“SUPPLIER

MANAGEMENT AND
DEVELOPMENT:
CREATING A
WORLD-CLASS
SUPPLY BASE”
Group 6
ABOUT US
We, the sixth group , will discuss the
chapter entitled “Supplier Management
and Development: Creating a World-
Class Supply Base” whereas I and my
groupmates have assigned parts to help
this class understand the importance of
managing for sustainability in the supply
base.

2
CHAPTER PARTS
 INTRODUCTION
- CERILLES, RENMMELLE KYLE

SUPPLIER PERFORMANCE MANAGEMENT

- SANTOS, LYAN

RATIONALIZATION AND OPTIMIZATION:

CREATING A MANAGEABLE SUPPLY BASE
- LIBRANDA, JAZINEL ASHLEY & SULANGI, JOHSANNE JHAM

SUPPLIER DEVELOPMENT: A
CHAPTER STRATEGY FOR IMPROVEMENT
- IBASCO, LOVELY ROSE
PARTS

4
 OVERCOMING THE BARRIERS TO
SUPPLIER DEVELOPMENT
- BAUTISTA, MA. CHESKA

MANAGING SUPPLY BASE RISK

- CUNANAN, MICHELLE

MANAGING SUSTAINABILITY IN THE

SUPPLY BASE
- VILLAHERMOSA, RAVEN

CHAPTER
PARTS

5
INTRODUCTION
INTRODUCTION

This chapter focuses on various ways

organizations can more effectively manage
the performance of their supply chains.
Although a number of supplier
management approaches exist, most will
fall into the broad sets of activities
described in this chapter.

7
SUSTAINABILITY defined as “the ability to meet current needs without hindering
the ability to meet the needs of future generations in terms of
economic, environmental, and social challenges”.

SUPPLY Is the amount of a resource that firms, producers, laborers,

providers of financial assets, or other economic agents are
willing and able to provide to the marketplace or to an
individual.
SUPPLY BASE It is the portion of a supply network that is actively managed by
a buying company

SUPPLIER
MANAGEMENT
AND include a broad array of activities taken to manage and improve
DEVELOPMENT a worldwide network of carefully screened and selected
suppliers.

INTRODUCTION
8
INTRODUCTION

The primary objective of these future-

oriented supply base management and
supplier development processes is the
continuous improvement and growth of
supplier capabilities. Supplier
performance that is just sufficient today
will not be competitive in the marketplace
of tomorrow.

9
INTRODUCTION

History shows that, unless buyer

companies are able to bring their supply
base performance closer to world-class
levels, they will be at the mercy of agile
and progressive competitors that take
their supplier performance improvement
efforts far more seriously.

10
SUPPLIER
PERFORMANCE
MANAGEMENT
SUPPLIER PERFORMANCE
MANAGEMENT

Supplier performance measurement

includes necessary methods to gain all
information to measure the evaluation,
analysis, and management. An important
part of supplier management involves
continuous measurement, evaluation, and
analysis
of supplier performance. The supplier
measurement system is a critical part of
the sourcing process, serving as a
supplier's report card.
12
 SUPPLIER PERFORMANCE
MANAGEMENT

Supplier Management Decisions

Is a decision of implementing what’s the best supplier for the

business. The first step, a business should do is to know its
business goals, objectives, and strategies. Second, supply
management must develop its evaluation strategy to define which
supplier segment needs to be evaluated. Then this will drive the
types of information that came from the supplier measurement
system.

13
 SUPPLIER PERFORMANCE
MANAGEMENT

Supplier Management Decisions

Supplier segmentation must consider risk levels, spending

amounts, and switching costs. Finalizing the supplier evaluation
strategy requires a deep understanding of the information
required. On how they will be deployed, to obtain information in
a timely and cost-effective manner. The business and the supplier
must have an interconnection.

14
 SUPPLIER PERFORMANCE
MANAGEMENT

What to Measure and How to Weigh Various Categories

An organization must differentiate between objective (quantitative)

and subjective (qualitative) performance criteria since the metrics are
different. Quantitative variables have three categories:
• Delivery performance
• Quality performance
• Cost reduction
A supplier measurement system should also be compared against
pre-established standards or goals because the actual performance can
be evaluated. The standards should be attainable, measurable and
appropriate, communicated, and actionable.

