strategic alliances Merger/acquisition/organic growth LOW LOW impact on profitability required degree of control over supply No1 HANDOVER HIGH HIGH

Sourcing Strategies and the associated Segmentation Tools
Portfolio Analysis This is a powerful strategic sourcing tool that helps segment products into different areas by looking at the market difficulty (e.g. how competitive it is) and the value of expenditure on each item. This allows you to select the most effective methods to apply which will maximise the control and management of key commodities. The information it provides allows time to be better organised and resources used in a manner that will maximise benefit. Other benefits are that it is an excellent tool for gaining management support for change, it encourages strategic thinking and analysis to reduce cost, add value and minimise risk, and it facilitates cost reduction identification and action planning. It provides some ‘science’ to the task of segmenting vast portfolios of commodities. Supplier Preferencing The Portfolio Analysis reviews the relationship from the buyers’ point of view whereas Supplier Preferencing looks at the relationship from the suppliers’ point of view. Often the two tools are used in conjunction to fully map and understand the associated risks of the buyer / seller relationship. It looks at how attractive the customer account is to a supplier and the relative value of the business to them as the supplier.

Sourcing Strategies and the associated Segmentation Tools
Supplier Management Behaviour Approaches to relationships will vary depending on the difficulty of the market that the buyer is operating in and, either, the anticipated duration of the relationship or probability of re-engagement. This matrix aims to help buyers understand what type of relationship would be most applicable to variations in those circumstances. Relationship segmentation is a critical element when planning a supplier management programme, as resources and time needs to be appropriately allocated by both parties. Benefit Achievement Analysis The Benefit Achievement Analysis attempts to help the buyer identify cost saving and other benefit opportunities that can be implemented and have a high impact on the business. The idea being that the buyer can then identify any projects that have the potential to deliver quick savings to the business and carry those out before other, more difficult projects.

Segmentation Strategies

1. Determine business needs for a given supply opportunity 2. Identify attributes suppliers must exhibit to allow BOC to satisfy each business need 3. Decide indicators for each attribute 4. Match attributes to a standard set of seven generic characteristics 5. Weight attributes for the purpose of supplier selection agree scoring definitions 6. Use Indicators to word unambiguous questions for suppliers compile RFI 7. Score suppliers against their demonstrated ability in each attribute 8. Issue RFQ to short listed suppliers 9. Negotiate, confirm selection, and agree final contract terms

Company Business needs
INTERNAL What do you need to support your operational or functional effectiveness? EXTERNAL What do you need to satisfy your customers and/or give you market advantage? #2 DALE

What does the XYZ company need?
Business needs What does the XYZ company need? what does the business need to operate effectively and satisfy customers? don’t confuse company’s needs with supplier solutions #2 Flip chart Exercise DALE 3.7 6

Attributes and indicators
Attributes Indicators Competencies the supplier must deliver to satisfy the identified business needs What can you look at to tell whether the supplier can deliver each attribute? Note: indicators can be either qualitative or quantitative #2 ACTIVITY SUPPLIER ATTRIBUTES DALE 3.8 7

The SESPA hierarchy The business needs Supplier attributes #2
What do you need to support your operational or functional effectiveness? Or what do you need to satisfy your customers and/or give you market advantage? The business needs Competencies the supplier must deliver to satisfy the identified business needs. Supplier attributes What can you look at to tell whether the supplier can deliver each attribute? #2 DALE Performance indicators 3.5.1

Two levels of business needs
The macro organization level The strategic objectives of the business The opportunity level #2 DALE Specific needs directly related to the opportunity being examined 3.5.2

THE MACRO ORGANISATION LEVEL
A strategic objective is to increase profit Reduce costs Increase revenue Increase capacity utilization Increase prices Improve repeat business Attract new customers #2 DALE THE OPPORTUNITY LEVEL Outsource advertising to an agency 3.5.3

