Srm

Supplier Relationship Management (SRM) Produced by: Somayeh Dejbord Somayeh Saghi April 2007

Defining SRM [1]

¾ Successful supplier management in the 21st century mandates that the relationship between buyers & suppliers be increasingly convinced as Collaborative Partnership.As lead time & product life cycles plummet, & pipeline flow voracities accelerate, supplier partnering in today's global business environment is no longer an option but has become a strategic requirement to maintain competitive advantage.

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¾ Enhanced by Internet applications that draw buyers & suppliers together in real time, partnering can assume many forms based on the dynamics of supply chain. partnering can be found among allied industries or competitor & may exist for strategic or operational reasons.

Defining SRM

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Whatever the formal arrangement, partnership can be described as cooperative alliances formed to exponentially expand the capabilities of involved in materials requisition, procurement operating procedures & efficiencies, & product information exchange.

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The increasing focus on the development of synchronized, collaborative relationship between buyer & supplier has evolved over time & is the result of several marketplace dynamics.

Traditional Purchasing vs. Collaborative Supplier Management [1]

Traditional Approach SRM Partnership Adversarial relationship Collaborative partnering Many competing suppliers Small core of supply partners Contact focus on price Contact focus on long-term quality, mutual benefits Evaluation by Bid Evaluation by commitment to partnership Supplier excluded from Real-time commitment of design process design & specification

Traditional Purchasing vs. Collaborative Supplier Management [1]

Traditional Approach

SRM Partnership

Quality defects residue with the suppliers Clear boundaries of responsibility Proprietary product information

Mutual responsibility for total quality management Virtual organization Collaborative sharing of information

Reasons of Supplier Partnership Development [1] ¾ Increasing requirement for supply chain collaboration. ¾ Changing nature of the marketplace. ¾ Increasing demand for cost control, quality & innovation. ¾ Increased demands for risk sharing. ¾ Enabling power of Internet technologies. ¾ Focus on continuous improvement. 6

Increasing requirement for supply chain collaboration ¾ No company in today’s marketplace can hope to survive without strong supplier partnerships. As business continue to divest themselves of non-competencies & increasingly turn toward to outsourcing ,a deepening of partnering agreements have been eagerly pursued in all industries as fundamental to continuous improvement strategies, total cost management, & competitive advantage.

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Changing nature of the marketplace ¾ The dominance of the customer, shortening product life cycle, demands for configurable products, shrinking lead times, global competition, participative product design & others have altered the nature of sourcing & purchasing & highlighted the importance of supply chain collaboration.

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Increasing demand for cost control, quality & innovation ¾ While SCM technologies have been receiving most of the attention, Buyer are more than ever concerned about traditional purchasing values such as quality & reliability. ¾ Customer are no longer willing to do business with suppliers who not only can not meet increasingly stringent product & delivery standard, but also do not possess the capabilities to continuously unearth the new product configurations & service management capabilities.

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Increased demands for risk sharing ¾ The business partnership means that the needs for trust & risk sharing must be a serious component in any collaborative partnership. ¾ As the cost of innovation & operation flexibility grows exponentially, & the level of profit shrink in the face of competition, partnership agreement for the equal sharing of risk have become a critical method for the management of new product development & controlling spiraling operation costs.

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Enabling power of Internet technologies ¾ The age of “e-business” has had a profound impact on many areas of purchasing, provided supply chain partners with the abilities to closely integrate demand & replenishment in ways impossible only a few years ago. ¾ Application supporting such concepts such as SPF(Supply Chain Planning) & CPFR(Collaborative Planning, Forecasting, & Replinishment)enable whole supply networks to syncornize channel requirenments, cut costly lead times out of channel inventory management.

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¾ In addition, Web-based tools have undercut the need for traditional purchasing functions as lengthy negotiation, requisitions & paperbased purchase cost order.

Focus on continuous improvement ¾

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At the core of SRM can be found to be a strong commitment to the joint pursuit of continuous improvement as a dynamic process rather than a static business principle.where as mutually profitable relations between trading partners might facilitate the achievement of common goals, only those companies pursuing closely integrated collaborative objectives can hope to continually streamline the development and guarantee the availability of superior products and services that consistently leapfrog the competition.

Definition of SRM ¾ A set of business practices that involve the establishment & nurturing of closely intertwined relationships between buyers & suppliers.[1] ¾ The practices needed to establish the business rules, & understanding needed for interacting with suppliers of products & services of varied critically to profitability enterprise.[2] 13

Definition of SRM ¾

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The next generation of e-procurement or more specifically an integration solution that bridges product development, sourcing, supply planning, & procurement across the value change. [2]

Definition of SRM ¾

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SRM is the nurturing of continuously evolving, valueenriching relationships between supply chain buyers and seller that requires a firm commitment on the part of all trading parties to a mutually agreed upon set of goals & is manifested in the collaborative sharing & timely & cost-effective execution of sourcing & procurement competencies to facilitate the entire material replenishment lifecycle from concept to delivery [1]

Definition of SRM ¾ SRM is a means of building closer relationships with selected strategic suppliers, the purpose being to discover added features that could enhance the relationship while improving business performance as the firms work in a network environment for mutual benefit and increase the likelihood of creating profitable new revenues together.[3] ¾ David Hope-Rose:” SRM is a religion, A creed. A way of life”.[1] 16

The aim of SRM [3] ¾ Using the advantages gained internally to team with selected allies to make similar or larger gains through a networked effort.