15
 SUPPLIER PERFORMANCE
MANAGEMENT

Measurement and Reporting Frequency

1. Reporting frequency to the buyer - a buyer should receive a

daily report on the previous day’s activities, so that incoming
activity can be scanned and the due dates.

2. Reporting frequency to the supplier - This should happen

monthly or quarterly. However, poor performance should be
addressed as soon as possible.

16
 SUPPLIER PERFORMANCE
MANAGEMENT

Uses of Measurement Data

1. Helps to identify suppliers that are incapable of performing at

expected levels.
2. Helps to identify highly capable suppliers, which may qualify
for longer-term partnerships or as a preferred supplier.
3. Supports the supply base rationalization and optimization
efforts.
4. Determines the supplier’s future purchase volume.
5. Identifies the areas, which need improvement.
6. Helps in making sourcing decisions.

17
 SUPPLIER PERFORMANCE
MANAGEMENT

Types of Supplier Measurement Techniques

• Categorical System
• Weighted-point System
• Cost-based System

18
 SUPPLIER PERFORMANCE
MANAGEMENT

Categorical System

A categorical system is the easiest and most basic measurement

system to put in place, but it is also the most subjective in
measuring supplier performance. This system simply requires the
assignment of a subjective rating score for each performance
category.
Categorical rating examples typically include categories such as:
excellent, good, fair, and poor. These subjective evaluations can
be completed by the buyer, other internal users, or a combination
of both.

19
 SUPPLIER PERFORMANCE
MANAGEMENT

Weighted-point system

Weighs and quantifies relative scores across different

performance categories. Users must carefully select the key
performance categories to measure. A set of decision rules should
compare supplier performance against a pre-determined
objective.

20
 SUPPLIER PERFORMANCE
MANAGEMENT

Cost-based system

The most objective and reliable system. It seeks to quantify the

total cost of doing business with a supplier. The major challenge
is to identify and record the appropriate costs that are incurred
when a supplier fails to perform as expected. Quantifying non-
performance can also result in a chargeback to the offending
supplier.

21
RATIONALIZATION AND
OPTIMIZATION: CREATING A
MANAGEABLE SUPPLY BASE

22
SUPPLY BASE RATIONALIZATION AND
OPTIMIZATION
Supply Base Rationalization
Supply base rationalization is the
process of identifying how many
and which suppliers a buyer will
maintain.
Supply Base Optimization
Supply base optimization involves
an analysis of the supply base to
ensure that only the most capable
and highest performing suppliers
are kept in the supply base after it
is rationalized.
23
 ADVANTAGES OF RATIONALIZED AND OPTIMIZED SUPPLY BASE
- It should result in real improvements in cost, quality, delivery, and information sharing between
buyer and supplier. Suppliers in an optimized supply base often develop longer-term relationships
with buyers.

1. BUYING FROM 2. USE OF FULL-

WORLD-CLASS SERVICE 3. REDUCTION OF
SUPPLIERS SUPPLIERS SUPPLY BASE RISK
The benefits are fewer quality When using this, a buyer Risk can be defined as the
and delivery problems, access expects to reap substantial magnitude of exposure to
to leading-edge technology, benefits in the form of access financial loss or operational
opportunities to develop to the supplier’s engineering, disruption and stems from
collaborative relationships, research and development, uncertainty. Historically, the
and a lower total product cost design, testing, production, risk was an argument against
as supply management and service and tooling supply base reduction. Now,
engineering gain key supplier capabilities. buyers concluded that
input during new-product carefully selecting your
development. suppliers reduces risk.

24
 ADVANTAGES OF RATIONALIZED AND OPTIMIZED SUPPLY BASE
- It should result in real improvements in cost, quality, delivery, and information sharing between
buyer and supplier. Suppliers in an optimized supply base often develop longer-term relationships
with buyers.

4. LOWER SUPPLY 6.ABILITY TO PURSUE

BASE COM PLEX SUPPLY
ADMINISTRATIVE 5. LOWER TOTAL MANAGEMENT
COSTS PRODUCT COST STRATEGIES
Buyers interact with suppliers Fewer suppliers with larger The need for interaction when
in many ways. These volume contracts, result in implementing complex supply
interactions are all associated lower production and management strategies can be
with costs. So, the distribution costs. fulfilled by an optimized and
administrative cost of rationalized supply base.
maintain 500 instead of 5000
suppliers will be much lower.
Further, highly qualified
suppliers require less
interaction.

