Supplier Relationship Management Leveraging SRM to drive holistic Procurement agenda Supply Link, 2013 Saurabh Tiwari AP, Procurement COE
Agenda flow Mondelēz International Introduction Procurement challenges ; Why SRM and SRM framework Business Context and Procurement challenges SRM Approach to link business to SRM SRM Implementation Benefits realised Future Scope
Creating Delicious Moments Of Joy Mondelēz International Overview February 2013
Key Procurement challenges Key challenges Cost and service delivery Supplier partnership Business analytics and contract compliance Key opportunities Supplier relationship management and integration Supplier involvement in business processes Leveraging technology
Findings from a survey done to understand Procurement supplier interface to understand key issues faced? By you from supplier By supplier from Procurement Delivery reliability Meeting exact specifications / changing without info Lack of capacity creation as per requirement Lack of adoption of new technology / ideas Lack of stability on prices Payment Forward visibility of plans Price increase in line with inflation Issue resolution inventory, detention, etc Lack of lead time Only penalty, no reward Holds delivery when rate increase not More focus on price reduction given The realisation shared was that we spend time chasing things which are influenced Transparency by of supplier communication and vice versa the approach to SRM is about right focus on right matters 5
Why SRM A global study involving more than 900 companies identified that companies with SRM consistently identified and realized incremental value in the range of 23% from strategic supplier relationships, across multiple value levers - Hughes, Jon and Webb, Mark, Business Relationship Management: The four Faces of Building Value with Strategic Suppliers, Future Purchasing Successfully harnessed, supplier relationship management can Channel innovation into an organization -Accenture For companies who have successfully done SRM, 40% of product innovations come from vendors. -Corporate Executive Board (PSC) SRM greatly reduces fire fighting changing the mix of activities from 40% proactive to 70% proactive. -Corporate Executive Board (PSC) Without a robust SRM discipline, 75% of strategic sourcing savings can disappear within 18 months. -Corporate Executive Board (PSC) Over the life of the SRM program, the company calculated an internal rate of return in excess of 200%. -Vantage Partners No SRM program can be successful or build internal support unless the people tasked with making it work have the right skill and tools at their disposal. -Vantage Partners I would estimate that our return on investment from SRM is more than 50:1 for cost reductions alone and more than 100:1 when incremental revenue is included. Vantage Partners Effectively managing supplier relationships avoids significant value leakage and lays the groundwork for achieving breakthrough innovation and obtaining Customer of Choice status - Corporate Executive Board (PSC)
The Basic Elements of SRM Segmentation Current Characteristics Strategic Selection Measurement Supplier Scorecard Value Delivery Template Relationship Optimizer Innovation Measure SRM Expectations Sponsorship Governance Category & Supplier Strategy Service Level Agreement Development Plans Value Delivery Targets Activities Formal Meeting Processes Risk Management Service Level Management Total Cost Management Innovation
Delivering incremental business value requires a broader focus than price Risk Management it is about working with suppliers to identify and manage risks in the external supply chain (e.g. quality, commercial or ethical sourcing risks) which could adversely impact us. Service Level Management it is about measuring and managing performance to achieve the service level standards agreed between the supplier and us. Cost Management it is about working with suppliers to identify and implement opportunities to reduce the Total Cost of Ownership of raw materials and goods/services while maintaining or improving quality. Innovation it is about working with suppliers to identify and implement opportunities to increase product/business revenues through innovation in raw material, product or services that meet consumer and customer needs.
Pre requisites to SRM Category Strategy Business Needs and link to Procurement strategy Supplier Segmentation and Strategy Supplier strengths and link to business needs Supplier Willingness Supplier and customer positioning Signed contract Mutual Strategic Fit SRM Leader/s Agreed
Business Context
You may wonder what challenges a dominating market share company may be facing?
