Supplier R elationship Management K. Mampane Gauteng Branch Meeting 22 November 2012
Take home SRM menu SA Economic Background Procurement Environment SRM Business Case SRM Defined Process Lessons Learned Conclusion
Take home SRM menu SA Economic Background Procurement Environment SRM Business Case SRM Defined Process Lessons Learned Conclusion
SA Compliance to Developmental Agenda LEVEL 1 - OWNERSHIP 17.9% 7.3% 74.8% LEVEL 2 - MANAGEMENT CONTROL 8.5% 11.0% 80.5% LEVEL 3 - EMPLOYMENT EQUITY 6.4% 11.3% 82.3% LEVEL 4 - SKILLS DEVELOPMENT 11.8% 5.4% 82.8% LEVEL 5 - PREFERENTIAL PROCUREMENT 6.7% 7.9% 85.4% LEVEL 6 - ENTERPRISE DEVELOPMENT 5.6% 10.5% 83.9% LEVEL 7 - SOCIO-ECONOMIC DEVELOPMENT 6.2% 81.0% 12.9% Excellent Compliance (>=100%) Partial Compliance (>0 <100%) No Compliance (0%)
Take home SRM menu SA Economic Background Procurement Environment SRM Business Case SRM Defined Process Lessons Learned Conclusion
Business and CPO concerns STRATEGIC SOURCING - PORTFOLIO
Spend Stats Procurement Spend SOE No. of Employees (billion) 2011-2012 2948 R 345.00 Type of Value (appr.) Number of Percentage Supplier Suppliers (%) Foreign R 30 billion 96 46% Suppliers BEE Suppliers R 15,8 billion 497 24% Unknown R 12,7 billion 429 20% White/Non BEE R 6,2 billion 262 10% 8
High Performance Mastery Dimensions Six dimensions of procurement mastery: 1 Performance management Vision, mission, core values Procurement strategy Category strategic planning Operating model 2 Strategic sourcing Category management framework Sourcing and category management Category policy setting Compliance monitoring 3 Master data management Transaction processing Requisition to pay Fulfillment Assisted buying 4 Supplier development and Supplier performance mgt Supplier relationship management integration Contract management 5 Working in an organization that Having the right network of Workforce and organization facilitates working together competent people 6 Systems cover all functions: Technology that delivers the Technology right information strategy to operations
High Performance Mastery Dimensions Six dimensions of procurement mastery: 1 Performance management Vision, mission, core values Procurement strategy Category strategic planning Operating model 2 Strategic sourcing Category management framework Sourcing and category management Category policy setting Compliance monitoring 3 Master data management Transaction processing Requisition to pay Fulfillment Assisted buying 4 Supplier development and Supplier performance mgt Supplier relationship management integration Contract management 5 Working in an organization that Having the right network of Workforce and organization facilitates working together competent people 6 Systems cover all functions: Technology that delivers the Technology right information strategy to operations
Take home SRM menu SA Economic Background Procurement Environment SRM Business Case SRM Defined Process Lessons Learned Conclusion
Functional – ROI Source: PSC Procurement Organization Performance (POP) Survey.