1. Determine business needs for a given supply opportunity 2. Identify attributes suppliers must exhibit to allow BOC to satisfy each business need 3. Decide indicators for each attribute 4. Match attributes to a standard set of seven generic characteristics 5. Weight attributes for the purpose of supplier selection agree scoring definitions 6. Use Indicators to word unambiguous questions for suppliers compile RFI 7. Score suppliers against their demonstrated ability in each attribute 8. Issue RFQ to short listed suppliers 9. Negotiate, confirm selection, and agree final contract terms

Seven generic characteristics
Commercial Product quality Delivery/Cycle time Responsiveness Technology Safety/environment Business management #1 ACTIVITY – MATCHING THE ATTRIBUTES DALE 3.13

Calculating attribute weightings
For each attribute: Number of dots x 100 ÷ Total number of dots distributed No 1 SCORING DALE 3.14

RFI/RFQ RFI Information for supplier to show whether they satisfy each SESpa attribute and indicator RFQ Supplier prices to provide the product or service which BOC wants No2 4.6

RFI questions check For each attribute and indicator:
Will the instruction(s) or question(s) elicit a response that will enable you to assess whether the indicator is satisfied? Is the wording of the instruction(s) or question(s) precise and unambiguous? No2 ACTIVITY 4.7

RFI communications What information do you need about suppliers?
What information do suppliers need in order to answer your questions? No 2 ACTIVITY – What information would you provide to the supplier? 4.8

RFI contacts Issue pre-qualification questionnaire Meet potential supplier and issue RFI Further discussions for clarification Receive RFI responses On-site validation of supplier processes Meetings/presentations by shortlisted suppliers Issue RFQ Receive RFQ responses No2 4.9 3

Request for Quotation (RFQ)
Equipment unit price Equipment life expectancy Residual values/buy back Finance options Maintenance costs Future pricing Flexible pricing Raw materials risks Salaries No2 END OF DAY 1 4.10

SESpa scoring rules Team members to agree scoring system
If you don’t have sufficient knowledge about an attribute yourself, don’t score it. DAY 2 No2 4.11

Scoring guidelines 5 Best practice, effectiveness proven 4 In place, effective and proven 3 Recently implemented, some success can be proven 2 Recently implemented, some success can be anticipated 1 In place, but ineffective or unproven 0 Not in place, or incompetent No2 4.12

Is there a big variation?
1. Did you understand the attribute definition? 2. Did you understand the scoring system? 3. What information made you score it this way? No2 4.13

Recommending a supplier
Recommended supplier Reason for choice Areas of weakness / improvement opportunities No2 ACTIVITY 4.14

Implementing the Solution and Building the relationship
If the supplier does not satisfy all your requirements If you have identified areas of opportunity Agree a Corrective Action Plan Continuous Improvement Plan No 2 4.15

RFI and SESpa Summary SESpa is a systematic process for selecting the best supplier to support business needs Supply Market Analysis helps to assess attributes through a longer term perspective Sourcing Strategy helps you decide the most appropriate relationship with the supplier to support business needs. Request for Information enables you to assess each supplier against required attributes Request for Quotation provides you with details of supplier prices DALE 4.17 3

Implementation Strategies
Big Bang - total immediate switch or Pilot scheme - small trial before full implementation Staggered changeover - gradual start-up new/close down old Parallel running - run both services at full capacity for a period No2 HANDOVER 5.6

Operations, stakeholders affected Project and project team
Sources of Risk Environment Operations, stakeholders affected Project and project team No1 5.7

Triggers for Corrective Action
Any unforeseen problem SESpa - sesPA - supplier not able to meet required standard in one or more attributes supplier failing to meet required standard in one or more attributes No 2 6.1

Corrective Action Process
Identification and description of problem Assignment of appropriate responsibility and resource Investigation to identify root cause of problem Implementation of short term action(s) to contain problem Implementation of long term action(s) to prevent recurrence Verification of corrective action(s) effectiveness No1 6.2

Identification and Description of Problem
Describe the problem clearly and quantify it Determine the extent of the problem Assess the seriousness of the problem No1 6.3

Seriousness of Problem
MINOR unlikely to cause customer dissatisfaction MAJOR will cause customer dissatisfaction or loss to BOC CRITICAL could be a health, safety or environmental hazard, or major loss to BOC No1 6.4

Identification and description of problem Assignment of appropriate responsibility and resource Investigation to identify root cause of problem Implementation of short term action(s) to contain problem Implementation of long term action(s) to prevent recurrence Verification of corrective action(s) effectiveness No1 6.2

Planning Verification
What? Where? When? Who? No1 How?

