Supplier Management. Dr. Denyse Julien Senior Lecturer Cranfield School of Management, UK

Transcription

1 Supplier Management Dr. Denyse Julien Senior Lecturer Cranfield School of Management, UK

2 Challenges for the Pharmaceutical sector 1. Levels of outsourcing expected to increase 2. Sourcing decisions will be a major driver of productivity and innovation 3. The supply chain will become a competitive advantage Which of these challenges do you see as most relevant for your organisation today? Source: McKinsey presentation. Outpacing change Opportunities for SC and distribution in Pharma. Sept

3 Agenda Trends in global sourcing Supplier selection and assessment Supplier management & development 3

4 World trade developments 2010 In 2010, world merchandise exports increased by 22% while exports of commercial services grew by 9% Most trade flows take place within regions rather than between regions 65% of EU merchandise exports went to EU countries 53% of Asian merchandise exports went to Asian countries 50% of NAFTA merchandise exports went to other NAFTA countries 12% of African merchandise exports went to African countries Two thirds of total world exports went to Europe and Asia Source: World Trade Organization - International Trade Statistics

5 Outsourced vs. Offshored Externally owned Outsourced domestic Outsourced offshore Domestic International Inhouse domestic Inhouse offshore Company owned 5

6 Make vs. Buy aerospace example 6

7 Drivers & Challenges of Global Sourcing Competitive advantage Lower costs Drivers Access to new markets and technologies Increasing value of purchased direct materials Reducing availability of many raw materials Off-set requirements Challenges Increased environmental impact Longer lead times Higher inventory Increased risk/vulnerability IPR Hidden costs Security issues Reduction in customer responsiveness 7

8 Facilitators of global sourcing Supplier certification Availability of manufacturing capacity and other resources in country Long-term relationship prospects Infrastructure maturity in country Technological orientation of industry Operational philosophy Development of trade zones Knowledge of foreign business, exchange rates and global opportunities... Factors that do not necessarily lead to more global sourcing but that ease its implementation Source: Quintens et al.,

9 Rationalisation of supply base Traditional Managing 1000s of suppliers and part numbers Manage 100s of standard contracts Manage transactions Employ many buyers Pursue traditional relationships Strategic Rely on 100 or fewer critical suppliers on longer term agreements Managing strategic relationships Develop alliances and partnerships Pursue cross-organisational integration and value creating activities Rely on larger tier 1 suppliers to manage component suppliers 9

10 Traditional structure Buyer Supplier Supplier Supplier Supplier Supplier Supplier 10

11 Tiered structure Buyer Tier 1 Supplier Tier 1 Supplier Supplier Supplier Supplier Supplier Supplier 11

12 Traditional approach Sales Purchasing R&D Marketing Supplier Logistics Operations Customer Info Sys. Info Sys. Source: Logistics Management and Strategy. Harrison, A., van Hoek, R.,

13 Collaborative approach Relationship Mgmt Supplier Development R&D Marketing Supplier Logistics Operations Customer Info Sys. Info Sys. Source: Logistics Management and Strategy. Harrison, A., van Hoek, R.,

14 Agenda Trends in global sourcing Supplier selection and assessment Supplier management & development 14

15 # of Suppliers Purchase portfolio matrix Few Bottleneck items Strategic items Non-Critical items Leverage items Many Buyer Weakness Buyer Strength 15

16 Supplier interface Internal customer demand Purchasing process Sourcing activity Determining Specification Selecting supplier Contracting Ordering Supply mode Expediting & Receiving Evaluation & Feedback Too simplified lacks the strategic role of purchasing Adapted from: Purchasing and SCM. Van Weele, A

17 Paradigm shift in purchasing Over the past 25 years, the role of procurement within companies has changed dramatically from that of simply buying goods and services to overseeing an integrated set of management functions Source: den Butter & Linse, MIT Sloan Management Review (Fall 2008) 17

18 Paradigm shift in purchasing Over the past 25 years, the role of procurement within companies Is this has true changed for your dramatically organisations? from that of simply buying goods and services to overseeing an integrated set of management functions 1. True. Purchasing is viewed as a strategic activity 2. False. Purchasing continues to be more operational 18

19 Supplier classification What are they supplying Critical components/material Sensitive material Supplier reputation and performance References Past performance Other customers that they supply Is this potentially a supplier that you want to develop a partnership with R&D capabilities Potential to grow Capabilities and culture 19

20 Supplier assessment Varies depending on Supplier classification Material sensitivity First time buyer or not Request for information Initial questionnaire Evaluation of response Request for quote Understand costs and capabilities On-site audits Initial frequency of followup (quality manual) Internal team make-up Outsourced Incoming inspection regime Level of interaction and resources allocated 20

