Supplier Working Relations. Unlocking the Strengths of Suppliers

Transcription

1 Supplier Working Relations Unlocking the Strengths of Suppliers

2 With companies typically spending 40 to 80 percent of their revenue on purchased goods and services, suppliers can have a significant impact on the overall financial and operational success of a business. While many companies appear to under-emphasize the importance of effectively managing their supply, a growing minority are harnessing the power of trusting, collaborative working relations with their suppliers and turning these working relations into a source of competitive advantage. 1

3 The Forgotten Treasure To realize competitive advantage from their collaborative supplier working relations, leading companies are turning to the Working Relations Index, (WRI ). The WRI is a powerful survey methodology that statistically assesses a company s supplier working relations from the suppliers perspective. The WRI identifies the current state of supplier-interfacing functions and activities, and pinpoints the working relations characteristics that will unlock the hidden value of trusting, collaborative relations. Most procurement and supply chain executives understand the inherent value of trust-based relations with suppliers. They acknowledge the many levels of tangible value such relations bring, including increased supplier sharing of new technology, increased quality and decreased costs, improved cycle times, greater supplier price concessions, in-depth understanding of the risk profile and increased supplier investments focused on the purchasing company s strategic objectives, to describe but a few examples. However, at a practical level procurement executives struggle to realize these benefits because they find it hard to move beyond a focus on procurement or internal business matters (Figure 1). They also find it difficult to commit adequate time, focus, and resources to working with suppliers to access the value suppliers can provide. The primary reason for these difficulties is that these executives do not have reliable data to determine where and how to focus their efforts to deliver the desired results. Figure 1. Moving procurement transformation to a SRM focus. Progressive Procurement Transformation Focus Procurement Customers Suppliers Procurement Customers Suppliers Procurement Customers Suppliers Total Value Focus Procurement Focus Business Focus SRM Focus Cost Focus Organization & Skills Processes & Systems 'Savings' Delivery Procurement Focus + Category Boards Cross-Functional Teams Customer Satisfaction Business Services Simplification / Standardization Business Focus + Supplier Innovation Process Strategic Collaboration Supplier Development Supplier Performance Management Executive Engagement with Key Suppliers Joint Investment / Gain Share Adversarial Collaborative Supplier Working Relations (WRI ) 2

4 The Working Relations Index Accenture has teamed up with Planning Perspectives Inc. (PPI) to provide its clients with a unique capability that brings together the procurement, supplier relationship management (SRM) and change management experience of Accenture with the PPI Working Relations Index. The WRI is a proven approach to objectively assess a company s supplier working relations and the impact that these relations have on a company s overall performance. It provides a numeric ranking of how suppliers perceive working with their customers based on five components comprising 16 supporting variables that are the principal drivers of trusting, collaborative supplier working rrelations (Figure 2). Based on a 500-point scale, the WRI enables companies to assess organization-wide SRM effectiveness and compare performance across purchasing areas, divisions, sites and even industry peers (Figure 3). The WRI methodology has been used by many high-performing businesses to further enhance their SRM capability. Created in 2002 by Professor John Henke, based on his extensive academic research and interviews with more than 100 purchasing and sales managers, the WRI has been used to assess the supply bases of more than 50 companies and has involved thousands of suppliers globally. The assessment process, based on confidential Internet-based supplier surveys and supported by a rich comparative database and robust statistical analyses, helps a company to understand the strengths and weaknesses of its supplier working relations. This understanding helps identify specific actions to unlock the tangible benefits suppliers can bring the company. Figure 2. Components and variables of the company supplier Working Relations Index. Components Company Supplier Relationship Company Communication Company Help Company Hindrance Supplier Profit Opportunity Variables 1. Supplier trust of the company 2. Supplier perception of the overall company supplier relationship 3. Company open and honest communication with suppliers 4. Company timely communication with suppliers 5. Company adequate communication with suppliers 6. Help company provides suppliers to reduce costs 7. Help company provides suppliers to improve quality 8. Company late/excessive engineering/specification changes 9. Conflicting objectives across company functional areas 10. Flexibility provided to supplier to meet piece price/labor rates/element cost objectives 11. Supplier involvement in company product/service specification development process 12. Company sharing of savings from supplier cost-reduction proposals 13. High-performing suppliers rewarded with new/additional business 14. Company covers supplier sunk costs on cancelled/delayed programs 15. Company concern for supplier profit margins when asking for price reductions 16. Supplier opportunity to make an acceptable return over long term 3

5 Figure 3. Company supplier WRI scale and behaviors. Very Poor Company - Supplier Working Relations Very Good Very Poor Poor Adequate Good Very Good Adversarial Company Supplier Relationship Mutually Trusting Limited & Questionable Less Company Communications Company Help Open & Honest More A lot Company Hindrance Little Smaller Supplier Profit Opportunity Greater 4