1. Identification and description of problem 2. Assignment of appropriate responsibility and resource 3. Investigation to identify root cause of problem 4. Implementation of short term action(s) to contain problem 5. Implementation of long term action(s) to prevent recurrence 6. Verification of corrective action(s) effectiveness No1 HANDOVER 6.7

Supplier Performance Management
The sesPA (supplier performance appraisal) process is a tool in the overall supplier performance management process. Other tools include: SLA / KPI monitoring, reporting and action Written supplier performance improvement plan Strategic partnership initiatives Scheduled progress and business review meetings Supplier account management process User complaint reporting process SHEQ audit Contract management SCAR (supplier correction action )

sesPA - Performance Appraisal
Provides ongoing monitoring & measurement of supplier’s performance Regular agreed reviews Key component of Supplier Account Management Where possible utilises the same categories & attributes as those used in the original SESpa The identification of both leading and lagging indicators to determine performance Results are shared with the suppliers Provides the opportunity for the continuous improvement & corrective action loop

sesPA - Performance Appraisal
The key steps are... Complete supplier performance evaluation document Compile a supplier feedback summary document Collate responses Review Performance Agree performance improvement Hold a supplier meeting and present the results Compile an action improvement plan Monitor action plan • areas targets dates responsible person

Planning to Obtain Evidence
Identify an attribute Decide indicator(s) for attribute What data is needed? What is the source of the data? Who is responsible for providing it? No 2 ACTIVITY 7.3

Positive vs. Negative Measures
Positive focus Negative focus Success rate On-time deliveries Quality performance Response time Time slot performance Deliveries within agreed Lead Time Error rate Late deliveries Defects Missed calls Missed time slots Lead time failures No2 7.4

Leading indicator Lagging indicator
Leading vs. Lagging Leading indicator Lagging indicator used during or prior to an event monitors and controls the process assists prevention Proactive measure after the event demonstrates if the process is working used for reporting purposes Reactive No2 7.5

Lagging Leading Examples No2 ACTIVITY Accident statistics
Incident frequency In Full On Time Variance to dispatch schedule order/invoice accuracy vehicle breakdown frequency Appraisal score 360o peer assessment Supply savings achieved No2 ACTIVITY Active projects : total projects current success rate Days of stock Variance in supply lead time Forecast accuracy MRP changes as % total MRP 7.6

Agreement with the supplier
Measurement Cycle Agreement with the supplier 1. Decide what measures are needed 7. Develop joint actions to improve the process 2. Agree which ones are practical 6. Review performance together 3. Agree formats keeping them simple and consistent No2 5. Agree goals or targets for key measures 4. Agree review period with supplier 7.7

sesPA Process 1. Review business needs, attributes 2. Review contract performance measures 3. Agree what you want to measure, how you will measure 4. Obtain hard evidence of performance 5. Pinpoint deficiencies and improvement opportunities 6. Work with supplier to plan improvements No2 7.9

Share Results with Supplier
What information will you give the supplier in advance of a meeting? Preparation: What will be the aims of the meeting? What will be the content? Meeting: No2 FLIPCHART

Performance Management
Good performance Celebrate successes Communicate success Demonstrate improvements with facts and benefits Agree new targets and goals Build the relationship Move the relationship up the ‘S’ curve Poor performance Involve all the relevant people Obtain hard facts about the concern Try to plan and agree the cause of the problem Set milestones and targets for corrective action Spell out the consequences of failing to meet targets Get everyone’s agreement to actions to be taken No2 7.11

