Improving supply chain performance

Level 5 03

Session 1
Aligning procurement activities with business objectives and managing suppliers

Learning outcomes
At the end of this session candidates will be able to: Explain the importance of linking the procurement function with business objectives Describe how the purchasing function can add value to the business Explain how strategic alignment must contain an element of flexibility Evaluate the importance of customer service within the supply chain function Explain the role of the purchasing function in managing supplier relationships Assess the potential for improving the management of supplier relationships Evaluate how leadership style can contribute to improved supplier development Recommend how purchasing should be configured within an organisation.

Porters value chain

VMOS Vision Mission Objectives Strategies.

Porters generic strategies

STRATEGIC ADVANTAGE
Uniqueness perceived by customer IndustryDIFFERENTIATION wide Low cost position

STRATEGIC TARGET

OVERALL COST LEADERSHIP

Segment only

FOCUS

Source: Porter

Boston Consulting Group matrix (BCG)

High 20 18 16 STARS QUESTION MARKS (problem children)

Market growth

14 12 10 8 6 4 2 Low 10x High

Modest + or cash flow

CASH COWS

Large negative cash flow

DOGS

Large positive cash flow

1x

Modest + or cash flow

0.1x Low

Relative market share

Product life cycle

Sales

Profit

Introduction

Growth Maturity Decline

Value flow to customer

Activities in supply chain management

Sourcing strategy Vendor assessment (surveys, site visits) Supplier rating and qualification Supplier award programmes Use of new technology (for example, computersupported collaborative working, advanced planning and scheduling) Cross- or multi-disciplinary team working Supply base reduction Joint supplier problem-solving team Supplier development 1 (Kaizen teams) Supplier development 2 (redesign of internal processes).

Activities in supply chain management (continued)

Electronic data interchange Supplier associations (Kyoryoku Kai) Longer-term contracts Partnership (win-win negotiation, partnering agreements) Lean supply (JIT, for example) Standards development Supplier tiering Cost analysis methods Cost management (VE, gain sharing, inventory management and re-engineering).

Elements of supplier development strategy

Sourcing strategy Analysis strategy Communication strategy Infrastructure strategy Motivation strategy Standards strategy Development strategy.

Supplier award programmes

Cost reduction Customer support Delivery Price Quality Technology Warranty.

Types and sources of power

Positional power Expert power Referent power Reward power Coercive power.

Structuring for purchasing

Centralisation
Economies of scale Consistency of practice Rationalisation of supply base Reduced total stock Expert (lead) buyer input Improved materials allocation.

Decentralisation
Local market knowledge Responsiveness Point of use understanding Local support Transportation Relationships Communication.

Session 2
Getting results through performance measures and developing a competitive approach

Learning outcomes
At the end of this session candidates will be able to:
Summarise the importance of establishing key performance indicators for supplier improvement Describe the function of benchmarking internally and externally and its relationship to KPI setting Demonstrate systematically how auditing applies to the procurement function Demonstrate analytically the value of the Kaplan and Norton balanced scorecard model Summarise the consequences of a supplier failing to meet KPI standards Assess the value of supplier selection and performance systems within the organisation Critically assess the impact on business competitiveness of supplier performance systems Give examples from TQM of its contribution to the achievement of business objectives within a competitive world Apply the concept of 6-Sigma to organisational improvement Explain how procurement planning might improve competitiveness.

Quantitative measures
Orders placed Reduction in lead times Price savings Reduction in administration costs.

Qualitative measures
The process of supplier development, and long-term collaborative relationships The introduction of JIT systems The observance of quality standards Implementation of e-procurement systems Financial performance from a total sales perspective.

Establishing KPIs
Acceptability to all parties involved Achievability realistic standards of performance must be set Appropriateness relevant to the current work, role and ethos Flexibility methods can be changed as circumstances change Continuity sustainable periods of measurement so that comparisons can be made Comprehension are they understood by the parties? Credible Cost should be proportionate.