6 Our SRM Diagnostic and Value Realization Process Our diagnostic and value realization process (Figure 4) creates robust and actionable results, typically within eight weeks of establishing the project approach and scope. More than just another survey, the WRI process is specifically designed to engage key stakeholders in order to start the change management process from day one. The process focuses on developing actionable and practical recommendations, and in an optional fifth step, our teams of experienced consultants can support you in implementing changes identified by the process to unlock the hidden value of your supply bases. Step 1: Define survey scope and select suppliers. Accenture professionals work collaboratively with your team to define the scope and rules for the supplier working relations assessment, including the supply base or bases to be included, which suppliers will be targeted for the surveys and how best to obtain relevant supplier contact information. This can be typically achieved in one to two meetings with a knowledgeable member of your procurement team. Step 2: Implement survey. We manage the survey process to minimize the disruption to your organization. To ensure maximum supplier participation in the survey, we work with you to create a pre-survey communication that, in addition to stating the purpose of the survey, emphasizes the confidentiality of the survey process and protection of the supplier response data. Suppliers typically have two weeks to respond to the Internet-based survey. Our team sends appropriate reminders to non-responding suppliers to maximize response rates, which are typically 50 to 60 percent. Step 3: Analyze survey responses. The analyses will conform to a standard process to enable suitable comparisons to be made to an external reference group, but is flexible enough to enable analyses across different supply bases and company dimensions, such as purchasing areas, supplier classifications and supplier annual buy, consistent with Step 1 objectives. Step 4: Report results and formulate action plans. A customized report, based on more than 80 different measures, provides detailed insights into how suppliers perceive working with your company, the level of benefits suppliers are providing to your company and the actions that are needed to take your supplier working relations to a level of trust and collaboration that will maximize supplier benefits. We review a sample report with you in Step 1. Step 5: Implement changes. Accenture can work with your company to implement the recommended actions. Accenture has extensive experience helping clients achieve tangible benefits from SRM assessment activities. This experience enables Accenture to offer clients a range of flexible options, from supporting a pilot project to delivering large-scale programs, often working on a gain share basis. This flexibility is supported by an industry-leading SRM framework using proven SRM tools, deep category experience and unparalleled change management capabilities. Figure 4. Diagnostic and Value Realization Process overview. Define Survey Scope & Select Suppliers Implement Survey Analyze Survey Responses Report Results & Formulate Action Plans Implement Changes 5

7 Manufacturing Company Unlocks Suppliers Value This large manufacturing company in the fast-moving consumer goods industry has purchasing organizations in North America, Europe and Asia that support regional manufacturing plants. Its independent regional purchasing organizations operate under a one company policy, follow similar company procedures and are supported by staff headquartered in Europe. Each regional purchasing organization works with three supply bases: direct (production), indirect (non-production) and logistics. To understand the firm s current supplier working relations and to determine if suppliers were predisposed to providing expected supplier benefits, the purchasing EVP asked Planning Perspectives (PPI) to conduct a WRI survey of the three supply bases of each regional purchasing organization. During two meetings with headquarters procurement personnel over a threeweek period, the PPI company team defined the survey scope, determined supplier selection criteria and identified the individual contacts for each selected supplier. The team also finalized the company s pre-survey announcing the confidential supplier survey, which was signed by the purchasing EVP and the appropriate regional purchasing VP. Following a two-week survey implementation period and two weeks of response analyses and report creation, PPI presented the supplier working relations findings for each supply base to the company s purchasing leadership team. The highlights of the findings included the overall WRI for each supply base in each region (Figure 5). The WRI for indirect suppliers differed significantly across the three regions, and the WRI for direct and logistics suppliers differed directionally. These results show that each regional purchasing organization works differently with suppliers in spite of operating under the same purchasing policies and procedures, contrary to the global purchasing leadership expectation of similar global supplier working relations. In addition, the analyses found that the company does not work with its suppliers in a manner consistent with its supplier segmentation (Figure 6). The company segments its suppliers on the basis of the suppliers importance using three segments: strategic, maintain and hold. Strategic suppliers, which constitute about 20 percent of each supply base, are considered essential to the company s long-term success and the company expects to experience Good to Very Good working relations with them, in the WRI range of 400 to 450. Figure 5. Regional supply base WRI. Working Relations Index Very Poor - Poor Adequate Good - Very Good North America Europe Asia Direct Indirect Logistics Red numbers indicate statistically significantly different WRIs across the Regions