25
POSSIBLE RISK OF MAINTAINING FEWER SUPPLIERS
- Currently there is a debate on having many of a few suppliers per product.

1. SUPPLIER 2. ABSENCE OF
DEPENDENCY COMPETITION

Some suppliers become too dependent on Using a limited number of suppliers may
a large buyer. lower the competition in the marketplace.
When there are high switching costs, this
scenario may be more likely.

26
POSSIBLE RISK OF MAINTAINING FEWER SUPPLIERS
- Currently there is a debate on having many of a few suppliers per product.

4. OVERAGRESSIVE
3. SUPPLY DISRUPTION SUPPLY REDUCTION

Is potential a risk when sourcing from a When buyers move too aggressively when
single-location supplier. Buyers can reducing the supply base, the remaining
minimize this risk by using a supplier suppliers may not have adequate capacity
with multiple production facilities or or capability to meet purchase
selecting suppliers with multiple requirements if demand increases
capabilities, cross sourcing. substantially.

27
FORMAL APPROACHES TO SUPPLY BASE RATIONALIZATION
- This section focuses on several methods commonly used to rationalize the supply base.

1. TWENTY/EIGHTY RULE
This approach identifies those 20 percent
of suppliers receiving the bulk of
purchase spend or that minority of
suppliers that cause the most quality
problems.
2. “IMPROVE OR ELSE”
APPROACH
“Improve or else” approach
This approach gives all suppliers,
regardless of their performance history, a
chance to remain in the supply base.

28
FORMAL APPROACHES TO SUPPLY BASE RATIONALIZATION
- This section focuses on several methods commonly used to rationalize the supply base.
3. TRIAGE APPROACH
It requires the systematic evaluation of the
performance of individual suppliers and
placement into one of three categories.
Category 1 included suppliers that are
marginal performers.
Category 2 includes suppliers that don’t
consistently meet purchase requirements
in all areas, but demonstrate potential.
Category 3 includes high quality, capable
suppliers.
4. COMPETENCY
STAIRCASE APPROACH
This method requires suppliers to
successfully navigate a succession of
performance milestones in order to remain
in the supply base.
First, suppliers must meet a buyer’s basic
quality standards.
Secondly, a supplier’s ability to meet
technical specifications and product
performance requirements.
Subsequent hurdles can include for
example demonstrating sustained
production competency.
29
SUPPLIER
DEVELOPMENT:
A STRATEGY
FOR
IMPROVEMENT
SUPPLIER DEVELOPMENT

- is any activity undertaken by a buyer to

improve a supplier’s performance or
capabilities to meet the buyer’s short and
long-term supply needs.

31
32
 SUPPLIER DEVELOPMENT: A
STRATEGY FOR IMPROVEMENT

Step 1 - Identify Critical Commodities for Development

- Supply managers must analyze their own individual sourcing
situations to determine if a particular supplier’s level of
performance warrants development, and if so, which specific
commodities and services will require attention.

Step 2 - Identify Critical Suppliers for Development

- Suppliers failing to meet predetermined minimum
performance standards in quality, delivery, cycle time, late
deliveries, total cost, service, safety, sustainability, and/or
environmental compliance are potential candidates for
elimination from the supply base.
33
 SUPPLIER DEVELOPMENT: A
STRATEGY FOR IMPROVEMENT

Step 3 - Form Cross-Functional Development Team

- Supply management executives continually emphasize that
supply base improvement begins from within through buyer-
focused activities.

Step 4 - Meet with the Supplier’s Top Management Team

- Improvement, the team should approach the supplier’s top
management team and establish three relational building blocks
for seeking supplier improvement: strategic alignment,
measurement, and professionalism.

34
 SUPPLIER DEVELOPMENT: A STRATEGY FOR
IMPROVEMENT
STEP 4 -MEET WITH THE SUPPLIER’S TOP
MANAGEMENT TEAM
a. Strategic Alignment
- business and technology alignment between the companies.

b. Measurement
- requires an objective means of accurately assessing
development results and progress in a timely manner.

c. Professionalism
- helps to establish a positive tone, reinforce collaboration,
foster two-way communication, and develop mutual trust and
commitment.

35
 SUPPLIER DEVELOPMENT: A
STRATEGY FOR IMPROVEMENT

Step 5 - Identify Opportunities and Probability for

Improvement
- supply management executives should identify key areas
earmarked for improvement.

