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The European Institute of Purchasing Management
French Geneva Campus - Site d’Archamps - F-74160 Archamps - +33 (0)450 31 56 78 - www.eipm.org
David DUFOUR
Strategic Supplier Management
About Strategic Supplier Management a definition?
Attributes:
• Mutual need
• Common objectives
• Joint flexibility
Elements:
• Cross-functional multilevel commitment and co-operation
• Mutual high trust
• Synchronized processes
• Open communication
© EIPM 2013
Strategic Supplier
Management brings:
Competitive Advantage
Core Competence
Value creation to the
company
“A deep relationship in which parties co-operate for Mutual
benefit to create added value”
Objectives Strategic Supplier Management objectives will generally focus on the opportunities to provide, enhance, and/or improve the following: 1. Business Growth
2. Supply Chain / Logistical / Operational Efficiencies
3. Supply security / flexibility
4. Cost competitiveness
5. Innovation
6. Sustainability
Strategic Supplier Management relationship will focus to
Maximize Value Creation
What is expected then?
V =
€
Define the needs to satisfaction Access to right resources Innovate Reliability and performance Flexibility and customization
Cost Savings Risks Synergies between the regions Global teams to optimize TCO
Benefits of Strategic Supplier Management
Being the preferred customer of a supplier results in better value creation: – speed up new product development – time to market – lead times and quality – allocation of resources and capacity – response time and proactivity – commercial conditions, service and after sales – know-how and innovation sharing – risk sharing – security of supply
…less stress
II Leverage segments
IV Strategic segments
I Non critical segments
III Bottleneck segments
Importance of purchasing
(needs)
Criteria:
Annual spend
Risk factor
Low High
Low
H
igh
Criteria:
Market structure (monopoly, etc…), size of suppliers,
available market capacity, entry barriers,
switching costs and complexity, buyer’s relative size …
Difficulty of the supply
market
Material Group Purchasing Strategy The Kraljic approach
From PORTER’s analysis
From ABC - Criticality &
Spend analysis
« There are customers we have to work with
And few ones we like to work with !
Guess who gets the best value from us?» from a Sales Director
How do your suppliers see YOU?
Change your Company Culture
How do you treat your suppliers?
An example for measuring « customer attractiveness »
Adversarial Relationship Partnership
Limited & Questionable Communication Open & Honest
Less Help Much
A lot Obstacle/Hindrance Little
Smaller Profit Opportunity Greater
Buyer-Supplier Working Relations Index (WRI) – Planning Perspectives Inc.
Attractiveness counter-examples
The following are scores came from a survey of tier one suppliers conducted
by Planning Perspectives of Birmingham, Mich.
General Motors
Ford Motor Co.
DaimlerChrysler AG
Nissan
Honda
Toyota
(Scale 1 to 5 (5 the highest) -
Trust Leve
2.12
2.21
2.26
2.63
3.32
3.40
Trust Level
1.14
1.57
1.96
2.98
3.75
4.15
2005 2003
«This 2005 study shows that suppliers are continuing
to shift capital investment and R&D
funds to their Japanese customers and
decreasing investments in the US Big Three» J.W Henke, Jr. PhD Planning Perspective, Inc.
Attractiveness – the evolution of automotive industry
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WRI Index North America
• In my opinion [Ford] seems to send its people to ‘hate school’ so that they learn how to hate suppliers. The company is extremely confrontational. After dealing with Ford, I decided not to buy its cars. – Senior Executive, supplier to Ford, October 2002
• Toyota helped us dramatically improve our production system. We started by making one component, and as we improved, Toyota rewarded us with orders with more components. Toyota is our best customer. – Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July
2001.
Comments from Suppliers
Source: Liker & Choi, "Building a deep supplier relationships," Harvard Business Review, 2004
… another example of missleading relationships
• Mother Nature strikes Phillips Semiconductor plant – Fire stroke and water used in fire exhaustion destroyed or
contaminated almost all the silicon stock in factory
– Phillips semicondictor plant went down for months
Ericsson
Nokia
Phillips
What would you do?
Nokia
• Nokia detected unexpected delays within 3 days and contacted Phillips
• Phillips told Nokia production expected to stop for one week but audit revealed severe damages – Nokia increased monitoring from weekly to daily
– Nokia changed product design to use chips from other suppliers and ask them to commit on volumes (one out of 5 components impossible to get from
– Nokia pressured Phillips to get full allocation from Phillips for this
component from other plants
OVERALL NO DISRUPTION AT NOKIA
ERICSSON
• Phillips informed Ericsson within 3 days but Ericsson didn’t follow the incident
• 5 weeks after the fire, Ericsson realized the criticality of the situation
• Too late to grab capacity from Phillips or other suppliers and no backup solutions (no stock)
OVERALL 400 M$ direct losses (partly covered by insurances) and 1,7 B$ indirect losses
Ericsson decides to exit Cell Phone business
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