1 Supplier Relationship Management (SRM) in Supply Chain Context for the Industry
2 Anil Ponweera President-Institute of Supply and Materials Management(ISMM) MBA(Aus)/FISMM/FCPM/CMLT Manager Materials and Logistics SriLankan Airlines Ltd. Engineering, Airline Centre, Bandaranaike International Airport, Katunayake, Sri Lanka. Tel: Mobile: Fax: +94(0) Web:
3 Supplier Relationship Management (SRM) in Supply Chain Context for the Industry
4 Synopsis Overview of Supply Management Profession & Supply Chain Management Overview of Supply Relationship Management(SRM) Aims of Supply Chain Optimization Benefits of Supply Relationship Management Role of SRM in Global competition Segmenting the Suppliers in terms of Importance Preliminary requirement of SRM Four Segment Approach Interpretation of Lambert Interpretation of Leenders and Flynn Partnership Model-Stock and lambert Cost of ownership model and How to reduce such costs through Supply Relationship Management Conclusion
5 Purpose of Purchasing and Supply Management Profession? As defined in the Charted Institute of Purchasing and Supply (CIPS) practice documents, the purpose of Purchasing and Supply Management Profession (P&SM) is to create value for an organization as a result of its need to acquire goods and services from external sources. One of the strategic ways that this objective is achieved is by relationship management.
6 An Overview of Supply Chain Management The selection and linking of suppliers and customers through negotiation and agreement to achieve customer satisfaction by providing value added products and services within beneficial and profitable relationship of all parties within the supply chain
7 Definition-SRM According to Gartner Consulting, SRM is defined as a set of methodologies and practices need for interacting with suppliers of products and services of varied criticality to the profitability of the enterprise.(gartner:2001,p.2)
8 Supplier Relationship Management (SRM) SRM entails creating closer, more collaborative relationships with key suppliers in order to uncover and realize new values and reduce risk.
9 SRM Vs. Advanced Supply Chain Management SRM is a Key Stone of Advanced Supply Chain Management (ASCM)
10 Aims of Supply Chain Optimization(SCO) Reducing System wide costs trough; Better Sourcing Improved Logistics Inventory Control Order Management
11 The Benefits of SRM Optimize supplier relationships Create Competitive advantage and drive revenue by jointly bringing new, better and more-customer centric solutions to market faster Lengthen and strengthen critical supplier relationship Drive profit enhancement through reduced supply chain and operational cost while maintaining quality
12 Global Competition The pace of global competition is excreting increased pressure on firms to make their supply chains more competitive or risk of getting out of business.
13 Better Rapport with Suppliers Best Price Best Quality Best terms and condition than the Competitors
14 Best Price, Best Quality, Best Terms and Conditions will lead to produce the Best Product
15 SRM will lead to acquire Competitive Advantage
16 Success Stories
17 Segmenting the Suppliers in Terms of Importance -Group it s purchases by category of importance and complexity -Know all about it s buy -How much of what is being bought? -From whom? -By which purchasing agent? -At what price?
18 Preliminary Requirements of SRM -Standardization -Avoid Misunderstanding -Supplier Stratification -Governance and Organization -Supplier Development -Service Level and Performance Management -Supplier Relationship Management System
19 Supplier Stratification In order to initiate better SRM it is mandatory to identify key vendors in relation to the business. In order to ascertain these vendors one can use the criticality of the product or services of such vendors, annual business volume in term of Value and quantity
20 Supplier Stratification
21 Governance and Organization Once P&SM professionals identified the most crucial vendors through Supplier Stratification, it is mandatory to establish an internal team structure that will require mange the supplier relationship at an optimal level. Further it is also equally essential to identify the work scope knowledge, skills and attitude of such team members.
22 Supplier Development The buying organization should expand their footprint to the supplier s organization and both parties are supposed to streamline the joint process where both organizations avoid duplicate activities and running their business processes at an optimal level. This is enabling obtain better prices and it lead to acquire competitive advantage.
23 Service Level and Performance Management In this exercise both organizations have to jointly develop expected service levels and those factors to be documented and to be agreed by both parties. The Consequences of underperforming and rewards against over performances are to be agreed upon by both parties. It is mandatory to establish the action plan to identify the performance levels at the correct intervals.
24 Supplier Relationship Management System In order to upkeep better supplier relationship it is mandatory to deliver agreed upon service levels and it is equally essential to ascertain the performance levels at the correct time. This is subject to effective and efficient data processing and management. Hence both organizations have to use standardized tools, templates, etc. Hence introduction of a supplier relationship Management System is one of the essential elements.