Understand the Total Cost of Ownership The build- up of the Total Cost is based on the assessed suppliers’ average. Supplier Input cost is almost 50% of the Total Cost of Ownership. Total cost build-up* Total Cost 8,5% 100% 4% 2% 1% landed spend 3,5% 84,5% 13% 14% 6% 48% The raw material is equal to 56,5% of the landed spend Raw Material Corrugating Converting Administration Transportation Goods Inventory Production Administration Incl. inventory Process Process & Contribution Receiving Supplier Costs Buyer Costs
Building the business case Strategic 7-15%(Of Sourcing € 500m Addressable Optimization Spend) Improved 20-30%(Current Operational € 7.5m cost Base) Efficiencies Purchasing 3-5%(Of Compliance € 500m Addressable Savings Spend)
Getting What We Paid For
Adding Value versus Cost to Change
Take home SRM menu SA Economic Background Procurement Environment SRM Business Case SRM Defined Process Lessons Learned Conclusion
Defining SRM Achieving full value from the total supply base – “SRM is a holistic approach to realising Full Value from pro -active and differentiated management of the total supply base” From concept to delivery, from strategy to execution – “SRM encompasses all of the activities involved in selecting and engaging suppliers, transacting supply orders, measuring and reporting performance, to working together to improve joint performance- - from concept to delivery” Technology Enablement – “SRM technology enables smarter sourcing and contracting, more efficient requisition to pay, easier measurement and reporting and overall more efficient supply and design collaboration between companies and their suppliers, throughout the entire materials life cycle” “A coordinated programme of actions developed jointly to improve overall performance and reduce supply chain costs.” 18
Take home SRM menu SA Economic Background Procurement Environment SRM Business Case SRM Defined Process Lessons Learned Conclusion
Supplier Relationship Management Process Eg. of 4 main elements to SRM 1.Develop Supplier 3. Evaluate & 4. Manage Supplier 2. Integrate Management Manage Supplier Relationships Supplier Strategy Performance SRM2.1 SRM3.1 SRM4.1 SRM1.1 Develop Supplier Evaluate Supplier Develop Relationships Develop Supplier Integration Plan Performance Segmentation Strategy SRM2.2 SRM4.2 SRM3.2 Integrate Recognise Supplier Manage Supplier SRM1.2 Supplier Performance Performance Develop Performance Measurement Process SRM4.3 Transition Suppliers SRM1.3 Develop BEE Supplier Program • Updated Supplier • Shared Process • Supplier Segmentation • Supplier Integration Improvements Criteria Plan Scorecard • Supplier Scorecard • Integrated Supplier • Supplier • Supplier Performance Recognition & Template • BEE/SPD Supplier Improvement Plan Distributed Awards • Transitioned Programme Supplier Accenture 20
SRM Phase 1
SRM Phase 2
SRM Phase 3
SRM Phase 4
SRM My Framework MEASUER & SEGMENT ENGAGE MONITOR • • • Report supplier Address other drivers of Make the case for performance to supplier performance supplier segmentation • • internal partners Identify and prioritize Develop a • Communicate and opportunities segmentation • align supplier Solicit supplier feedback approach • • management Enable multi-party Rationalise the supply activities collaboration to create base • • Develop scorecards deeper value Define roles and • to measure supplier Capture innovation from responsibilities of performance the supply base stakeholders • Communicate and • Develop scorecards to align supplier measure supplier management performance activities
Segmentation Segmentation Dimensions B “Bad” C E • Type of product segment D A ation • Consumption rate • Vendor process Total spend • Volume usage B A • Motorisation type D C “True” • .... E G segmenta H F tion The MECE principle: all segments must be • Mutually Exclusive • Completely Exhaustive
Each commodity is positioned according to its level of priority. Strategic Purchasing Matrix Leverage Strategic High Business impact q Routine Bottleneck s Low High Vendor market complexity 27
Priority by Category Summary of Priority by Category 1 2 3 4 2 1 2 1 2 6 1 1 4 12 2 1 1 4 8 15 12 2 1 3 17
Summary of Top Suppliers by Spend and Tier 1.6E+09 1.4E+09 1.2E+09 1E+09 800000000 600000000 400000000 200000000 0 1 2 3 4
Top Supplier by Ties 40 35 12 30 25 12 20 16 15 12 7 10 1 6 3 5 8 6 2 1 3 3 2 2 1 1 0 1 2 3 4
Supplier Identification Includes quality, delivery, technology, cost, viability, alignment, and support categories Provides specific standards to determine supplier placement in segmentation model Specifies entry and exit criteria for each supplier segment High Flyers • “Best of the Best” suppliers • Included on Preferred Supplier List and recommended for the president’s supplier award High Flyers Preferred • Demonstrated successful suppliers Preferred • Recommended for all new programs in area's of expertise Limited Limited • Preferred Supplier List potential— suppliers in development • Recommended for very limited new programs and requires justification for use Routine Routine • Not recommended for use in any new programs • Global Commodity Supplier Management and Engineering VP approval required for use
Tier Model Strategic Suppliers Strategic Alliances Key Suppliers Business Relationships Show-Stoppers Operational Agreements Repetitive Purchases Basic Contracts/PO
Sourcing Levers Source: PSC Procurement Organization Performance (POP) Survey.
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