Business challenges Thrust Area Existing KPIs Additional challenges Growth Strategic sourcing Plan adherance + Site / category specific solutions Speed to market Managing growth and complexity Efficiency Cost management Value optimisation + Write off reduction Days of EM / PM inventory Value delivery from suppliers Capability Quality Customer Feedback + Reliability and Responsiveness Strengthening process and Leveraging IT Building sustainable external partnership - Reorienting Procurement to Effective partners in Reliable and Profitable Growth - Driving competitive advantage by matching business needs to supplier capability
SRM Strategy / Approach
SRM : 12 spoke Model to pursue Multi Dimensional Excellence Building a WHEEL OF Supplier Relationship Management SRM EXCELLENCE Process System People Voice of Supplier
12 Spoke Solution Design with a STRONG CORE
Implementation Details Supplier Strategy & Performance Metrics IT Enablement Relationship Mapping & Performance Measurement Voice of Supplier
Spoke 1 - Linking Business Strategy to supplier strength Example Flexibles (Packaging) Commercial strategy Competitive industry with multiple supply options Consolidated upstream suppliers High potential for value engineering Supply chain strategy High change intensive category High supply process complexity Need of reliable supplier base to handle demand fluctuations Key business interdependencies Streamlined processes and cross functional participation needed to manage partnership Weightage X1 X2 X3 X4 X5 (New) Price 25% 5 3 4 2 1 Innovation 15% 1 2 4 3 5 Value Delivery 10% 3 2 1 4 5 Quality 10% 1 4 3 2 5 OTIF 20% 3 4 1 2 5 Responsiveness 15% 3 4 1 2 5 Lead Time (without freight) 5% 1 4 2 3 5 2.9 3.25 2.45 2.4 4 Business Allocation has been mapped according to Business needs and supplier strengths X1 Best on innovation / quality. Needs to work on price. Suited for premium / high change products X5 New supplier. Best in price. Need to develop with simple SKU s X4 Overall best. Maximum volume share given to X4. Closer working with S&T needed Mechanism defined to refine supplier base selection basis dynamic business need
Spoke 2 - Supplier Segmentation Customised approach and not one size fit all Supplier A (Strategic) Supplier B (Key) Planning Horizon Ongoing to cocreate value Joint execution discussion Mode of Operation Experimentation and learning. Collaboration Continuous improvement through performance measurement Management level of involvement Diamond Relationship SRM platform Total Cost Management Innovation Diamond Relationship Half-yearly supplier workshops 2 by 3 framework to customise business approach
Spoke 3 - Supplier Service Level Agreement (SLA) SUPPLIER DEVELOPMENT SCORECARD PERFORMANCE MANAGEEMENT RISK ASSESSMENT What are my suppliers KRAs? Goal Measure Target Status Remarks Financial Risk 1 Healthy financial rating Improvement Plan Performance Delivery To be a risk free Supplier Quality RFT > 95% 1 No significant quality incidents in 2010 Complete 3 steps - ES acknowledgement, Sedex registration & SAQ 1 On track Goal Measure Target Status Remarks Quality - 25% Weightage Timeliness - 50% Weightage Internal and External Audit SAP vendor rating for Quality, Delivery and Quantity Minimum Score of 99% on CIL SAP Quality rating parameters 1 Consistent "First-Time-Right" on quality Target 100% Delivery on time 1 DIFOT > 95% for 2010 Quantity - 25% Weightage Target 95% on Quantity 1 Consistent delivery of full quantity Value Optimization Innovation Decideware rating on Minimum Decideware Rating 360 deg Feedback Rating 0 Decideware score of 52 Service Levels of 70 Goal Measure Target Status Remarks Supplier demonstrates % value benefits on annual Deliver at least 5% value commitment to Value 0 2010-2.8% Savings Predicted spend benefits over annualized spend Optimization Goal Measure Target Status Remarks Supplier demonstrates commitment to innovation 1) Number of innovative ideas identified/implemented 2) % Topline Growth achieved 1) Implement atleast 3- innovative packaging concepts 2) Deliver at least 1% Top Line Growth 0 No new ideas implemented in 2010 Overall Score 67% Defined expectations and review frequency
Implementation Details Supplier Strategy & Performance Metrics IT Enablement Relationship Mapping & Performance Measurement Voice of Supplier
