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22/09/2009 1 1 Sustainable Supplier Relationship Management the Basis for Success in PLM Projects Michel Philippart Directeur of Strategy Institut for Recherche and Innovation in Management of Purchasing Associate Big Fish Sao Paulo, September 22, 2009 2
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Page 1: Sustainable Supplier Relationship Management the Basis for ... Sao Paulo...Development McKinsey Structuring 90 92 Booz Allen Discovery Viewpoint Strategic Sourcing * Avec Christian

22/09/2009

1

1

Sustainable Supplier Relationship Management

the Basis for Success in PLM Projects

Michel PhilippartDirecteur of Strategy

Institut for Recherche and Innovation in Management of PurchasingAssociate – Big Fish

Sao Paulo, September 22, 2009

2

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3

Michel Philippart: 20 Years of passion for Procurement

TribuneLa Lettre des

Achats

BookCollaborative

Sourcing

GSK BioApplication

EuropeanPharmaReview

CPOMagazine

TodaySharing

ceSCMIRIMA

Big FishHEC

VlerickBrazil

Maghreb

94 96 98 00 02 04 06 08

Frito-LayDevelopment

McKinseyStructuring

90 92

Booz AllenDiscovery

Viewpoint

Strategic Sourcing

* Avec Christian Verstraete et Serge Wynen

PLM in the Heart of the Enterprise

In the Mind of the CEO Supplier Contribution to PLM

Innovate Identify, organize, coordinate the introduction of supplier innovation

Focus on the core business to reduce capital and labor intensity

Optimize subcontractors and suppliers deployment

Pilot a company operating in a fast changing global environment

Orchestrate cooperation between all suppliers and internal functions to make the enterprise agile

4

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3

In a Consumer Centric World

5

Consumers

Entreprise

Production

How

Licences

Software dev.

Raw mats and parts

Channels

Communication

Equipment

OreCoal

LaborFrom steel making to car assembly

Ford Motor Company, around 1920

Independant distribution

Captive distribution

Experts like GE

PLM is a Company Wide Strategy

• Product Lifecycle Management is an enterprise strategy that implements a set of operations to :– Support collaborative creation, management, deployment

and use of product definition data and its associated processes

– Allows to work in Extended Enterprise

– Covers the complete livecycle of the product, from the initial studies to the disposal

• PLM is not a set to system tools but a multi functional approach

6

Adapted from Denis Debaeker, Pascal Morenton (Ecole Centrale de Paris)

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Evolution of PLM in the Extended Enterprise

At the beginning Today

PLM is a software suite PLM is an enterprise culture

PLM is for companies that manage multiple components, like automotive, electronic, or aerospace

PLM is applicable for all product and service systems, in all industries

PLM is for Engineers PLM is cross-functional, involving marketing and supplier managemet, production and reseach

7

Relation between Supplier Management and PLM

An

nu

al C

ost

s

Time

R&D

Pre-Production End of life

Production Operation/Support

Identification of innovative suppliers, understanding of the industry forces, suppliers, cost levers, opportunity to capture sustaianble competitive advantages

Management of the supplier performance, development plans, change management

Generation transitionManagement of the sub components necessary for service after phase out

Identification of innovative suppliers, understanding of the industry forces, suppliers, cost levers, opportunity to capture sustaianble competitive advantages

8

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Different approaches according to company strategy

Porsche

BMW

Toyota

Honda

DaimlerChrysler

PSA

Renault

Ford

GM

Advanced Development

Concept Definition and Competition

Serie Development Production

Often

Rare

PREMIUM

MASSES

Supplier involvelent in advanced

development

Medium

High

Competition intensity in bidding phase

High

Low

Relationship stability and transparency in development phase

Launch

AA

B

A

B

C

D

A

A

BB

B

XX

Parallel development

Last minute competitor

A

VW

9

Adapted from BCG’s Beyond Cost Reduction: Reinventing the Automotive-OEM Supplier Interface »