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Component of SRM [1]

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The mission of the purchasing in today’s environment can be summarized as the real-time synchronization of the firm’s supply requirements with the capabilities of supply channel partner in order to support customers’ demands for made-toorder, highly quality, just-in-time goods & services while pursuing reduction in procurement cost & sustainable improvements in performance .

Component of SRM [1]

¾ Such an approach requires the combination of three critical components. Strategic sourcing & Supply management

Enabling technologies Customer-centric infrastructure & operations

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Strategic sourcing & Supply management ¾ Supplier partnership requires companies to look beyond the everyday purchase of material to strategic sourcing. ¾ The goal of strategic sourcing is to find & cement close sourcing & procurement relationship with those trading partners that account for majority of a company’s purchasing dollars. ¾ While strategic sourcing will drive tactical decision regarding the use of such technology toolsets as Websites & portal to decide which product to purchase through the Internet & which through traditional mediums, the central focus is on selecting those supplier who can support the customercentric objective of the company

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High

Purchase Categories [3]

Low

Spend volume Purchasing leverage

Commodities

High impact

•Availability is critical •Significant leverage to influence costs •Purchase costs are high relative to administrative ones

•Availability, quality and reliability are critical •Category knowledge is essential •Purchase cost is high relative to administrative costs

Odds and ends

Specialty

•Mature industry products •Suppliers are differentiated by price and service •Administrative costs are high relative to purchase costs

•New industry •Unplanned usage •Supplier capabilities are important •Administrative costs are high relative to purchase costs

Low

Product/service complexity

High

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Strategic sourcing & Supply management ¾ While cost control is critical element, strategic sourcing is a comprehensive supply management process that involves: Identifying the business requirement that cause you to purchase a good or service in the first place, conducting market analysis to determine typical cost for good or services within a particular supply system, determining the universe of supplier that best meet your requirements, determining an overall strategy to procure items in that category, & then selecting the strategic suppliers.

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Strategic sourcing & Supply management ¾ Depending on the category or type of purchasing to be sourced, other factors, such as the depth of supplier competencies, availability of required service, level of desired product quality, capacity for innovation thinking,& willingness to collaborate, can also be considered strategic components.

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Applying technology to the Management of SRM ¾ The effective management of procurement has always depended on the facilities capabilities of communication technologies. ¾ Over the 50 years, purchasing’s ability to work with supplier, communicate requirements, & negotiate quality, pricing, & delivery of goods & services has been driven by technology tools that either match or exceed the velocity of marketplace transactions.

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SRM –Driven Infrastructure & operations ¾ SRM requires companies to constantly deconstruct & architect processes that can be rapidly deployed to meet the shifting of customer requirements while focusing on continuous improvement. ¾ In a way that was impossible in the past, internet-based procurement toolsets have created an environment where best practices in purchasing can be automated & applied to he acquisition of just about any product & services.

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SRM –Driven Infrastructure & operations ¾ This standardization & optimization of the work of the procurement organization extends the expertise of a firm’s best purchasing process through the organization & out into the supply chain.

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Considerable Points about Suppliers Selection[4] ¾ evaluate the change in suppliers’ supply capabilities over a period in time. ¾ Suppliers should be evaluated with more than one criterion (e.g. price, quality, delivery performance). ¾ design a multi-steps model for reducing the complexity of the supplier selection problem. ¾ select suppliers which can maximize the revenue with different procurement conditions by each period in time satisfied. ¾ identify the changing supply conditions of the selected suppliers over the period in time for taking necessary actions.

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Some factors for selecting suppliers [6]

¾ Quality ¾ Cost ¾ Service ¾ Flexibility ¾ Delivery

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Some factors for selecting suppliers [6]

¾ Net Price ¾ Maintain & service quality ¾ Geography ¾ Used Technology ¾ Operational Control ¾ Guaranty policy

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Selecting the Right Suppliers supplier relationship attribute model [3] Supplier category/focus

