A PRACTICAL GUIDE TO: S.M.A.R.T.E.R. SUPPLIER MANAGEMENT. [ T y p e t h e c o m p a n y a d d r e s s ]

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1 A PRACTICAL GUIDE TO: S.M.A.R.T.E.R. SUPPLIER MANAGEMENT Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 1

2 EVALUATION REPORT HISTORY Document Location This document becomes uncontrollable when printed. The source of the document can be found [Insert location or document reference number] Revision History Date of this revision: 13 August 2012 Date of last revision: Revision date Previous revision date Summary of Changes Changes marked First issue Distribution list This document has been distributed to: Name Title Date of Issue Version Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 2

3 INTRODUCTION Companies are striving to reduce costs; this cost reduction may result in the outsourcing of organisation function or the leverage of third party relationships through consolidation, innovation or enhancing performance. However you are looking to identify efficiencies or drive out costs you must know when to invest in the supplier relationship, you can do this by implementing a clear, continuous and auditable improvement plan and through the development of tools in your armoury to identify measure and manage the supplier relationship. It has been shown that organisations working on the basis of an arms length approach to supplier relationships where you dare not to cross the line to engage in a professional business relationship with suppliers will not derive the hidden values and savings, where such strategies have challenged this contemporary view, the development and deployment of an open and honest approach unlocks this obstacle with a focus on both the win-win and competitive advantage in the market place. In addition to this so will you begin to establish a reputation as a company that is easy to do business with, one of the key aspects to boosting your account attractiveness and thus becoming a customer of choice. This practical guide to Supplier Management ( SM ) has been developed for and is a customisable operational framework setting out easy to learn steps and techniques for adaption to your company s requirements based on the S.M.A.R.T.E.R. principle: Specific Measurable Attainable Relevant Timely Evaluate Re-evaluate Whilst companies monitor performance of suppliers against contractual obligations few measure and monitor risk and SM is ultimately about managing the risks associated with each supplier, be it delivery, quality, cost, continuity, market dominance or ethical etc. Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 3

4 This guide delivers the added benefit of aiding end-to-end visibility and identifying savings and efficiencies based on the companies goals and objectives and along the way integrating these requirements; sourcing, stakeholders, business users and suppliers in order to establish an overarching supplier development strategy that cascades down to core governance, policy direction and process and controls with emphasis on establishing and managing the changing dynamics that will occur during the life of a buyer / supplier relationship and includes all of those activities associated with the planning, identification, selecting, management and monitoring suppliers in a cross function approach. The client and supplier environment is dynamic (culture and behaviour) therefore SM objectives need to be managed in the context of this changing environment within which the company operates if it is to be responsive by introducing capabilities into the company. This guide will enable [insert company name] to deliver the following operational outputs, to: Identify those suppliers that are deemed to be of strategic importance to [insert company name] creating sources of competitive advantage; Shape [insert company name] analytical skills that will enable us to identify and capture the downstream activities creating a value chain to drive performance; Communicate the relationship change strategy required to deliver the value chain to all parties whilst shaping the companies environment according to the SM vision. Improved operational effectiveness through the delivery of a clear and structured process; Enhance employee key capabilities and kills [insert company name] need to deliver SM against the agreed objectives and, Tracking, compliance and alignment to the defined KPI s and performance measures allowing for corrective actions to be identified and actioned. Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 4

5 This SM guide has been written and is intended to be used postcontract implementation so it does not interfere with any existing sourcing initiatives. That said it should not preclude using the step to further leverage improvements from the process. Throughout this guide delivery of company importance and value creation through the allocation of resource and prioritisation of the supplier is based on the annual planning process which supplier segmentation forms a part of. It is worth keeping in mind that a small number of [insert company name] total supply base will be deemed of strategic importance and therefore is seen as central to the success of our company. These segments can be broken down as follows: 1. Breakthrough Supplier (Strategic) - the most important to you organisation, these will usually make up the top 1-3% of your top 20% supply base and not just due to spend. It is anticipated that suppliers within this group will deliver the greatest impact in terms of delivery to your organisations core objectives. Core focus with this group should be contract management, performance and benchmarking, innovation and developing a collaborative approach to removing cost from the supply chain 2. Development Supplier (Bottleneck) - is the second of your tiered supply base making up the top 10-30% of the top 20% of your total supply base. The main focus with this segment group is development of the relationship and leveraging the commercial arrangement through analysis to ascertain competitiveness, raising attractiveness, ensuring supply and cost avoidance strategies 3. Performance Supplier (Leverage) - will be the largest of the top 20% of your supply base to be impacted by the segmentation process, around 67-89%. The aim in this segmentation group is to focus on improvement of service deliverables, a full contract audit should be considered. Your main focus in this group should be to create value quickly, short term contracts, standardisation and aggregation and supply Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 5