050

100150200250300350400450500

2001 2002 2003 2004 2005 2006 2007 2008 2009

WR

I

North American Automotive Supplier Relations

Toyota

Honda

Nissan

Chrysler

Ford

GM

“Working Relation Index” in the US automotive Industry

10

Source Planning Perspectives Inc, Michigan, USA

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11

The difference appears in respective behavior

OEM BEHAVIOR US Domestic Manufacturers Japanese Subsidiaries

Protection of confidential info Little regard for suppliers’

proprietary information or

intellectual property

High regard

Openness, honesty of

communication information

Indifference; incomplete and late High level, timely

Importance of cost vs. quality &

technology

By far, primary focus is on cost Also seek low cost, but balance it

with quality improvements and

technology

Supplier survival Little regard Concern for long-term success and

stability

Relationship orientation Adversarial; focus is on cost and

OEMs’ short-term gain

Strategically integrate suppliers

into partnership-like relations

SUPPLIER BEHAVIOR

Quality Maintain quality if compatible with

cost objectives

Work together to increase quality

of system

Capital, R&D expenditures, service

and support resource allocation

Decrease Increase: allocate freed resources

from US suppliers

Supplier Innovation Preserve innovation by restricting

access

Seek to provide innovation

The impact on available innovation is significant

-0,8

-0,6

-0,4

-0,2

0

0,2

0,4

0,6

GM Ford Chrysler Nissan Honda Toyota

Year-over-year change in Supplier R&D expenditures

2003

2004

2005

2006

2007

12

* Source Planning Perspectives Inc, Michigan, USA

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3 US Automakers 3 Japanese

Operations

COGS change

2000-2004

+10% -5%

Inventory Ratio

change 2000-2004

+47% -7%

Market share 2002-

2006

-8% +9%

Share Value CAGR

1/97 – 1/07

0% 11%

… and shows in performance

13

Sources : The economic value of supplier working relations with automotive original equipment manufacturers. Matthew J. Milas, Eastern Michigan University, Department of Economics Stock price adjusted for dividends and splits F, GM, TM, HMC

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

2001.

14

Supplier Comments Contrast

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

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Supplier Client Cooperation is the key to their integration in the PLM

• Allows to maximize innovation impact

• Changes the extended enterprise from a flow of goods to a coherent team to compete against other enterprises

• It can make the difference

– Between commodity and premium

– Between survival and unique advantages

– Between cost reduction and value creation

15

EVOLUTION OF SUPPLIER MANAGEMENT

16

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90s80s 2000

3D

Proto Digital

Capabilities Integration

2D

Tech

no

logi

cal A

dva

nce

Development approaches have evolved

17

To follow the evolution of externalization of added value

0%

20%

40%

60%

80%

50's 2010

Purchased Volume

18

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19

Supplier Management has evolved too

If me hit hard me get good price.

Grmf.

20

Initially focusing on cost cutting projects

If me hit harder me get better

price. Grmf.

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• Strong competitors work on Procurement equally hard

• … and obtain similar price decreases

• … that their sales force must give away to stay competitive with their clients

• Those Procurement actions are necessary but do not improve either long term competitive position or profitability therefore do not enhance shareholder value

21

Today, it needs to move away from short term benefits

L’entreprise étendue a beaucoup changé

MineraiMO

CharbonDe l’aciérie à l’assemblage des véhicules

Ford Motor Company, vers 1920

Distribution indépendante

Distribution captive

Fabrication sous traitée:pays à bas coût de main-

d’oeuvre

Conceptionmarketing

finance

Chaîne de Valeur, fin du XXe Siècle

Multiplescanaux de

distribution

Experts comme GE

22

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Elle évolue vers les réseaux agiles

Matières premières

Empire

1960

Composants

Matrice

1980

Intelligence

Réseaux

2000

23

Source: Big Fish Building and implementing an effective SRM approachhow to work in an extended enterprise

Et prend de nombreuses formes

P&G

Traditionaliste

eBay

Créateur de Marché

Nike

Chef d’Orchestre

Sole

ctro

n

Dominant sur une Couche

Comment gérer efficacement ces

relations?Collaborer? Guider?

Innover!