Appraisal Summary examples….
Year on Year Comparison

Overall Summary for Supplier Evaluation
Appraisal Summary examples (2) Performance v importance Overall Summary for Supplier Evaluation 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 R1 R2 R3 R4 D1 D2 D3 PQ1 PQ2 PQ3 PQ4 PQ5 PQ6 BM1 BM2 BM3 BM4 BM5 T1 T2 T3 T4 Importance Performance

Supplier Action Plan Improvement Plan Finding Suitable Hotels
2004 Hotel Program finalized and rates included in GDS for agent accessibility. Work with American Express card representative to compare data and ensure we're managing all of BOC's hotel spend according to the hotel program. BOC: Hotel program communicated to BOC travelers and information available on BOC's website. Finding Suitable Fares Review of current contracts and recurrent training on fares. Continue to monitor calls to ensure preferred carriers being offered BOC: Advise travelers of the available options and contract details. Finding Routes: Same as above Availability of Agents: Addition of international Team leader and continue to Monitor staffing Geographical Knowledge: Continue associate education Responsiveness to information: Track inquiries and respond w/in 24 hours Business Knowledge / Meeting: NA Ability to assist in Emergency: Amex to ensure that EnRoute department has all BOC pertinent information ie contacts, contracts etc., 75% 71% Information in resolving Service Issues 79% Manner of Customer Service Handling 72% Timeliness of Service Issue Resolution 68% Ability to assist in Emergency 78% 56% Business Knowledge/ Meeting Planning 80% 62% Responsiveness to Information Request Knowledge of BOC Travel Requirements 64% Geographical Knowledge 66% Availability of Agents 81% 74% Responsiveness in Call Return 69% In Finding Routes Finding suitable fares [cost] 77% 65% Finding Suitable hotels, [cost] Arranger Traveler Category

sesPA Process 1. Review business needs, attributes 2. Review contract performance measures 3. Agree what you want to measure, how you will measure 4. Obtain hard evidence of performance 5. Pinpoint deficiencies and improvement opportunities 6. Work with supplier to plan improvements No2 7.9

SESPA Best in Class No 2 HANDOVER Service, Quality & Total Cost
Performance Appraisal Appraisal Business needs Process Measures Accountability Review Process Teamwork No 2 HANDOVER Supplier Evaluation Selection Agreement Negotiation RFI/RFQ Selection Macro Plan Supply Market Analysis, Sourcing Strategy 7.17

THE SUPPLIER ACCOUNT MANAGER

Supplier Account Manager - Job Goals
To ensure that the supplier maintains contracted standards of performance To ensure that the supplier is making a significant contribution to overall business improvements 1 2 No1 8.2

STAGE ONE STAGE TWO STAGE THREE Supplier Optimization Standardization/ Simplification Joint Product/ Service Development Change in Behaviors Required No1 Incremental Benefit 8.3

Goals and Processes Goals Processes To ensure that the supplier maintains contracted standards of performance To ensure that the supplier is making a significant contribution to overall business improvements 1 sesPA process 2 No1 Strategic plan 8.5

Inputs to Strategic Plan
Your LOB or BU strategy and objectives Supply market analysis No1 8.6

Strategic Plan 1. Agree objectives 2. Define CSFs, KPIs and targets 3. Determine resources needed 4. Communicate the plan 5. Implement the plan 6. Deliver the benefits No1 8.7

Definitions Objective . . . . . No1 FLIPCHART ACTIVITY 8.1
Should be linked directly to company’s business objective and should define the contribution that the SAM relationship will make to achieving the business objective. It should be S.M.A.R.T. Critical Success Factors (CSFs) Tangible deliverables, without which the objective will not be achieved No1 FLIPCHART ACTIVITY 8.1 Key Performance Indicators (KPIs) The measurables that define whether the CSF has been achieved 8.8

Strategic Plan 1. Agree objectives 2. Define CSFs, KPIs and targets 3. Determine resources needed 4. Communicate the plan 5. Implement the plan 6. Deliver the benefits No1 8.7

Supply Management Handbook

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