6 4. Basic Supplier - forms the remainder of your supply base, usually 80% and with the smallest overall spend. Core focus is delivery through a transactional process. This segment of the supply group should be investigated for alternative strategies to reduce the cost of purchase, i.e. consolidation, P-card, e-procurement and e-tender. This guide will provide [insert company name] with the following measurable value: The measurement and management of SM performance through the creation and formalisation of processes and practices; Proactive management and mitigation of Supplier risk; Define the engagement approach and interaction links between the company and the supplier through the lifecycle to ensure a consistent message and management of the value chain according the supplier segment; Identify a view into the spend and performance of the supplier and, Creating a positive position for the company in ongoing supplier negotiations to redress the balance of power and drive value from the redress. There are 29 steps to this SM guide, the tools and techniques are designed to a standard format and can be applied across multiple categories of spend, which steps are to be used and adapted will depend on the category type and its strategic nature to the company. Pages 9 16 provide a holistic view of the steps and a subset of how each step is made up. This should be carefully considered when think about how to apply the guide to category/supplier. Each step provides for an up-to-date understanding of the SM process with each step broken down in the following format: Summary a simple tabular structure that summarises where throughout the process the step is to be used, why it should be used, the benefits of adopting the step and risks if not adopted How tool / technique should be used a visual presentation of the tool or process along with points for consideration Completing the tool / technique Critical success factors and variations identifies key points you should Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 6

7 focus on in order to build capabilities for the step to be successful The document or tool includes the provision of a standard document or tool relevant to the step Skill level identifies the level required to edit and use the Excel tools o Basic level denotes ability to navigate, enter and edit data. All tools have been kept at a basic level for users other than the tool owner o Intermediate denotes ability to sort data, filter data, create and edit condition criteria, charting data with graphs, create/edit graph, editing formula (IF, SUM, INDEX, MIN, MAX) and general addition and division formula. Related steps Other steps that have been referenced or could be applied in aiding the completion of that step. The key guiding principles initiated in this guide for guiding company decisions and actions can be summarised as follows: Consistency - through the correct application of the tools and techniques within in a standardised and consistent approach with the aim of achieving transparency Ethics - to comply to the fullest with the Chartered Institute of Purchasing and Supply code of professional ethics Commitment to governance and project management adoption of the Prince II methodology to administer and sourcing process with the aim of delivering value and cost management through collaboration, resource and co-ordination Purpose the development and understanding, through structured steps, of what you want to do and how you intent to achieve it Transparency - through the application of structured data gathering, analysis and communication rather than intuition, guess work or hunches. Through adoption and application of this guide you will begin to build a competency in best practice SM and the application of strong governance. Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 7

8 Process Framework Phased Approach Stakeholder Engagement & Management Identification Engagement 1. Planning 2. Analysis and Relationship Strategy 3a. Performance 3b. Development 3c. Breakthrough Phase 1 detailed process steps and resources Phase 2 detailed process steps and resources Phase 3 detailed process steps and resources Phase 4 detailed process steps and resources Phase 5 detailed process steps and resources As-is and Baseline Analysis Supplier Relationship Management Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 8

9 Detailed Process Steps Planning Detailed Steps Step(s) # Governance Registration and Checkpoint 1, 2, 3, 4, 5 & 6 Identify project sponsor Governance Identify SM project lead Resource identification and allocation Establish project control cycle Agree supplier clasification model 7 Agree supplier segmentation method Identification Undertake supplier segmentation Create plan and targets Obtain approval Identify supplier stakeholder Governance Checkpoint 8, 9, 10, 11 & 12 Undertake and agree relationship strategy Execute SM training Engagement Create supplier level SM plan and communications Define and execute a supplier charter Determine supplier conference requirements Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 9

10 Detailed Process Steps Analysis and Strategy Detailed Steps Step(s) # Identify suppliers of greatest value 13 If no strategy currenly exists identify suppliers and understand baseline Review Category Spend Strategy Identify Sub-categories Refresh supplier spend analysis and forecast requirements Confirm company requirements Confirm supplier cost drivers Review current suppliers and contractual obligations 14 Establish contractual risks Contract Audit Map supplier/company relationships Establish current performance and performnce measurement systems Indentify current improvement initiatives Develop improvement strategy Agree perception questionnaire and interview responsibility 15 Internal Relationship Perception Interview supplier stakeholders Analyse feedback Identify opportunities and risks Agree perception questionnaire and interview responsibility 16 External Relationship perception Interview supplier stakeholders Analyse feedback Identify and document opportunities and risks Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 10

11 Understand Supplier strategy 17 & 18 Supplier Business Strategy and strategic contribution Establish impact of supplier on companies competative relationship Establish impact of supplier on company operations Governance Checkpoint Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 11

12 Detailed Process Steps Engagement Performance Detailed steps Appropriate NDA is completed to allow mutual knowledge sharing Step provided 19 & 20 Post-performance administration Conduct supplier assessment to determine compliance against a basic criterion of operation Conduct requirements gathering to develop appropriate SLA & KPI s based on the service support model 22 & 23 Share SLA and performance model strategy with stakeholders Agree performance matrix Performance Management Understand performance management model and impact Agree and implement new performance management model Review business requirements statement of requirements & contract Re-negotiate contract adding addendum based on business requirements review Governance Checkpoint Implement Measurement System Gather data and populate scorcards Maintain scorecard records Assess against agreed review periods Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 12