Spoke 4 - e-procurement Portal (Vendor Connect) The vendor also sees what Cadbury sees in SAP Key Features of Vendor Connect RFQ tool for small purchases by Ops team Ordering & Good receipt Process Approve Place Compare Upload Upload Upload View View Download Upload Vendor Registration Request for Quotation Post Quotation Item Specs Scheduling Agreement /Contract Purchase Order Purchase Order Acceptance Purchase Order Status Update Advance Shipment Notification Goods Receipt / Inspection Place View Place Accept View View Place Place Place View One tool addressing communication needs with Suppliers 1. Ordering and goods receipt process 2. Specification and their sign off by suppliers 3. Provide stock visibility and interface for VMI 4. Payment process 5. Vendor performance 6. General communications 7. Feed back from Suppliers Open solution system sits on top of any ERP and can be customized to suit changing needs Stocks View Upload Vendor Stock Factory Stocks/ VMI Place View Integrated SAP functionalities within system without any additional transaction by Cadbury users Payment Processes Upload Upload Upload Upload Place Upload Vendor Invoice Posting Released Payment Dr Notes Ledger Vendor Rating Bulletin Board View View View View Place View Browser Designed to feedback data into SAP (mainly Advance Shipping Notification) Benchmarked Information/Material flow to Best in Class processes Tracks and displays status of invoice/consignment at all stages to vendors Place Supplier Feed back View 3 Seamless visibility to supply partners to enable their success of reliability
Spoke 5 - Supplier Feedback Portal (Decide ware) How do we perceive our supplier performance? Customer Feedback Critical, but often neglected Objective Stakeholder Feedback through online survey for cross functional engagement Specific inputs and improvement feedback from each function Quality, Operations, R&D, Finance, Procurement Online tool for cross functional supplier feedback
Factory L&CO Central L&CO Procurement Spoke 6 - Internal Systems and Checks 11 % items with CS > 1 day Baddi Malanpur Thane Induri Bangalore Trios Warana Sampre Little Star Ludhiana Bhopal Streamlined supplier facing processes - SAP MRP and EM / PM tracker Automated the material ordering process through SAP MRP Implemented system checks & automated MIS reports to drive system hygiene & discipline Key check points include plan adherence, PR / PO availability, EM/PM material availability, safety stock / MOQ / lead time norms, master data hygiene, etc. MRP Process flow chart Proposed Material Requirement Planning Process Demand review for generating requirements at Branch- SKU level for 3 months Upload day wise requirements from FCS in SAP MRP Process ERP Health Tracker Reports to check RA Supply Review for generating requirements at Plant- SKU level for 3 months MRP run Maintain purchasing master data (Source List,Purchase Infor Record,Quota Arrangement check requirement proposals (Planned order/ Purchase Requisition) Senior management review- For checking challenges at brand level Yes Release Purchase orders Check whether quantity and dates in PR are OK Freezing of total SKU wise requirements for the coming two months No Convert Planned order/pr to Purchase order CL01 CL02 CL03 Overall Score Overall Score 74 72 71 74 BOM 100 100 100 99 Material Consumption 100 99 100 99 Accuracy BOM Validity 100 100 100 96 Alternate Material in BOM 100 100 100 100 Alternate BOM Validity 100 100 100 100 Material Master 94 94 89 91 D Materials 92 100 96 97 W Materials 90 87 82 82 E/P Materials 93 91 79 86 MRP Controller 100 100 100 100 Production Plan 53 55 39 51 Plan Availability for M + 2 100 100 0 67 Plan Adherence (MPSAI) 14 13 17 12 Plan Changes in Freeze period 44 52 100 75 (15 d) Purchase 52 52 50 61 Availability of Purchase 56 69 55 66 Masters PO Release Time Adherence 76 79 75 77 Range Availability Partnering supplier success by effective IT platform to automate process health parameters and KPI measurement 100% 90% 80% 70% Factory Supply Chain Score Closing stock Closing Stock CS+PO+PR > Total > 1 day > Safety Stock reorder level Items Kuber 8 97% 25 90% 1 100% 245 Nilesh 1 98% 1 98% 0 100% 41 Sunil 5 95% 14 87% 1 99% 108 Minoo 22 93% 40 87% 3 99% 304
Implementation Details Supplier Strategy & Performance Metrics IT Enablement Relationship Mapping & Performance Measurement Voice of Supplier