24

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La création de valeur externalisée augmente

0

20

40

60

80

100

% du budget R&D dépensé en co-développement

Importance de l’innovation externe

Automobile

Les innovateurs

Les suiveursChimie

Acier

Futur Collaboratif

Grande Conso

25

Page 26

The first HP Inkjet printers

plastics

ink

circuits

ink chamber

orifice plate

flex circuits

dry assembly

wet assembly

testing

packaging

tooling

hp manufactured Partner manufactured1985

Com

ponents

Pro

cesses

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Page 27

Today an extended enterprise

plastics

ink

circuits

ink chamber

orifice plate

flex circuits

dry assembly

wet assembly

testing

packaging

tooling

hp developed Partner developedC

om

ponents

Pro

cesses

2005

• “Nissan is to stop production at some of its domestic car plants for five days due to a steel shortage” (BBC News 25/11/04 )

• Raw-material shortages and high prices are fueling a new wave of acquisitions (India Daily 14/08/06)

• Capacity Shortages Loom for Lower Tier Suppliers: The recipe for collaboration requires key ingredients that are not yet in place(Automotive Industries February 2005)

• Michelin has reached the conclusion that its strategy is no longer compatible with General Motors’ purchasing policy. Consequently, Michelin will not renew its original equipment tire shipment contract with General Motors Europe which expires on July 31, 2002(Michelin press release First Half 2002 Earnings)

• “Today's turbine constrained market makes control of the supply chain especially critical. Ownership of or at least close ties with key suppliers in these areas is therefore important for ensuring a wind turbine vendor is able maximize production and thereby their sales potential and market share” (Wind Energy Report 2005 - REA)

28

Secure resources in times of shortage require to rethink supplier management approaches

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29

REPower has developed a growth strategy to enhance its market presence

• Survival in front of larger competitors

• Adaptation to a fast mutating environment• Higher power

requirements• More extreme

enviroments

Need

• Identification of the cultural weakness of the leaders• Aggressive supplier

management• Reliance on internal

development• Focus on differentiating

components• Gearboxes• Blades

Strategic Analysis

• Privileged relation with gearbox and blade suppliers

• Sharing of information about market needs and technology trends

• Co-marketing

Collaborative Sourcing

Leader in Growth and Profits

VestasNordex

NEC

Enercon

Gamesa

Bonus

Bonus

0%

2%

4%

6%

8%

10%

12%

0% 20% 40% 60% 80% 100%

Net

Marg

in

Growth 1999-2001

RePower

Marché

30

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31

Extended Enterprise: Vesta

Integrated Blade Production

Wind turbine

design and assembly

Financing

Arm length w/ Gear box

Non criticalcomponents

Consulting

Wind farm

32

Extended Enterprise: REPower

Wind turbine

design and assembly

Financing

Gear box: Exclusive partnershipwith Renk for the largest high

performance gearbox

Blades: Development partnershipwith LM for large blades

Non criticalcomponents

Consulting

Wind farm

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Comparative Stock Price Variation

0

0,5

1

1,5

2

2,5

avr-01 sept-02 janv-04 mai-05 oct-06 févr-08

Ind

ex r

ef

1/4

/02

33

Impact on Shareholders

REPower

Vestas

• REPower has secured access to a key component of its growth strategy

• REPower managed the relation to convince its supplier to give REPower a prefered status

– Sharing advantages

– Sharing information

34

This success is driven by the relation with suppliers critical to the company position

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Repower Learning

• A small company can leverage smarter supplier management to over perform larger competitors

• Supplier management was initially viewed as a way to stretch limited resources but soon turned into a common project to develop a better solution to emerging needs

• This culture increased the company value

– made the company desirable to large firms outside the industry: at least two attempts to acquire it

– Share over performed key players

35

This trend is unstoppable

• After mass production in the 1920s and lean production in the 1980s, the global automotive industry is in the midst of another structural evolution, toward collaborative engineering and production.

• A recent Mercer Management Consulting study based on industry interviews, data analysis, and economic modeling concludes that by 2015, automotive suppliers will represent close to 80% of total value creation in light vehicle engineering and production, as the dozen automakers restrict their own share to those components and activities that are crucial to the success of their brands.

36 The coming age of collaboration in the Automotive Industry: Jan Dannenberg and Christian Kleinhans; Mercer Management Journal

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70% more profitability for companies who can collaborate effectively

• When compared with the companies with little collaboration activity, analysis clearly demonstrates that Value Chain Collaborators delivered 70 percent higher profitability. The business results from effective collaboration across the entire network—from suppliers to distributors/retailers, and final customers—stand out*

37 Source: Directions in Collaborative CommerceDeloitte Research

ProcessusNegotiationDesignExpertise Sharing

30

25

20

15

10

5

•Functional Specifications

•Cost Transparency

•Innovation Capture

•Partnerships

•Global Sourcing

•In/outsourcing

Specification Development

• Administrative Optimisation

• Electronic transactions

• Catalogues

• Authorization flow optimization

•New suppliers

•Négotiation techniques

•Volume bundling

•Productivity objectives

•Target Costing, Value Analysis

•Co design

•Standardization

•Supplier Development

•Risk Management

Administrative Process Optimization

Negotiation of Terms and Conditions

Development

Levers

25%

5%

15%Administrative Cost

(PO # 150 €)

Supplier Management Performance Potential (%)

Competitiveness

Levers Levers

The optimization begins early in the PLM

38

Levers

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39

An environment in constant flux

Internal Elements

New Business

Practices

Forced Changes

Problèmes de

qualité

Risques d’

approvisionnement

Suppliers Clients

Nouveaux concurrents

Changement de la

demande

Evénements politisuesDésastres

Lois et règles

Changement chez

les fournisseursNouveaux

clients

Réorganisations

internes

Fusions, acquisitions Nouvelle stratégie

Objectifs de

réduction des

coûts

Nouvelles

technologies

Source: Collaborative Sourcing, Philippart, Verstraete, Wynen, PUL 2005

We need new approaches to adapt the enterprise to changes that become deeper and more frequent

40

Adaptation to those changes require tight integration to capture value

Reaction

Delays

Communication

Confidence

Synchronization

Quality

Source: Collaborative Sourcing, Philippart, Verstraete, Wynen, PUL 2005

Capabilities

Understanding

Resources

Change

Les champions react faster and better

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SUPPLIER MANAGEMENT AND VALUE OF THE ENTERPRISE

41

The key is to build sustainable competitive advantages to create shareholder value

“The key to investing is not assessing

how much an industry is going to affect

society, or how much it will grow, but

rather determining the competitive

advantage of any given company and,

above all, the durability of that

advantage”

Warren Buffet, Nov. 1999

Business Week, Nov 1999

42

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A 20 year old concept

• First reference in 1985 by Michael Porter in its book “Competitive Strategy”, even though he does not provide a formal and structured definitioon of Sustainable Competitive Advantages

• First definition in 1991 (Barney) “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy”

43

Porter’s Model became a reference

44

Ressources(goods and services specific to

the firm delivering an advantage that a competitor

cannot easily acquire)

Capabilities(To use Ressources in an

effective way)

Distin

ct Co

mp

etencies

Value Creation

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Porter’s Original Value Chain did not integrate Procurement

45

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

InboundLogistics

OperationsOutbound

LogisticsMarketing

& SalesServices

Support Activities

Primary Activities

• Characteristics of Value Creating Resources*

– Valuable

– Rare

– Imperfectly imitable

– Not substitutable

• Suppliers can provide competitive advantages if they meet those four criteria

– In raw materials, in tools, in services

Today Procurement Can Deliver Value

46

* Jay Barney (1991), Firm Resources and Sustained Competitive Advantage, Journal of Management, 17, 99-120

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We have become Managers of allExternal Resources

47

Capital

Labor

Information

Resources Development Deliverable Commercial

ProcurementExternal

Capabilities to convert resources into value

Legal ServicesSupport

Strategic Sourcing Defined

• Use of Procurement skills and best practices to define, search, capture, isolate, manage and improve resources external to the firm capable of delivering sustainable competitive advantages

• Create value for vendor and client

• Cross functional

• On the CEO agenda

48

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Co

stSh

are

ho

lde

r V

alu

e

Imp

act

Tactical StrategicScope

Resource Management• Mature cooperation• Network leadership• External innovation• Exclusivity capture • Long-term insurance

TCO Optimization• Simplification• Cost Transparency• E—Procurement

Traditional Purchasing• Scale leverage• Hard negotiation• Multiple suppliers• …

With a value creation objective: Supplier Management Contribution Matrix

49

CASE ANALYSIS : AEROSPACE

50

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A company at the crossroads

• Protected markets opening

• Loss of national markets

• Cost structure uncompetitive

• Internal R&D working in isolation

• Very rigid, technical culture

51

Need to change the paradigm to compete

Objective : better leverage of supplier capabilities

0

20

40

60

80

100

2007 2017

Internal

Suppliers

Automotive Industry Models

0

20

40

60

80

100

USA Japan

Constant Competition

Partners

Internal

52

Source: Objectif Innovation : Stratégies pour construire l'entreprise innovanteJean-Yves Prax, Bernard Buisson, Philippe Silberzahn

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Think Differently

• Objectives : better integrate the supplier potential in long life projects (components for jet liners)

• Challenge: overcome the traditional “Engineer culture” prefering to do everything technical internally, to adopt global partners more efficient to reduce costs facing global competitors

• Approach: Implementation of a change program in the management of the extended enterprise

53

The Change Program

• A new approach: Diamond Teams

• A training for all management levels based on the simulation of a product live

– Need identification

– Development of a proposal for the final client

– Prototype

– Volume production

• Demonstration of cultural differences

54

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Develop and extended enterprise as a competitive advantage

900suppliers Standard supplier

100suppliers

Partner

The Partner• By its expertise, its innovation, its

quality, contributes to delivercompetitive advantages

• Demonstrates its intention to build a common strategy with its client

55

A training program to reshape the supplier management approach

• Development of soft skills

• First sessions with the management committee

• SWAT team to deploy the training in the project teams

• Training given to mixed project teams: supplier and company

56

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Transforming the Supplier Management Function

57

Build a Solution

Listen and Understand

Communicate and Convince

Implement

ClientsResults

Ressources Expertise

Structured with cases and role plays in PLM

58

SWOT identification of key technologies

Intégration in a commercial offer

Prototype and first series

Deployment of innovation

developed on now projects

Capacity increase offshore

Level of simulation Management

CommitteeCommercial

TeamCommercial and

Project Teams

Commercial and Joint Project

Team

Production in extended enterprise

Stakes Understand weaknesses and opportunities to develop a strategy of innovation capture

Encourage transparency and integrate innovation provider specifications

Align expectations, create trust, communicate better

Integrate learningsfrom failures and strengthen ability to answer to market

Optimize across then entire supply chain

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Result: Implementation of an improved supplier-enterprise interface

• Cross-functional

• Managed at the strategic, operational, and performance levels

• With a “Maestro” with a clear responsibility to enhance the supplier – client relation

• Significant progresses in terms of communication, transparencey, trust between teams, and therefore faster developments, better solutions

59

UNDERSTAND AND MANAGE A SUPPLIER PORTFOLIO

60

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Different supplier relations must be managed

61

Share

hold

er

Valu

e

Cre

atio

n P

ote

ntia

l

Supplier Integration

* Source Collaborative Sourcing; Philippart, Verstraete, Wynen, PUL 2005

Type I

Traditional SourcingI

Type II

Sourcing CollaborationII

Type III

Supply Chain CollaborationIII

Type IV

Value Chain IntegrationIV

Type V

Sustainable PartnershipV

Supplier distribution

Shared objectives adapted to the level of relation

62

Share

hold

er

Valu

e

Cre

atio

n P

ote

ntia

l

Supplier Integration

Perc

enta

ge s

hare

d

Type I

Type II Type III Type IV Type V

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32

High performance Sourcing organizations have a richer portfolio

63

Share

hold

er

Valu

e

Cre

atio

n P

ote

ntia

l

Supplier Integration

Supplier distribution

Type I

Type II

Level 1: Tactical, cost, cash

Type III Type IV

Level 2: Strategic, cost, margin

Type V

Level 3: Strategic, Value, growth

Industrial models like CPFR rarely deliver sustainable competitive advantages

64

• Industrial models like CPFR are rarely sufficient to provide sustainable competitive advantages

• Few companies have been able to maintain long term leadership only on the basis of operational excellence

• Toyota appears to compete on excellence in the transactional approach

• Its approach is well known but its culture is difficult to translate in other environments

• Toyota has captured the ultimate supplier skill: their mind, their adhesion to Toyota’s objectives

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Tools must address collaborative relations

Val

ue

Cre

atio

n P

ote

nti

al

Supplier Portfolio

Performance Management

Project Mangement

Invoices

Catalogues

Multi level demand management

Auctions

Improve Administrative

Productivity

Improve Management Productivity

Sourcing

65

Supplier Management Tools are geared towards network collaboration

66

Spend Analysis

Supplier Assessment

Contract ManagemetnBroadcast, compliance, supply

Payment

Development

Sourcing

Project Management

Solutions to develop and manage supplier networks and increase

effectiveness of managers

Performance Measurement

Negotiation

• Suppliers• Teams• Relationship

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Efficient network management tools lead the growth of the market

Source: Forrester Research, Inc. Teleconference « The spend management market » 30/11/06EIPP: Electronic Invoicing and Payment Processing

67

10%

2%

5%

21%

27%

29%

30%

Total

eSourcing

eProcurement

Spend analysis

Contract management

EIPP

Supplier network

2003-2008 growth of e-Sourcing solutions

For a new Supplier Management function

• Many projects on information flow management

– Ex: SEINE Standards pour l’Entreprise Innovante Numérique Etendue / Standard for an Digital Innovative Extended Enterprise

• But scant attention to organizational challenges

– Too often focused on internal dynamics

68

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SUCCESS CRITERIA TO INTEGRATE SUPPLIERS IN THE PLM

69

Evolution of Negotiation and Conflict Resolution

70

1970 to 1985

1985 to 2000

2000 to _____

Power

Side by SideProblem Solving

A LearningConversation

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Understand and develop trust

Adapted from : Success Through Commitment and Trust: The Soft Side of Strategic Alliances Management; Cullen, Johnson, Sakano, Journal of Word Business / 35 (3) 2000

71

TrustCommitment

Vu

lner

abili

ties

Ben

efit

s

Comfort Zone• Contracts are time consuming

• Contracts cannot account for all future events

• Contracts do not change attitudes

• And take in account both partners point of view

• Trust must be balanced against risks

Build functional and organizational capabilities

Unit N

Fonction Achats

Fonction AchatsUnit 2

Fonction AchatsUnit 1

Other functions

Us

Organizational capabilities• Project Management• Demand management• Communication• Conflict management• Leadership• Etc.

Unit N

Purchasing segment

Purchasing segment

Unit 2

Purchasing segment

Unit 1

Purchasing segment

Technical capabilities• Spend analysis• Cost lever analysis• Total cost• Negotiation• Sourcing• Etc.

72

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A 360° Evolution

73

Scope

Impact

Depth

Processes

Culture

Organization

People

Governance

Strategic

Value

All Spend

Intelligence

Competitive Advantages

GlobalVision

Master levelExperts

Sustainability

Tactical

Cost

Production

Administration

Historical benchmarks

Problem solving

Second tier

Conflict of interest

Keys to integrate suppliers in the PLM process

• Build a culture that fosters trust

– Stabilize the process innovation / negotiation

– Guarantee the remuneration of innovation

• Integrate the expertise of high added value suppliers by creating transparency in the extended enterprise

• Develop a company culture that encourages upstream collaboration between R&D and Supplier Management

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75

What is your Strategic Impact

• How much innovation is dependant of an external partner?

• How often do you assess your actions versus your competitors?

• Are you better treated than your competitors by your suppliers?

• What is your impact on the market value of the company?

Co

st R

edu

ctio

nV

alu

e In

cre

ase

Imp

act

Tactic Strategic

Approach

I’m sure glad the hole isn’t in our

end ……

76

Can you win without your suppliers?

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39

Thank you

•Do not hesitate to contact me in the future with your questions and comments

[email protected]

•+33 974 534 613

77


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