Operations Management

3- Supplier Relationship Denis Stalder 2009/ 20010

The context
Historical Market evolution Offer
Product to sell 1950 Product then sell 1975 Sell then product 2000

Demand

Client

Customer

2

Focus on the main process

General ervice R&D P rcha ing Maintenance S b c ntracting Acc Sale ntancy Finance
H man Re rce

Pr d cti n

L gi tic

Added Val e

Externalizati n

3

Transfer from salaries to purchases

P rcha ing am

nt increa e
4

A great variety ‡ BOM Purchases ± Raw materials ± Standard Components ± Specific Components ‡ General services ± Furniture ± Intellectual services ± Technical services ‡ Projects 5 .

Fit to the strategy ‡ Financial impact on margin ± All purchase discount increases the profit ‡ Securitization ± The contract lower the supplier risk ‡ Increase the productivity ± Better organization of the administration process 6 .

Three Process Monthly Management Company s strategy Weekly Purchasing Needs Daily Procurement Specifications Purchasing Policy Selection Supplier Price Order Purchasing Marketing Negotiation Reception Billing Denis Stalder November 2007 28 novembre 2010 7 .

-Export -Innovation -Low cost RFI Request for information Short List RFI RFI Request for Request for RFI information information Filled In Supplier Selection Deni Stalder 28/11/2010 8 .Sourcing : RFI RFI Elaboration Purchasing Strategy RFI RFI Request for RFI Request for RFI information for Request information for Request RFI information information Filled in Supplier selection Criteria: -Size -Machines -References -ISO certif.

Sourcing : RFQ RFQ Elaboration Need Specification RFQ Request for Quotation Supplier selection Criteria: -Performance -Quality -Service -Price & Cost Short List RFI RFI Request for Request for Supplier information s information Proposal RFI RFI Request for RFI Request for RFI information for Request information for Request Supplier information s information Proposal Supplier Selection Deni Stalder 28/11/2010 9 .

Equipments ‡ Inquiry ± Technical specification ± Contract project ‡ Supplier proposals ‡ Selection ± ± ± ± Define criteria Evaluate each supplier proposal Negotiation Make a decision . Turn over Quality standards. Exportations Process.Inquiry process ‡ RFI = Request for Information ± ± ± ± Name. address. activity Number of employees.

Electronic puchasing processes Supplier selection Price Inquiry Needs definition Negotiation Oder Delivery .Payment e- rcing Market place Rever e a cti n e-pr c rement Deni Stalder 28/11/2010 11 .

) RFI answer management ± Comparison tables / short list selection ‡ RFQ management ± RFQ template design ± Proposal management ± Comparison matrix Deni Stalder 28/11/2010 12 . fax.E-sourcing ‡ RFI management ± ± ± ± Supplier s professional database RFI design: criteria file template RFI automatic broadcast (e-mail.

Computers ) ‡ Transactional / Collaborative ± Transactional = To conclude a transaction ± Collaborative = To exchange information Deni Stalder 28/11/2010 13 .Market Places ‡ To facilitate contacts ± Directory of suppliers ± Tender publication ‡ Vertical / Horizontal ± Vertical = one sector (automotive. electronic ± Horizontal = Office supplies.

Reverse auction Pr ject de ign Req e t f r Q AU TION .Invitati n nnecti n tati n ‡ The purchaser send a RFQ ‡ The suppliers issue a proposal ‡ Web meeting ± Purchaser ± Several suppliers .A cti n pening .Analy i / Re .Tran acti n lt p blicati n ‡ The Lowest the winner ONTRA T Deni Stalder 11/28/2010 14 .Neg tiati n .

Some Web sites Buying-Partner DoubleTrade Econia Goodax FreeMarkets Portum France Synerdeal Trade-Match .

Negotiation Definition The Negotiation is a process to manage disagreement in the purpose to satisfy contractually the needs .

Prepare the negotiation  Prepare questions to ask  List the subjects to be negotiated  Define Objectives to be met  Think about arguments to use  Foresee potential concessions  Imagine the negotiation progress  Write this elements on a table 17 .

Prepare the negotiation S bject t be neg tiated S pplie Objectiv r e pr p a l Acceptabl e val e Arg ment Orde Re r t l 18 .

Negotiation dialog Competition Rigid statements Relations based on power No transparency Suspicion Offensive or defensive strategies  Favorable issue for oneself      Cooperation  Common objective focus  Relations based on influence  Problem clarification  Confident climate  Open mind  Everybody accepted deal 19 .

Select a strategy ‡ 1. ‡ 3.Avoid Negotiation ‡ Steer clear of negotiation altogether.Collaborative strategy ‡ Satisfy all our needs and all the needs of our counterparty by taking a cooperative negotiation approach Deni Stalder 11/28/2010 20 . ‡ 4. ‡ 2.Compromising strategy ‡ Compromising by realizing some of our needs and some of the needs of our counterparty.Competitive strategy ‡ Aggressively achieve our goals through competitive negotiation.

Negotiation strategy .

Purchasing contract ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Companies Identification Preamble Technical Specification Price Delivery time & Transportation Quality Payment Warranty 22 .

