Rebuilding Global Supplier Relationships The Supply Chain Leadership Forum 2010 Dallas, Texas Track B-3 Facilitated by Justin Brown Principal, Tompkins Associates
Session Scope This Session Will Focus On: State of supplier relationships in 2010 Partnership principles Assessing your supply base Rebuilding supplier relationships Dampened relationships Broken relationships Severed relationships Lessons from failed relationships Discussion points 2
Vendor vs. Supplier Tompkins Associates Definition Vendor: A company that provides a service or product as a one-way transaction. Consider this a one-way street, a straight purchase. Supplier: A company that provides a service/product that is important to the success of a business. Consider this a two-way street in which communication, information and partnership is important to the success of the relationship. Suppliers help enable a company s success. Therefore, it is essential to have strong and mutually beneficial partnerships to enable an efficient, agile and profitable supply chain. 3
State of Supplier Relationships In 2009, many companies were forced to react to economic challenges. The past 18 months have seen many companies ISM s PMI July 10 Reduce supply chain footprints Reduce suppliers Changing suppliers Push for quicker payment Lean heavily on payment terms 4
State of Supplier Relationships Thus in 2010, Customer-Supplier relationships range from Unchanged - status quo Dampened - past disruptive events but relationship on amenable terms Broken - significant disruption leading to a difficult working environment and distrust between parties Severed - relationship has been terminated 5
Partnership Principles Partnerships are built on a foundation of 8 principles. These are valid in all types of relationships, for all types of suppliers that interact within all functions of a supply chain to enable the supply chain strategy that supports the overall business strategy. 1. Organizational alignment / trust / shared values 2. Relationship development 3. Communications protocol 4. Transparency 5. Ongoing collaboration 6. Continuous improvement / innovation & creativity 7. Integrated key performance indicators (KPIs) 8. Sustainability and risk management 6
Partnership Principles (continued) Supply chain design and strategies that enables the overall business strategy Plan Business Strategy Supply Chain Strategy Buy Make Move Store Sell/Deliver Diverse enabling supplier relationships Suppliers Contract Manufacturers & Co-Packers Supplier Relationship Management LSPs, Carriers & Managed Services Providers Service Provider Relationship Management Logistics Service Providers Retailers, Distributors & Internet Service Providers Customer Relationship Management Foundational base partnership principles 1. Organizational Alignment / Trust / Shared Values 2. Relationship Development 3. Communications Protocol 4. Transparency Partnership Principles 5. Ongoing Collaboration 6. Continuous Improvement / Innovation & Creativity 7. Integrated Key Performance Indicators (KPIs) 8. Sustainability & Risk Management 7
How Are Your Supplier Relationships? Understanding supplier relations, regardless of which step in the supply chain a particular supplier supports, is vital to the company s success. Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Plan Buy Make Move Store Sell/Deliver Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Unchanged Dampened Broken Severed 8
How Are Your Supplier Relationships? The first step is an assessment of your supplier: What actions were taken over the last 18 months with that supplier and why? What were the outcomes, and what is the supplier s current position? How does the supplier feel toward the company, and how does the company feel toward the supplier? Is the existing relationship dampened, broken, or severed? Understanding the answers to these questions helps define many of the next steps. 9
Rebuilding Dampened Relationships For a dampened relationship: Acknowledge what has happened. Identify strains to the relationship and how these issues contributed to mutual aggravation and productivity loss. Discuss mutual corrective actions and opportunities to improve future interactions. Focus on measureable vs. subjective metrics. Track the completion of these actions and incorporate them into future supplier management reviews. If no supplier management program exists, now is a perfect time to start. Reaffirm commitment to an efficient and effective supply chain and outline response plans for future crisis conditions. Define: Clear roles and responsibilities; Specific timelines for escalation; and Predetermined escalation paths. 10
Rebuilding Broken Relationships For a broken relationship: Acknowledge what has happened. Identify points of failure, and determine how they manifested and what the warning signs are for the future. Discuss what these failures meant to both parties. Include magnitude and Impact. Be careful not to deteriorate into a non-productive blame game. Discuss mutual corrective actions. Focus on measureable vs. subjective metrics. Track the completion of these actions and incorporate them into future supplier management reviews. If no supplier management program exists, now is a perfect time to start. 11
Rebuilding Broken Relationships (continued) What should be the frequency of relationship reviews? If both parties agree that the relationship is broken, then high frequency reviews. Define short-term deliverables to help demonstrate progress or lack thereof. Demonstrate your commitment to improving the relationship. Championing this process is a good signal to the supplier that your company is interested in improvement. Commitment to the supplier and the relationship may hinge on the ability to achieve progress. Progress is required on both sides to achieve a healthy relationship. Assuming progress can be achieved, outline response plans for future crisis conditions. Define: Clear roles and responsibilities; Specific timelines for escalation; and Predetermined escalation paths. 12
Rebuilding Severed Relationships For a severed relationship: If the situation is not easily repaired, decide if it is practical to try to do so. The circumstance of the relationship termination will dictate much of the approach for re-engagement. Financial disputes may require additional covenants or cash deposit securities to enable sufficient assurance for opening conversations to begin. If the relationship termination is based on product quality or price, there is more leeway to explore the rekindling of a relationship. If re-engagement is possible, follow steps of the Broken Relationship Rebuilding process. Focus on mechanisms of failure that drove the relationship to a breaking point. Develop preemptive monitoring metrics. Outline response plans for future crisis conditions. Define: Clear roles and responsibilities; Specific timelines for escalation; and Predetermined escalation paths. 13
Lessons From Failed Relationships Top 10 Lessons Learned from Global Supplier Relationship Failures 1. Have a presence in the area and at the sourcing company, and personally travel there often. Relationships cannot be built from long distance and via e-mail. 2. Obtain expertise in the complex and varied rules and practices of countries and companies. The rules and practices we follow with North American companies are generally different in Asia. 3. Pay particular attention to product quality. This is always a sound business practice in a sourcing environment, but is much more significant when language and cultural barriers exist. 4. Be prepared to accommodate extended lead times. Also, evaluate the cost and customer satisfaction side of longer lead times. 5. Understand the importance of building long-term business relationships with Asian suppliers. Asian companies generally have a longer term view and place more emphasis on relationships than North American companies. 14
Lessons From Failed Relationships (continued) Top 10 Lessons Learned from Global Supplier Relationship Failures 6. Fully understand supply chain capacity and potential constraints that may create barriers for delivery from suppliers. Consider capacity and throughput at each point in the supply chain. 7. Develop supply contingency plans. To ensure that the potential for disruption is minimized, make supply alternatives available. 8. Don t assume anything. Thorough due diligence and attention to detail is required in all aspects of the relationship until both parties are confident of each others capabilities. 9. Implement a solid monitoring and audit plan. 10. Maintain communication, communication, communication. As the saying goes, The problem with communication is the illusion that it has occurred. Never take communication for granted. 15
Discussion Points 16
Discussion Points What is the state of your supplier relationships after 2009 dampened, broken, severed, all of the above? How are you rebuilding the important bridges back to the kind of relationship that you were used to before the economic crisis? What success stories can you share with the group about rebuilt relationships? Have you had experiences that the rest of the group could benefit from hearing? What do you think the next year will bring with respect to suppliers and our relationships with them? 17