Spoke 7 - The Paradigm Shift in redefining relationships From Hour Glass to Diamond Relationship Transactional Model Strategic Model S U P P L I E R ACCOUNT MANAGER PURCHASER C U S T O M E R ACCOUNT MANAGER S U P P L I E R C U S T O M E R SRM Process & Tool Kit PURCHASER The SRM toolkit is designed to help you manage this Strategic Model Talk & Let me Know Let s Start Talking 1 on 1! - Strengthening cross functional direct communication making it more effective - More frequent plant travel on both sides across interfaces
Spoke 8 - Supplier workshop and SRM forum Operational as well as Strategic Focus!! Scope Business Review Meet Anchored by Procurement Only strategic suppliers Senior mgmt participation Sign-off on next 6 month deliverables Focus on reliability, innovation, value delivery, 2-way feedback Supplier Workshop Anchored by plant All key/strategic suppliers Sessions on best practices, safety, quality Focus on resolution and joint solution design DELIGH T Integratio n Excellenc e Every Day Great Execution Leadership engagement and value creation Value creation Deliver on Basics Pre decided frequency of SRM meetings in either location
Spoke 9 - Supplier Performance management What gets measured, gets improved!! Qty Tolerance Minus 10% HIT To Be filled by factory Plus 10% MISS To be filled by supplier Not to be amended DIFOT Tracking Item Decription PO20122 PN12345 Hits 5 Item Code Misses 3 Remarks Total 8 Date Plan Actual HIT / MISS Plan Actual HIT / MISS 1-Nov-09 2-Nov-09 2000 1500 HIT 3-Nov-09 500 4-Nov-09 5-Nov-09 2000 500 MISS 6-Nov-09 6000 2000 HIT 7-Nov-09 2000 4000 8-Nov-09 2000 1000 HIT 9-Nov-09 6000 HIT 10-Nov-09 2000 7000 11-Nov-09 2000 HIT 12-Nov-09 6000 MISS 13-Nov-09 1200 2000 14-Nov-09 2000 MISS 15-Nov-09 16-Nov-09 10000 8700 60.00% 18000 15000 66.67% Vendor Performa nce 63% On time deliveries Root cause analysis MOQ Analysis VMI Tracking Min / Max Stock Norms Replenishment frequency DIFOT review with suppliers to enhance service reliability
Implementation Details Supplier Strategy & Performance Metrics IT Enablement Relationship Mapping & Performance Measurement Voice of Supplier
Spoke 10 - Forward visibility of business Securing the future of business partnership!! Item Year 1 Year 2 Year 3 Q1 Q2 Q3 Q4 H1 H2 Item A 20000 14000 21000 19000 37400 48000 98210 Item B 30000 25000 32000 28000 60500 72000 152375 Item C 15000 12000 18000 16000 29700 40800 81075 Item D 40000 35000 45000 38000 82500 99600 209415 Item E 12000 10000 15000 11000 24200 31200 63710 Grand Total 117000 96000 131000 112000 234300 291600 604785 3 years SKU-wise volume forecast given to key suppliers to plan capacities Plant-wise capacity expansion plans discussed during supplier workshops Vendor development and long-term strategy discussed during Business Review Meetings with strategic suppliers Moving from Customer-supplier relation to long term partnership relationship
Spoke 11 - Supplier best practices What can we do better? Best practice sharing by partners for us / other organisations are shared to foster constant improvement and horizontal deployment
Spoke 12 - Supplier feedback to Cadbury Are we preferred partners of our business associates? Survey Financial Transactions Transparency 3.5 3.8 Feedback from 50 supplier representatives, gathered during 4 w orkshops in 2009. (Scale 1-5) What's working well Transparency and openness 1-on-1 issue resolution Sharing of CIL forw ard plans What can be better Leadtime adequacy Communication 3.6 Schedule adherence Timely payments and financial reconciliations Clarity of communication Planning & scheduling Development activities 3.4 3.5 3.00 3.20 3.40 3.60 3.80 4.00 Top rated Customers Financial transactions P&G, Loreal Transparency P&G, Nestle Communication Marico, Nestle Planning & scheduling P&G, HUL Developmental activities HUL, Nestle Next steps Seek a dialogue w ith MDC for cross functional partnership to m ake Cadbury a 'Partner of Choice' w ith our suppliers. Continuous improvement journey through regular feedback
Meeting supplier expectations a priority Innovation The supplier feedback on concerns is used to strengthen solutions
Finally THE CORE : SRM Culture Partnership of choice It is not just the tools, processes but most importantly the Culture which drives and enables SRM Excellence Focus on Winning Together - CFTs Collaboration with Partners S&OP integration YES WE CAN BUILD BEST IN CLASS SRM platform Spirit of Mutual Trust Fuelling innovation through Early involvement in NPD CFT at work in one of the supplier workshops