Step 6 - Define Key Metrics and Cost-Sharing Mechanisms

- Development opportunities, although not necessarily specific
improvement projects, are evaluated next in terms of project
feasibility and potential return on investment.

36
 SUPPLIER DEVELOPMENT: A
STRATEGY FOR IMPROVEMENT

Step 7 - Reach an Agreement on Key Projects and Joint

Resource Requirements
- the parties must identify the resources necessary to carry out
the project or development effort and make the commitment to
employ them.

Step 8 - Monitor the Status of Projects and Modify Strategies

as Appropriate
- an open, ongoing, and two-way exchange of information is
needed to maintain a project’s momentum.

37
OVERCOMING THE
BARRIERS TO SUPPLIER
DEVELOPMENT

38
 ADVANTAGES OF RATIONALIZED AND OPTIMIZED SUPPLY BASE
- Barriers to effective supplier development typically fall into three classifications: (1) buyer-specific
barriers, (2) buyer-supplier interface barriers, and (3) supplier-specific barriers . Companies can
use a variety of approaches to overcome barriers to supplier development. In general, these
approaches fall into one of three categories:

1. DIRECT-
INVOLVEMENT 2. INCENTIVES 3. WARNINGS AND
ACTIVITIES AND REWARDS PENALTIES
Companies often send their Companies can also use In some cases, companies may
own experts to assist incentives to encourage pull back current business or
suppliers. These efforts are suppliers to improve, largely withhold potential future
characterized as hands-on by means of their own internal business if a supplier’s
activities, where the buyer’s efforts. performance is deemed
representatives are directly unacceptable or if a lack of
involved in correcting improvement is evident.
supplier problems and
increasing capabilities.

39
Buyer-specific barriers
A buying firm will not have any kind of supplier development
program unless senior management recognizes the need and the benefits
it can bring. The first barrier is inadequate supply base optimization,
uncertainty in top-level support, and the following:

a) Purchase volume does not justify the investment in development.

b) There are no immediate benefits to the buyer.
c) An item is not important enough to justify the development
effort.
d) Lack of executive support within the buying organizations.

40
Buyer-supplier interface barriers
Barriers to supplier development can also originate at the interface
between the buyer and supplier, largely caused by problems in
communication, alignment, culture, and trust.

a) There are problems with buyer-supplier relations.

b) Confidentiality inhibits information-sharing on costs and
operations.
c) Supplier does not trust the buying organizations.
d) Organizations’ cultures are poorly aligned.
e) Suppliers do not give enough inducements to participate.

41
Supplier-specific barriers
Suppliers can fail to recognize the benefits of supplier development,
largely because they see improvement projects as an attempt to reduce
prices.

a) Lack of commitment on the part of the supplier’s management.

b) Supplier’s management agrees to improvements but fails to
implement the proposals.
c) Supplier lacks engineering resources to implement solutions.
d) Suppliers are not convinced that development will give them
benefits.
e) Supplier lacks employee skills to implement solutions.
f) Supplier lacks the required information system.

42
MANAGING
SUPPLY BASE
RISK
 MANAGING SUPPLY BASE RISK

What is managing supply base risk?

• The process of identifying, assessing, and mitigating the risks
of an organization’s supply chain.

What are the common sources of risk?

• External and internal factors are the common sources of risk in
the supply chain.

How can they be managed effectively?

• Organizations can manage risks effectively by having or
building new strategies.

44
 MANAGING SUPPLY BASE RISK

Several categories of supply base risk:

• Political Risk - (ex. Labor problems, government actions and

decisions, country stability)
• Market Risk - (ex. Commodity prices or changes in equity
prices)
• Sourcing Risk - (ex. Process simplification, supplier defaults)
• Financial Risk - (ex. Operational risk, and currency exchange
rates)
• Supplier Company Level Risk - (ex. Delays from suppliers,
organizational and operational issues)

45
 MANAGING SUPPLY BASE RISK

Common Contingency Management Tools

1. Inventory - act as a buffer between buyer and supplier to
guard against unforeseen supply disruptions, demand
variability, and order cycle variability.
2. Multiple Sourcing – this may result in a more competitive
marketplace and provides the buyer with alternative sources
of supply in the event that a supplier is unable to fulfill its
contractual performance obligations.
3. Use of Third-Party Intermediaries - this can solve the
problem of having not enough expertise and/or experience to
manage import transactions.