8 The company expects to have working relations on the high end of Adequate, in the 300 to 350 WRI range, with its suppliers in the maintain segment. These suppliers are important to the company but not essential. For its predominantly transactional suppliers in the hold segment, the company recognizes that it should do its best to have at least minimally Adequate working relations, in the WRI range of 250 to 300. and 8 show how suppliers share new technology with the company and invest in new technology based on their working relations with the company, as calculated by the WRI. This data, along with similar data, provided the basis for specific action plans the company is currently implementing to reach its desired supplier working relations and levels of associated benefits. Analyses of the 80-plus variables for each supply base in each region provided insight into the reasons for the unexpected differences across commodity areas, supplier segments and regions. The analyses also indicated the actions the company needed to take to raise the various WRI s to the company s desired levels. For example, Figures 7 Figure 6. North American direct commodity area WRI s by supplier classification. Working Relations Index Very Poor - Poor Adequate Good - Very Good 500 Hold Maintain Strategic Commodity Area #1 Commodity Area #2 Commodity Area #3 Commodity Area #4 Commodity Area #5 Commodity Area #6 North America Direct Commodity Areas Red numbers indicate statistically significant differences across supplier classifications 7

9 Figure 7. Supplier willingness to invest in new technology in anticipation of future business. Working Relations Index Very Poor - Poor Adequate Good - Very Good R2=,77 R2=,81 R2=,96 Direct Indirect Logistics Very Little Little Somewhat Great Very Great Supplier Willingness to Invest in New Technology Figure 8. Supplier willingness to share new technology without the assurance of a purchase order. Working Relations Index Very Poor - Poor Adequate Good - Very Good R2=,83 R2=,95 R2=,95 Direct Indirect Logistics Very Little Little Somewhat Great Very Great Supplier Willingness to Share New Technology 8

10 Accenture and Planning Perspectives: A Winning Combination Accenture s extensive client experience in supplier relationship management and High Performance in Procurement research has provided us with deep insights into the actions that create value, reduce costs, enable innovation, manage risk and drive growth. These insights have enabled us to develop a unique perspective on a definable set of actions that can help companies move beyond adversarial, cost-focused relationships with suppliers to integrated relationships that can create sustainable competitive advantage. By partnering with Planning Perspectives and accessing its WRI methodology and extensive academic research in supplier working relations, Accenture can offer its clients an unparalleled, data-driven, action-focused approach to rapidly unlock value from a company s supply base. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 244,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become highperformance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, Its home page is www. accenture.com. About Accenture Management Consulting, Operations Accenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 16,000 management consultants globally, Accenture Management Consulting works with companies and governments to achieve high performance by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Customer Relationship Management, Finance and Enterprise Performance, Operations, Risk Management, Sustainability, and Talent and Organization. Accenture Operations consulting services help clients develop more dynamic, innovative and high performing Supply Chain and service operations capabilities to enable rapid response to changing customer demands and market opportunities. About Planning Perspectives, Inc. Planning Perspectives (PPI) is a 30-yearold consultancy headquartered in Birmingham, Michigan, USA, that works exclusively in the area of supplier working relations. Since 1990, when it implemented the first supplier survey to be conducted in the automotive industry for Ford Motor Company, PPI has worked with manufacturing and service companies in 18 industries to help them understand how their suppliers perceive working with them. Given the suppliers perception of their working relations, PPI then provides direction as to how the client can create and maintain more collaborative trusting supplier working relations that lead to realizing greater benefits from suppliers, which can contribute to greater marketplace competitiveness and profitability. The academic research conducted by the principals and academic affiliates of Planning Perspectives provides the foundation upon which the WRI survey questionnaire content, survey implementation approach, and survey results analyses and recommendations are based. By applying the high standards required of academic research in the research of our clients supplier working relations, our clients can be assured of the reliability and validity of the outcomes of the confidential Internet-based surveys that PPI implements to gain insight into their supplier working relations. Working Relations Index and WRI are registered trademarks of Planning Perspectives, Inc. 9

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12 Contacts Accenture Kris Timmermans Global Managing Director, Sourcing & Procurement Tel: Kai Nowosel Executive Partner, Sourcing & Procurement EALA Tel: Planning Perspectives, Inc. Prof. John W. Henke Jr., Ph.D. President Tel: B. Vera Ruseckas Vice-President Tel: Manish Chandra Executive Partner, Sourcing & Procurement APAC Tel: Harlen Pyle Executive Partner, Sourcing & Procurement North America Tel: Per Segerberg Partner, Sourcing & Procurement, Nordics Tel: Andrew Brimacombe Senior Manager, Sourcing & Procurement Global Offering Owner, SRM Tel: Copyright 2012 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture