SRM How to maximize vendor value and opportunity

Transcription

1 Operations Excellence: Supplier Relationship Management SRM How to maximize vendor value and opportunity 27th November 2014 Zagreb DDr. Michael Strohmer, Partner, A.T. Kearney

2 We observed in our latest AEP study the most significant shortcomings in procurement in the area of SRM SRM Capability (% Companies selecting Significant Results or Breakthrough Results ) 77% 73% 71% 59% 50% 28% 57% 55% 13% 32% 45% 44% 14% 21% 40% 14% Meet current business / supply requirements Reduce supplier unit cost The Basics Mitigate risks Improve asset or capital structure Drive end-toend cost down Pursue innovation development Advanced Dimensions Grow existing or enter new markets Develop or leverage differentiating supplier capabilities Leaders Followers Cracking the code to advanced SRM will be a future competitive differentiator 2

3 None of our AEP study participants had 100% of the secret sauce for successful supplier relationship management At a CPO Roundtable, the majority of participants questioned the effectiveness of their SRM efforts So what are the key ingredients? 3

4 We looked at Toyota... Fully integrated, end-to-end cross-functional collaboration Suppliers can count on Toyota and follow a brutal continuous improvement Suppliers take responsibility for product cost and end customer satisfaction When it comes to truly innovative ideas, even stronger integration takes place Key finding: Fully integrated suppliers to achieve aggressive cost reduction targets 4

5 We looked at Apple... Apple s role as customer of choice is mostly based on gigantic volumes for ipad and iphone Apple is extremely prescriptive in terms of both product and process technologies Armies of experts are sent to factories for stretches of several months to see implementation through Deep understanding of product and manufacturing technology with aggressive target prices Key finding: Extremely strong inhouse engineering know-how that enables tight control of supplier s implementation processes 5

6 We looked at Google... Google routinely cuts out suppliers when they get too big For data centers, Google hired the best experts money could buy Google is now working directly with the Foxconns of this world cutting out the HPs Google is now preparing to work with Foxconn s second tier competitors Key finding: Ensures that Google is more powerful than any supplier; exception is made for a carefully selected, small amount of strategic partners 6

7 We found the secret sauce Managing all supplier interactions in relation to business objectives Driving desired behaviours at suppliers Achieving internal alignment on these things 7

8 We manage interactions in differentiated ways based on top down business objective High The Ordinaries The Critical Cluster Supplier Performance Today The Problematics Low Strategic Potential High 8

9 We work very differently with each interaction type Ordinaries Critical Cluster Problematics Light touch to governance with very limited investment of resource Focus on risk mitigation, continued performance and ensuring compliance with policy Standard contracts with deviation rigorously controlled Differentiated approach to governance Sponsors on both sides to ensure smooth communication Incentive based contracts and risk / reward partnerships in place depending on need Task force orientated approach to fix potentially valuable relationships but where performance is poor Not jumping from fix to replace if there is relationship value Ruthless approach to replacing low value, poor performing suppliers 9

10 Nine differentiated supplier interaction models build the foundation of our SRM framework High Harvest Influence Integrate Performance (at what level is the supplier performing today?) Improve Sustain Invest Mitigate Develop Bail out Low Strategic potential (what could this supplier be to Client?) High 10

11 Performance We are uniquely positioned to interact adaptively with suppliers and select those with strategic potential for co-creation IMP³rove contribution to supplier assessment IMP 3 rove Supplier Innovation Management High Low Low Strategic potential e.g.: Innovation High Proven framework to assess the innovation management capability of suppliers Global Benchmark data from Best Innovator assessment since 2003 IMP³rove provides a framework and benchmark data to assess the innovation management capability of suppliers Source: A.T. Kearney 11

12 Each of the nine supplier interaction models has a differentiated intent Harvest Maximize the value received from supplier without committing Client Influence Tap into supplier technology to jointly develop and launch products and services Integrate Enter a multi-year exclusive relationship with the objective to shape the market Improve Provided there is a positive business case, assist supplier in fixing shortcomings Sustain Monitor supplier performance and optimize value through roadmap synchronization Invest Define joint objective to build competencies and commit supplier and Client resources Mitigate Deploy up-or-out mind-set without hesitation Develop Commit limited resources to get supplier ready for business with Client Bail out Dedicate rapid intervention force to secure supply 12

13 Influence: Tap into supplier technology to jointly develop and launch products and services Share product, technology and innovation roadmaps proactively to never miss a window of opportunity Client needs to provide a convincing sales channel Influence on strategy and dedicate resources to generate a sustained strategic advantage Jointly launch products and services with limited exclusivity Ensure mutual confidentiality on future plans Singapore Airlines was Airbus launch customer for the A380. Singapore had a say in the overall cabin layout, gets preferential prices and an image boost from being the first to fly the new model. 13

14 Influence: Where it can lead to a competitive advantage, try to become a launch customer for supplier Client Supplier Capacity Client price Competitor prices Reserved capacity Launch EOL Create a tipping point for key technologies Act as launch customer and first to market Pay lower price than competition and have right to reserved capacity Supplier supports manage excess inventory at product end 14

15 Invest: Jointly build competencies and commit resources on both sides Carbon fibers reduce the weight of the BMW i3 electric car by pounds, compensating for the weight of the battery. BMW and SGL Carbon set up a new factory in Moses Lake, WA, to mass produce and make the new technology affordable. Jointly build supplier competencies and make building these a top priority Identify capability gaps and build roadmap for improvement Develop clear and transparent business case for both sides Commit own resources to guide implementation work at supplier Aspire to progress to Integrate 15

16 Integrate: Enter a multi-year exclusive relationship with the objective to shape the market Share vision to act as one ecosystem Jointly shape the market by defining and delivering future products Provide exclusivity for both sides Align incentives to achieve volume and margin targets Nominate executive sponsor on both sides Split competences to avoid duplications Rauch, a maker of fruit juices founded in 1919, is Red Bull s sole bottler globally. Rauch has been with Red Bull from its founding days in 1984 and does not work for any other energy drink company. In 2012, Rauch produced 5.2 billion cans of Red Bull. 16

17 Bail out: Dedicate rapid intervention force to secure supply Be ready to bail out a supplier, whenever a novel technology is introduced Have arrangements in place with key experts who could help to solve a supply issue for specific cases Recognize bail out situations quickly and early Have boots on the ground sooner rather than later Use bail out as an opportunity to strengthen the relationship 17

18 With SRM, the focus of resources should be on the three most critical supplier interaction models Where majority of suppliers will be Where majority of resources should be Suppliers are spread across the performance axis in a bell curve The majority of suppliers have low strategic potential Suppliers in critical cluster can contribute to competitive advantage Relationship to these suppliers needs special nurturing 18

19 Applying the models to drive behaviour can result in suppliers move within the framework High Harvest Influence Integrate Performance (at what level is the supplier performing today?) Improve Sustain Invest Mitigate Develop Bail out Low Possible supplier move Strategic potential (what could this supplier be to Client?) High 19

20 Successful Supplier Relationship Management depends on Dedicating resources and time based on the supplier interaction model 20

21 We would like to initiate the discussion by asking the following questions A How important is SRM within our company? B During the past 3 years: Has there been a relevant, company-wide SRM project? C If yes, was it successful? D How would you assess your company s with respect to evaluation suppliers based on performance and strategic value? 21

22 A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most missioncritical issues. For more information, visit Americas Atlanta Bogotá Calgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh 22