The European Institute of Purchasing Management

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David DUFOUR

Strategic Supplier Management

About Strategic Supplier Management a definition?

Attributes:

• Mutual need

• Common objectives

• Joint flexibility

Elements:

• Cross-functional multilevel commitment and co-operation

• Mutual high trust

• Synchronized processes

• Open communication

© EIPM 2013

Strategic Supplier

Management brings:

Competitive Advantage

Core Competence

Value creation to the

company

“A deep relationship in which parties co-operate for Mutual

benefit to create added value”

Objectives Strategic Supplier Management objectives will generally focus on the opportunities to provide, enhance, and/or improve the following: 1. Business Growth

2. Supply Chain / Logistical / Operational Efficiencies

3. Supply security / flexibility

4. Cost competitiveness

5. Innovation

6. Sustainability

Strategic Supplier Management relationship will focus to

Maximize Value Creation

What is expected then?

V =

€

Define the needs to satisfaction Access to right resources Innovate Reliability and performance Flexibility and customization

Cost Savings Risks Synergies between the regions Global teams to optimize TCO

Benefits of Strategic Supplier Management

Being the preferred customer of a supplier results in better value creation: – speed up new product development – time to market – lead times and quality – allocation of resources and capacity – response time and proactivity – commercial conditions, service and after sales – know-how and innovation sharing – risk sharing – security of supply

…less stress

II Leverage segments

IV Strategic segments

I Non critical segments

III Bottleneck segments

Importance of purchasing

(needs)

Criteria:

Annual spend

Risk factor

Low High

Low

H

igh

Criteria:

Market structure (monopoly, etc…), size of suppliers,

available market capacity, entry barriers,

switching costs and complexity, buyer’s relative size …

Difficulty of the supply

market

Material Group Purchasing Strategy The Kraljic approach

From PORTER’s analysis

From ABC - Criticality &

Spend analysis

« There are customers we have to work with

And few ones we like to work with !

Guess who gets the best value from us?» from a Sales Director

How do your suppliers see YOU?

Change your Company Culture

How do you treat your suppliers?

An example for measuring « customer attractiveness »

Adversarial Relationship Partnership

Limited & Questionable Communication Open & Honest

Less Help Much

A lot Obstacle/Hindrance Little

Smaller Profit Opportunity Greater

Buyer-Supplier Working Relations Index (WRI) – Planning Perspectives Inc.

Attractiveness counter-examples

The following are scores came from a survey of tier one suppliers conducted

by Planning Perspectives of Birmingham, Mich.

General Motors

Ford Motor Co.

DaimlerChrysler AG

Nissan

Honda

Toyota

(Scale 1 to 5 (5 the highest) -

Trust Leve

2.12

2.21

2.26

2.63

3.32

3.40

Trust Level

1.14

1.57

1.96

2.98

3.75

4.15

2005 2003

«This 2005 study shows that suppliers are continuing

to shift capital investment and R&D

funds to their Japanese customers and

decreasing investments in the US Big Three» J.W Henke, Jr. PhD Planning Perspective, Inc.

Attractiveness – the evolution of automotive industry

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WRI Index North America

• In my opinion [Ford] seems to send its people to ‘hate school’ so that they learn how to hate suppliers. The company is extremely confrontational. After dealing with Ford, I decided not to buy its cars. – Senior Executive, supplier to Ford, October 2002

• Toyota helped us dramatically improve our production system. We started by making one component, and as we improved, Toyota rewarded us with orders with more components. Toyota is our best customer. – Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July

2001.

Comments from Suppliers

Source: Liker & Choi, "Building a deep supplier relationships," Harvard Business Review, 2004

… another example of missleading relationships

• Mother Nature strikes Phillips Semiconductor plant – Fire stroke and water used in fire exhaustion destroyed or

contaminated almost all the silicon stock in factory

– Phillips semicondictor plant went down for months

Ericsson

Nokia

Phillips

What would you do?

Nokia

• Nokia detected unexpected delays within 3 days and contacted Phillips

• Phillips told Nokia production expected to stop for one week but audit revealed severe damages – Nokia increased monitoring from weekly to daily

– Nokia changed product design to use chips from other suppliers and ask them to commit on volumes (one out of 5 components impossible to get from

– Nokia pressured Phillips to get full allocation from Phillips for this

component from other plants

OVERALL NO DISRUPTION AT NOKIA

ERICSSON

• Phillips informed Ericsson within 3 days but Ericsson didn’t follow the incident

• 5 weeks after the fire, Ericsson realized the criticality of the situation

• Too late to grab capacity from Phillips or other suppliers and no backup solutions (no stock)

OVERALL 400 M$ direct losses (partly covered by insurances) and 1,7 B$ indirect losses

Ericsson decides to exit Cell Phone business

Thank you for your attention!

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