25 Purchase Categories-Four Segment Approach Commodities Availability is Critical Significant Leverage to Influence cost Purchase costs are high relative to administration High Impact Availability, quality and reliability are critical Category knowledge is essential Purchase coat is high relative to administration costs Odds and Ends Mature in industry products Suppliers are differentiated by price and service Adminstrative cost are high relative to purchase cost Commodities New Industry Unplanned Usage Supplier capabilities are important Administrative cost are high relative to purchase costs.
26 Four Segment Approach Vertical Axis- Ranking Moves from Low spend volumes and low purchasing leverage to high positions. Horizontal Axis- The variation is from low to high product and service complexity.
27 Four Segment Approach Commodities Leverage buying power to seek then best consolidated arrangement Rationalize SKU to industry standards Manage Contracts closely to obtain negotiated benefits High Impact Leverage buying power with limited suppliers Understand industry cost drivers, emerging technologies, full capabilities of key suppliers Encourage supplier involvement in product development and the search for added features and values Involve most critical suppliers in strategy planning and customer satisfaction initiatives Odds and Ends Ensure getting the best price and service for volume tendered Provide user self-service capabilities, minimizing contract time with suppliers Reduce administrative cost trough e-procurement technique, where appropriate Specialty Gain Access to cost and technology information from key suppliers Enable suppliers to provide value-adding features and services to internal customers Reduced administrative cost through improved RFQ procedures
28 Supplier Relationship According to Lambert; Companies will have a wide range of relationships with suppliers, some close others arms length.
29 The Spectrum of Supplier relationships-leenders and Flynn Traditional relationships Alliances Partnerships
30 Traditional Relationship A traditional relationship with suppliers is one that uses short term contracts based primarily on price.
31 Preferred Suppliers Preferred suppliers meet the firm s expectations for quality, delivery or price and are able to respond to unexpected changes. They initiate discussion with the firm on ways to improve products and processes
32 Certified Suppliers Certified suppliers integrate their quality control system with the purchasing firm, helping to reduce total cost by eliminating duplication in inspection and quality control activities.
33 Prequalified Suppliers Prequalified suppliers are those firm have placed on a list of approved suppliers. Suppliers earn this status after rigorous and in-depth analysis of their capabilities, costs and number of other factors.
34 Strategic Partners and Strategic Alliances Strategic Partners and Strategic Alliances rely on mutual trust and support, sharing of information, and teaming for continuous improvement. Both partnerships and strategic alliances are marked by long term arrangements, large volume commitments, and joint product planning efforts
35 Partnership Model- Stock and Lambart
36 Drivers Drivers, which are the reasons why firms should partner, include asset/cost efficiencies, customer service improvements, marketing advantage, and profit/stability growth. Drivers must exist for both organizations and must be strong enough to give each party a clear understanding of the benefits gained by partnering.
37 Facilitators Facilitators, which measure the supportiveness of the environment, include corporate compatibility, similar managerial philosophy and techniques, mutually and symmetry. Since facilitators examine the environment in both organizations,both parties should jointly evaluate these four areas.
38 Outcomes Outcomes measures how well the partnership is meeting the expectations outlined at the beginning and provide feedback critical to managing and improving the partnership.
39 Supplier Relationship Attribute Model Supplier Category Relationship Basic Value Added Preferred Strategic Product or Service as Commodity Impact operational efficiency Process expertise valued Unique advantage is valued Operation Mode Competitive bid Performance Incentive Continuous Improvement Flexible, agile, collaborative Information Sharing Limited-Electronic Limited Tactical 2-way controlled dialogue Direct linkage access to parts of company database
40 Supplier Relationship Attribute Model- Continue Supplier Category Basic Value Added Preferred Strategic Risk Management Contract Penalties Incentive and penalties Incentive and information Linkage Process Management shared risk/reward Planning Horizon Current deal Ongoing near term Joint planning with end point No end point, joint strategic planning Nature of Trust Confident in ability to fulfill contact Confident of execution performance Confidence in expertise Shared vision owner ship of intellectual capital
41 Supplier Relationship Attribute Model- Continue Supplier Category Basic Value Added Preferred Strategic Metrics Compliance Tracking Service level bench marking Best practice relationship Business results; shared incentives Customer interaction None to limited Enabler of quality Impacts individual customers Impacts major number of customers
42 Cost of Ownership Model
43 Conclusion -SRM is a Key Stone of Advance Supply Chain Management -SRM is enabling to acquire competitive advantage. -The supplier relationship has a wider spectrum. -The identification of most crucial suppliers and establish correct relationship is really a challenge. -In order to identify the correct business partner and establish a strong -relationship comes under the discretion of a Supply Chain Professionals and this is a strategic function.
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