21 Supplier confidence level Food sector example High Raw material risk level Low Medium High Non-significant hazard controlled by CP at the supplier's. Certificate of analysis. Random sampling of each lot. Minimal inspection of samples. Simplified audit of supplier. Significant hazard controlled by CCP at the supplier's site. Certificate of analysis. Random sampling of each lot. Normal inspection of samples. Simplified audit of supplier. Medium Low The following decisions are made on a case-by-case basis: Location of the CCP/CP Type of sampling (random, statistical) Frequency of analysis Type of supplier audit Non-significant hazard controlled by CP at focal company s factory. Random sampling of each lot. Normal inspection of samples. Simplified audit of supplier. Source: Julien, D (2010) Supplier safety assessment in the food supply chain and the role of standards. In: Delivering performance in food supply chains. Edited by Mena, C., & Stevens, G Significant hazard controlled by CCP at the focal company s factory. Statistical sampling of each lot. Defined acceptance quality levels. Reinforced inspection of samples to ensure the conformance of the lot. Tightened audit of supplier. 21

22 Supplier selection Cross functional team Purchasing Quality Technical Defined process Clear communication of expectations Lead-times Quality levels Delivery reliability Volume and cost requirements Joint R&D 22

23 Agenda Trends in global sourcing Supplier selection and assessment Supplier management & development 23

24 What is supplier relationship management (SRM)? Supplier relationship management is the business process that provides the structure for how relationships with suppliers are developed and maintained. Lambert and Schwietermann (2012) 24

25 8 reasons for SRM Relentless pressure to improve Reliance on fewer suppliers Importance of early involvement Higher levels of outsourcing Pressure to become a full product service provider Supply market constraints Competing supply chains Fear of competitive disadvantage 25

26 Different types of relationships Arms length Partnership Strategic Alliance Joint Venture Vertical Integration Partnerships & Strategic Alliances are formal relationships between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Difference is the Strategic component. * Source: Logistics Management and Strategy. Harrison, A., van Hoek, R.,

27 Characteristics of partnerships Information sharing Demand and supply info Manufacturing schedule Coordination & planning Shared goals Profit/benefit sharing Risk sharing Mutual interdependence Trust & openness Coordination Collaboration Cooperation 27

28 Partnerships progression Cooperation Single function Fewer suppliers Relatively short term view Coordination Multiple functions Information linkages WIP linkages EDI exchange Long term Collaboration Whole enterprise * Source: Logistics Management and Strategy. Harrison, A., van Hoek, R., 2005 SC integration Joint planning Joint R&D Technology sharing Long term, no fixed date 28

29 Advantages of Partnerships Savings from reduced negotiations and separate contracts Reduced monitoring of supplier Improved productivity Shortened lead times and product cycles Longer term investment Innovative products and services 29

30 Disadvantages of partnerships Inability to price accurately qualitative matters e.g. design work The need to gather substantial information about potential partners on which to base decisions Risk of divulging competitively sensitive information to competitors Potential opportunism by suppliers Greater buyer risk due to dependence on fewer suppliers 30

31 Arcs of integration Narrow Broad Upstream Source Make Deliver Downstream Broader integration reduces uncertainty of material flows through the supply network 31

32 Measures of integration Access to planning systems Shared production plans EDI access/networks Knowledge of inventory mix & levels Packaging customisation Delivery frequencies Common logistical equipment/containers Common use of 3 rd party logistics Internal integration is the starting point for broader integration across the supply chain 32

33 Are your organisations leveraging your suppliers capabilities through collaboration? 1. No 2. Partially 3. Everywhere possible 33

34 SC21 UK aerospace & defence sector initiative Supply chains for the 21st Century (SC21) is a forward thinking, collaborative programme designed to improve the performance of suppliers and supply chains in the UK Aerospace, Defence and Security industries. Started in 2006 driven by the primes (large Manufacturers) modernise business relationships inspire a greater entrepreneurial spirit deliver competitive customer solutions to sustain profitable business growth 34

35 SC21 Core activities Accreditation system for suppliers Agreed on standards for all suppliers which were accepted by all the primes (customers) Reducing the numbers and depth of audits carried out across the industry Supply base development and performance measurement Agreed on a consistent approach to supplier development (80%) Agreed on common metrics to be used across sector (80%) Better relationship management Share selection criteria with suppliers SC collaboration activities to drive innovation Sharing of best practice 35

36 Similar industry wide initiatives opportunities to benchmark Automotive sector Food & Beverage sector 36

37 Supplier development Integrated processes Activities to help improve the suppliers performance Examples of processes suitable for integration New product development Material replenishment Payment Joint strategy development/shared strategic goals Enhanced through Creation of supplier development teams Implants Common data standards IT standards 37

38 Supplier development synchronous production The linking of upstream production schedules to downstream demand Aims to dramatically reduce inventories while increasing customer responsiveness Transparency of information essential Common information systems Vendor managed inventory 38

39 Supplier Innovation * Source: MIT Sloan Mgmt Review. Winter Henke & Zhang 39

40 US Pharma sector Companies in the sector provided more than 674,000 direct jobs in 2009 (the most recent year of available data) and supported a total of 4 million throughout the economy The biopharmaceutical sector is one of the most R&D-intensive in the United States America s biopharmaceutical research companies have not been immune to recent economic challenges The business model for the sector hinges on risky and costly investments in R&D that is recouped by only two of every 10 approved medicines You are important and we need you Source: 40

41 Nothing new! Growth is being strongly driven by emerging markets Increasing commoditisation of the market Generic alternatives Cost focussed Operational excellence push Counterfeit drugs Understandably R&D focussed, there is a need to invest in SC excellence 41

42 Thank you & Questions 42