SRM success rests on (i) Understanding business challenges (ii) Robust SRM platform and (iii) Driving the culture of mutual partnership of choice Solution framework Cross functional Execution Cross functional integration SRM / Workshop forums Strong Execution focus 34
Benefits Realized
Key outcomes from SRM Pre Post Growth 82% Availability 95% 70% On Time NPD 90 % 60% 75% SLA Adherance Efficiency Write offs Lead Times Inventory - 35% - 15% - 20% Value Delivery +68% Capability Responsiveness Reliability 3.2 Feedback scores 3.8 - Profitable growth while managing more changes and inflationary commodity - Creating a security zone for partners to work with us in resonance
Supplier facing metrics update Pre Post Business Share Growth Potential Opportunities Mutual partnership 70% 85% Payment On Time Efficiency 11% Vehicle turnaround Parked and blocked 25% 7% Obsolescence Capability 45 days 75 days + annual Business visibility Quality RFT 98.5% 99.1% 60 120 days in advance Innovation partnership 120 180 days in advance Business partners could see the value of SRM through clear benefits to them
Future Scope
The Next steps Initiate a Rewards and Recognition program Design a Supplier Innovation program Design a Supplier Evaluation Index
SRM An ongoing journey towards excellence SRM is an ongoing journey We need to stay the course We KEEP WALKING For there are miles to go before we sleep THANK YOU
Any Questions? Thank You Saurabh Tiwari saurabh.tiwari@mdlz.com Mobile : +91 9867596539
The key questions addressed Issue Solution Design Work Track Supplier Strategy / Performance Yardstick How do we address business growth needs in the category? Which supplier has what strengths and what issues? On what parameters should the supplier performance be evaluated? How should we communicate and review plans with suppliers? How do we capture objective Supplier feedback? Mapping business needs to Sourcing Strategy Mapping category strategy to supplier strengths and weaknesses Supplier Performance Management Performance indicators IT Enablement e-procurement portal (Vendor Connect) with weekly offline review mechanism Use online surveys (Decideware) to collate cross functional feedback Supplier strategy Supplier segmentation Performance scorecard Vendor Connect Stakeholder feedback Enhance robustness on internal planning mechanism and tracking Generate auto-plans and track in house inventory through SAP SAP MRP and EM/PM tracker
The key questions addressed (contd) Issue Solution Design Work Track Relationship Mapping & Performance Management How should Cadbury and supplier organizations communicate? What platforms should the supplier organization and Cadbury interact? How should we share our plans and review the Performance parameters on an ongoing basis? How should forward visibility be given to supplier for dynamic capacity mapping? How do we receive supplier feedback? How will the supplier manage Risks / Service / Cost and Innovation? Redefine Supplier engagement strategy to drive Diamond relationship from traditional Hourglass strategy Create forums for cross functional participation and contribution Weekly S&OP Reviews, Monthly DIFOT scorecard, and Business review scorecard to track Voice annual of performance Supplier Process creation to ensure short-term flexibility and long term capacity availability Capture supplier feedback during supplier workshop and SRM meetings Create a forum through supplier workshops for best practice sharing Relationship mapping Supplier workshops and BRM platform Performance Management Forward business visibility Supplier feedback Supplier best practices
Top 3 Focus Areas for Procurement Managers Priority Challenge 1. Identify cost reductions (91%) Lack of visibility Low spend under management Lack of time for quality data analysis Lack of knowledge of sourcing opportunities Poor spend data quality and accuracy Disparate systems and data sources 2. Mitigate supply risk (47%) Lack of visibility and information Low spend under management Lack of time for quality data analysis Disparate systems and data sources 3. Improve processes (26%) Manual and time consuming processes Lack of time for quality data analysis Lack of standardised and efficient procurement processes Disparate systems and data sources Lack of contract compliance (and compliance metrics) Recently, Aberdeen estimates, inadequate sourcing competencies are costing mid-size firms U.S. more than $134 billion in missed supply savings opportunities annually. Source: The CPO's Agenda 2009, Aberdeen Group Transform the current Procurement Methodology