46
 MANAGING SUPPLY BASE RISK

4. Scenario Analysis
• helps companies to react more quickly when risk events occur
by having prepared plans and proposed actions in place in
advance of the actual event
• It assesses the likelihood and impact of potential future risk
events and then creates appropriate responses.

47
 MANAGING SUPPLY BASE RISK

Steps in Performing a Scenario Analysis

i. Identification of a specific issue or situation that would negatively
impact the organization.
ii. Consideration of stakeholders impacted should a risk scenario
occur
iii. Establishment of base line conditions
iv. Classification and analysis of potential risk scenarios as to severity
and disruptive impact
v. Creation of viable working strategies and plans to allow for quick
response
vi. Identification and monitoring of key risk event “triggers” on an
ongoing basis
vii. Periodic review of risk scenarios and corresponding contingency
plans

48
 MANAGING SUPPLY BASE RISK

5. Currency Hedging - also known as managing transaction

exposure. In essence, currency hedging protects the dollar
value of a future foreign currency cash flow. The prime reason
for hedging is to protect the buyer against major swings in the
value of a future purchase.
6. Insurance – its sole purpose is to redistribute economic loss
and minimize risk by managing the probabilities of a loss.

49
 MANAGING SUPPLY BASE RISK

7. Automated visibility and early warning systems

Global Supply Chain Risk Management (SCRM)
- can be defined as how supply chain members communicate and
collaborate regarding sources of risk, utilizing risk management tools to
mitigate and minimize risk and uncertainty across the supply chain.

Supply Chain Risk Management System Capabilities

• Real-time visibility of the supply chain
• Event recognition and early warning of a risk event
• A broad collection of real-time supply chain analytics
• Simulating models of risk events
• Collaborating with the right personnel across time and distance
• Critically evaluating various competing scenario responses

50
MANAGING
SUSTAINABILITY IN THE
SUPPLY BASE

51
MANAGING SUSTAINABILITY IN THE SUPPLY BASE

Companies recognize the growing importance of sustainability in the

supply chain.

Greater numbers of buying organizations now recognize the

importance of managing sustainability throughout the supply chain.
Sustainability does not only reflect the importance of strategic
environmental practices of an organization’s suppliers but also the
management of social responsibility in the supply base as well.

52
MANAGING SUSTAINABILITY IN THE SUPPLY BASE

• Sustainability is defined as “the ability to meet current needs

without hindering the ability to meet the needs of future
generations in terms of economic, environmental, and social
challenges”.
• Social responsibility can be defined as “a framework of
measurable corporate policies and procedures and resulting
behavior designed to benefit the workplace and, by extension, the
individual, the organization and the community in the following
areas: community, diversity and inclusiveness-supply base,
diversity and inclusiveness, workforce, environment, ethics,
financial responsibility, human rights, health and safety, and
sustainability. “

53
MANAGING SUSTAINABILITY IN THE SUPPLY BASE

Supply managers become involved in a variety of sustainable and

environmental activities and practices:

1. Material-related Activities
2. Climate and Energy Activities
3. Procurement Specific Activities
4. Transportation and Logistics Activities
5. Related Metrics and Measures Activities

54
MANAGING SUSTAINABILITY IN THE SUPPLY BASE

1. Material-related Activities
• Material-related practices concentrate on appropriate disposition
activities for scrap, obsolete materials, and unused capital
equipment.
• Overall reduction in material usage and disposal can be
accomplished through engineering design changes and reuse
and recycle programs.

2. Climate and Energy Activities

• Climate and energy activities center on conserving or reducing
energy consumption, as well as reducing harmful atmospheric
emissions.
55
MANAGING SUSTAINABILITY IN THE SUPPLY BASE

3. Procurement Specific activities

• Procurement-specific activities seek to purchase
environmentally-friendly packaging, materials, and
components, including consideration of the methods and
processes by which they are produced.

4. Transportation and Logistics activities

• Transportation and logistics activities focus on such sustainable
practices as packaging, product, and vehicle tare weight
reduction, improved routing of vehicles, reduced vehicle idling,
vehicle fuel mileage improvements, and vehicle aerodynamics.

56
MANAGING SUSTAINABILITY IN THE SUPPLY BASE

5. Related Metrics and Measures Activities

• Supply managers can develop and include sustainable metrics
and measurements into their supply contracts by incorporating
appropriate contractual terms addressing these issues.

57