STRATEGIC ANALYSIS .

Marketing tools ‡ Analogies & antagonisms ‡ Risk & profit matrix ‡ Partnership .

Analogies & antagonisms ‡ Marketing tools ± Assess Customer relationship ± Risk = Customer risk (not to paid) ± Profit = Sale Cost ‡ Purchasing Marketing ± Supplier relationship ± Risk = Supplier Risk (not delivered) ± Profit = Savings .

Risks-Profits matrix Ri k Strong Securitization Partnership Low Catalog Profits Low Strong Profit 26 .

delegation.Catalog area ‡ Characteristics: ± Low Risks and Profits ± Products : Multiple sources. number of orders and suppliers reduction. Substitution products de. standardization 27 . Low consumption value ‡ Strategy : Resources minimization ‡ Tactics : ± Shorter administration flow. low inventories.

Bidding. Strong Profit ± Products : Multiple sources. High consumption value. High discount potential ‡ Strategy : Strength relationship ‡ Tactics : ± Spot purchases... 28 . Market and technology survey. Substitution products. Purchasing tools.Profit area ‡ Characteristics ± Low Risks.

Securitization area ‡ Characteristics ± Strong Risks. Few substitution products. Low discount potential. Sales or technical risks ‡ Strategy : Supply security ‡ Tactics ± Long term relationship. survey. Low Profit ± Products : Few sources. Make or Buy 29 .

Partnership area ‡ Characteristics ± Strong Risks. Strong Profit ± Product = Functions ‡ Strategy : Supply permanence and important profits ‡ Tactics ± Partnership 30 .

Partnership setup Define strategic objectives Check supplier motivation Design the project Develop strong personal relations Use conflict and problem resolution methods ‡ Reciprocal style adaptation ‡ ‡ ‡ ‡ ‡ 31 .

Purchasing policy ‡ Negotiation parameters ‡ Negotiation typologies ‡ Purchasing family segmentation ‡ Building a policy 32 .

Negotiation parameters ‡ Time ± Short term / Long term ‡ Frequency ± Punctual. High 33 . partnership ‡ Repartition ± Unique. Multi-source ‡ Purchasing Value ± Low. regular.

Negotiation typologies ‡ ‡ ‡ ‡ ‡ ‡ ‡ Open inquiries for each order Inquiries limited to selected suppliers Multi source contracts Unique source contract Imposed suppliers Sourcing 34 .

price -Wide information -Equity Drawback -Time consuming -Low engagement -No economy of scale 35 .Open inquiries for each order ‡ Needs written on a specification ‡ Inquire (all) potentials suppliers (known) Advantage -Competition.

Inquiries limited to selected suppliers ‡ Supplier s homologation for a family of products ‡ Inquire all these suppliers for each order Advantage Drawback .Competition. price -Time consuming -Technical security -Low engagement -following up -No economy of scale 36 .

Economy of scale .Supply Security .Long term engagement .Less negotiation Drawback .Stabilized prices .Minimum of quantity .Multi source contracts ‡ Reliable forecast ‡ Needs gathering. repartition ‡ Annual negotiation : Fixed or indexed price Advantage .Good visibility of forecast 37 .

Less negotiation .Long term engagement -Unsecured supply .More competition Drawback .Stabilized prices .Good visibility of forecast 38 . needs gathering ‡ Several supplier inquiry ‡ Only one supplier contract Advantage .Economy of scale .Unique source contract ‡ Forecast.

Imposed suppliers ‡ Imposed by : ± Technology ± Tools ± Customer ‡ Partnership negotiation ‡ Price decomposition ‡ Supplier progress management 39 .

Sourcing ‡ ‡ ‡ ‡ ‡ Advantage / Drawback Global cost Homologation Repartition to change Actual supplier elimination 40 .

Handling costs  Financial costs (terms of payment. Inventories )  Training & setup assistance cost  Spare parts and maintenance cost  Wastes.Global Cost  Suppliers inquiries. Installation. packaging recycling 41 . developments  Actual purchasing price (on the bill)  Packing & Packaging costs  Transportation. scraps. meetings. homologations  Specific tools.

Purchasing family segmentation ‡ ‡ ‡ ‡ ‡ ‡ ‡ Raw material Standard components Specific components Sub-contracting General services General supply Investment. Project 42 .

80% B cla = 95% .100% 43 .8% 6 = 80% . % 8 2.ABC Method 80% of p rcha ing amount i made of 20% part familie amillie Raw materiel tandard component pecific component ub-contracting roject eneral er ice eneral uppl mount otal % 6 .6% 6 8.2% 0.95% cla umulated % % 80% 8 % % % % 00% cla = 0% . % 0 2 . % 2 .2% .

C = 95 to 100% of purcha ing amount 44 .C B A B. B= 80 to 95%.Building a policy Family Multi source contract A Unique source contract C B.B A Limited inquiry Imposed supplier Sourcing Raw material Standard components Specific components Sub contracting General services General supply Projects A = 0 to 80%.C A Open inquiry B A B.C A C C B.C A.

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