13 Detailed Process Steps Engagement Development Detailed steps Suppliers identified for participation in breakthrough programme Step provided 24, 25 and 26 Trust analysis conducted Joint relationship principles assessed and output agreed Planning Programme definition brief including breakthrough development actions identified Supplier definition brief and approve under governance gate registration process prior to implementation Agree resource allocation and sponsors for each workstream Governance Checkpoint 27 Suppliers are invited to participate through program of developing trust Collection of facts, figures and data relating to problem analysis Implementation Problem analysis tools deployed for solution discovery Develop action plan based of agreed priorities Joint opportunities are agreed with benefit identification signed off Implementation of joint opportunities Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 13

14 Detailed Process Steps Engagement Breakthrough Detailed steps Suppliers identified for participation in breakthrough programme Step provided Step 28 Planning Senior management communication released Breakthrough relationship strategy formed based on previous analysis Stakeholder engagement and action planning undertaken Conduct value interviews Highlevel workshop presentation developed Workshop Kick-off Executive participation required by both parties Governance process established Value interviews results discussed Value proposition objectives and vision agreed and output analysed Deliver workshop to unlock value from identified objectives and vision identify top goals and agree prioritisation and implications Value Workshop Delivery Develop action plan based of agreed priorities Agree resource allocation and sponsors for each workstream Review supplier definition brief and approve under governance gate registration process prior to implementation Governance Checkpoint Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 14

15 Update supplier definition brief to ensure it accuratly represents output from workshops Step 29 Value Implementation Finalise appropriate resource(s) creating workstreams where required Establish clear ownership and accountability based on agreed goal(s) Senior management communicates to all invested stakeholders the expected vision and anticipated results END Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 15

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17 Step 12 PLANNING - Supplier Communications Conference Workshop 1. Overview Where does it fit? Planning Analysis Engagement Development Breakthrough What is it for? The workshop is a follow up to the supplier charter, this allows for further discussions and clarification to be sought as well as for a high level of information sharing on the priorities of both parties. It enables trust and a recognition that by working collaboratively both parties can gain in the long term. It demonstrates a willingness to foster a long-term business relationship. Benefits? Opportunity to condition the supplier to change and share ideas and collaborate between all involved. How [insert company name] integration and ongoing operations will be maintained and performance tracked. Risks? Failure to recognise and capitalise on the value creation SM offers. 2. How to plan the workshop Lack of support to support the undertaking resulting in initiative not meeting expectations. 1. Develop Plan Why has the supplier been selected for the inclusion in the SM programme? What benefits are to be gained for inclusion? 2. Prepare Content 3. Communicate Event 4. Execute Event What executive support exists and alignment to [insert company name] values? [Insert company name] communication commitment to suppliers. The steps that are to be undertaken and purpose behind segmentation? How will supplier account reviews be Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 46

18 Agenda Topic Objective Output Time Allocation (minutes) Registration. Welcome participants Participants register, collect registration pack and are directed to the tea/coffee xx Welcome, introduction to firm, objectives and agenda. Firm s challenges and opportunities. To welcome and thank participants for attending, introduce them to the firm, objectives of the day and agenda What challenge(s) are faced by firm, what are the opportunities to be derived for both firm and supplier by adopting SM. Opening slides provides participants with summary of firm, the aims of the workshop and agenda Participants understand pressures and the principles behind SM utilisation. xx xx managed, how is this likely to effect the supplier? Next Steps The workshop planning template provides content including key topics, objectives and anticipated outputs for consideration. The template will require amendment to our specific needs. 3. Critical success factors and variations Determine the scope, objectives and goals to be gained in the supplier communication workshop, has consideration been given to these aspects? Is a supplier workshop the correct medium to convey the message? Which suppliers and associated employees (at what level) are to be invited, should the workshop be held a supplier wide event or specific to the supplier industry category or supplier segment? Executive support and participation from both the supplier and [insert company name] in the workshops is vital. It is recommended that core slides be presented by your executive member(s), this conveys a message to your suppliers that the business as bought into SM. Ensure members from operations functions participate; we want them to have been well briefed on both the content and objective(s) of the workshop. This will allow for a consistent message to be communicated though the event and beyond. The workshop should be well managed and meticulously organised with visually appealing presentation materials. First impressions matter, judgements will be made even before the presentation begins by the way [insert company name] conducts itself and how we present ourselves personally. Develop the style of workshop so it conveys the message of why [insert company name] is conducting this process, that means the workshop should be proactive requiring active and open participation building commitment on both sides. Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 47

19 Remember that any additional workload that is expected of a supplier could be met with resistance, especially where performance management (service levels and reporting) is a key segment and focus. Use internal resource, white papers, even a supplier that has already been through a similar exercise to understand the challenges your supplier may face. Have some answers ready that cover : o o o o o Goal alignment; Sharing standards, scorecards and performance matrices; Tracking and managing operational flow and implementing strategies for improved performance; Business responsiveness and, Customer satisfaction. 4. Documents and tools Workshop Planning Entire contents 2009 Procurementtoolkit.com. All rights reserved. Page 48