Basic

Value Added

Preferred

Strategic

Relationship

Product or service as commodity

Impacts operational efficiency

Process expertise valued

Unique advantage in valued

Operation Mode

Competitive bid

Performance incentive

Continuous improvement

Flexible, agile, collaborative

Capability

Fulfill to requirement

Deploy specific competencies

Customized expertise & skills

Ability to assist with market changes/demands

Information sharing

Limited-electronic

Limited-tactical dialogue

2-way Controlled

Direct linkage access to parts of company database

Risk management

Contract penalties

Incentives and penalties

Incentives and information linkages

Process Management, shared risk/reward

Planning Horizon

Current deal

Ongoing, near-term

Joint planning with end point

No end point, joint strategic planning

Nature of Trust

Confident in ability to fulfill contract

Confident of execution performance

Confident in expertise; performance agility

Shared vision, ownership of intellectual capital

Metrics

Compliance tracking

Service level benchmarking

Best practice relationship

Business results; shared incentives

Customer Interaction

None to limited

Enabler of quality

Impact individual customers

Impacts major number of customers

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Supplier Relationship Matrix [3] Strategic importance

High

Medium

Low

High

Medium

Low

High

Medium

Low

Quality of past relationships

High

Medium

Low

Ability to add network value

High

Medium

Low

Alignment of business thinking

High

Medium

Low

Share the same values

High

Medium

Low

Length of relationship

High

Medium

Low

Ability to collaborate electronically Ability to provide resources for actions

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Multiple Criteria by Steps in Supplier Selection [4]

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Total Framework of Supplier Selection [4]

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The move of SRM is Toward: [3] ¾ Reducing the supplier base ¾ Segmenting the suppliers in term of importance ¾ Beginning work with a few of those suppliers to build advanced level models that will be beneficial to both organizations

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Uncovering the hidden costs of procurement [3] Acquisition

Reception

Possession

Utilization

Elimination

Cash Total purchase discounts Non-Cash Supplier Level

•Supplier vetting costs •Contract administration costs •Supplier follow-up costs feedback) •Supplier change costs

•Litigation costs for breach of contract

•Engineering costs •Personnel training costs •System adoption costs

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Uncovering the hidden costs of procurement [3] Acquisition

Reception

Possession

Utilization

Elimination

cash •Payment-delay savings or costs

•External transportation costs

Non-Cash •Ordering Costs Order Level

•Receiving costs •Invoice and payment processing costs •Quantity testing costs •Quality testing costs •Litigation costs for problems with quality

•Internal transportation costs

•Quality control costs •Production delay costs

•Waste collection

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Uncovering the hidden costs of procurement [3] Acquisition

Reception

Possession

Utilization

Elimination

cash •Price •Production discounts

Unit Level

Non-Cash •Service costs for installation and assembly •Testing costs

•Inventory holding costs •Order picking costs

•Production failure costs •Product failure costs •Maintenance costs •Installation costs

•Cost of removing obsolete materials •Disposal management costs

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Advantages of Applying SRM [2]

¾ Increased satisfaction of goods & services purchased & speed up product development by promoting a shared knowledge of suppliers ¾ Increased customer’s satisfaction to attract the most competitive ones. ¾ Lower prices of good & services by improving business processes across the supply chain. 38

Advantages of Applying SRM [3]

¾ Optimize supplier Relationships ¾ Create competitive advantage and drive revenue by jointly bringing new, better and more customer-centric solutions to market faster ¾ Lengthen and strengthen critical supplier relationships ¾ Drive profit enhancement through reduced supply chain and operational costs while maintaining quality

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Advantages of Applying SRM [5]

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created Improvements by SRM efforts in a case study[3] ¾ Inventory turns went from 11 to 24 ¾ Procurement costs improved by 17% ¾ Purchase order cycle time was reduced by 50% ¾ Automation of purchase orders went to 70% of the total ¾ Inventories identified as excess were eliminated ¾ Suppliers rated the effort as good to excellent, particularly in view of the shared savings 41

References

1.

Handfield, Robert B.,“Introduction to Supply Chain”,Supplier Relationship Management, 1999,pp.242-249 2. Lang A. , Paravicini D., Pigneur Y., Revaz E.,”From Customer Relationship Management to Supplier Relationship Management”, HEC Lausanne 2002. 3. Poirier C.C. ,”Using Models to Improve the Supply Chain”, Models for Supplier Relationship management,2004, pp.163-181. 4. Hong G.H, Park S.C, Jang D.S, Rho H.M,“An effective supplier selection method for constructing a competitive supply-relationship”, journal of expert systems with applications, 2005 , pp. from 629 – 639. 5. www.SAP.com ‫ﻗﺪﺳﻲ‬، ‫ ﺣﻞ ﻣﺴﺌﻠﻪ اﻧﺘﺨﺎب ﺗﺎﻣﻴﻦ آﻨﻨﺪﻩ و ﺗﺨﺼﻴﺺ ﺳﻔﺎرﺷﺎت ﺑﺎ اﺳﺘﻔﺎدﻩ ازﻣﺪﻟﻬﺎي آﻤﻲ‬،‫ﻓﺎﺋﺰﻓﺮهﺎد‬ .6 ،‫ﭘﻮر‬

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