Benchmarking

The control cycle

Measuring relationships
Price against target or against market assessment Rejected parts per thousands/tens of thousands/hundreds of thousands delivered Scrap and re-work costs Number of deliveries arriving within an agreed time window Order lead times Administration costs Levels of service expressed in terms of accessibility, courtesy, competence, for example Number of innovative suggestions per time period Range of stock-keeping units (SKUs) Mix of SKUs.

Common benchmarks of purchasing organisations

Purchase dollars as a percentage of sales dollars Purchasing operating expenses as a percentage of sales dollars Cost to spend a dollar Purchasing employees as a percentage of company employees Sales dollars per purchasing employee Active suppliers per employee Active suppliers per professional purchasing employee Purchasing dollars spent per active supplier Purchasing operating expense dollars per active supplier

Common benchmarks of purchasing organisations (continued)

Change in purchase dollars spent with minorityowned suppliers Percentage of dollars spent with women-owned suppliers Percentage of suppliers accounting for 90% of purchase dollars Purchase order cycle time Percentage of purchasing transactions transacted through electronic commerce Percentage of service purchases handled by the purchasing department Percentage of total purchases handled by the purchasing department Average annual training hours per professional purchasing department Percentage of purchase transactions processed via procurement card.

Stages in benchmarking
Stage 1 Decide what aspects of purchasing or logistics to benchmark Stage 2 Plan the benchmarking project Stage 3 Create a baseline for benchmarking comparisons Stage 4 Decide who to benchmark against Stage 5 How will we collect the information? Stage 6 Analyse the information obtained Stage 7 Use the findings.

Kaplan & Norton balanced scorecard

Sources of new & potential suppliers

Catalogues both paper and electronic. These are often a good source of material as they often provide easy information that is also technical. Trade directories such as Kompass, Rylands, and Buyers Guide and so on are especially useful for new items or unusual products. Often used in an emergency. Yellow pages Databases these have substituted the need for large paper-based reference sections. There are a number of commercial databases dealing with different supply items such as Reuters, Kompass, and Pergamon Infolin. In addition, the business support agencies such as Business Link and the Chambers of Commerce have information that may be valuable.

Performance system criteria

Accurate Complete Augmentative Timely Credible Relevant Usable Scalable Predictive Cost-effective.

Organisations and processes

Functions are vertical

. Processes are horizontal

9.1

Process management
Materials Procedures Methods Information
(including spec.)

Products

PROCESS

Services Information

People Knowledge Training Plant/equipment

OUTPUTS

INPUTS
9.1

The Deming 14 point philosophy

1 2 3 4 5 6 7 8 9 10 11 12 13 14 Constancy of purpose A new philosophy Away with mass inspection Reliability of supplier Forever improving Train and train and train Leadership Drive out fear Pull down barriers Eliminate sloganising Get rid of quotas Pride of workmanship Self-improvement Transformation is everybodys job.

Business excellence model

Contribution of quality systems to supplier development

Six sigma
DMADV (new processes and products) Define Measure Analyse Define Verify DMAIC (incremental improvement to existing) Define Measure Analyse Improve Control.

Contribution of quality systems to supplier development

Quality circles Reduction of errors and the improvement of quality Problem prevention rather than detection and correction Reduction in product or service costs Improved productivity Increased employee involvement, motivation, job satisfaction, and commitment Improved teamwork and working relationships Development of employee problem-solving ability.

Contribution of quality systems to supplier development

Re-engineering examination and change of 5 parts of the business
Strategy Processes Technology Organisation Culture

Contribution of quality systems to supplier development

Incentivisation Lower cost, faster or timelier, delivery of service with no compromise on quality; Full understanding of the relationship cost, the quality of service delivery, and the ability to deal more effectively with changes during the contract; Increased service levels; Greater price stability; Enhanced achievement of the desired outcome; Better utilisation of services; Improved management information; and Improved management, control and Monitoring of contract deliverables.

SERVQUAL service dimensions

Reliability delivery of the service on time and to promise Responsiveness adaptation to users needs Competence Empathy to the needs of the user Accessibility can the service be reached when required? Courtesy are the users valued? Communication are the users kept informed of the service? Credibility do they know their job? Security is the risk managed effectively? Tangibles do the premises and staff appearance communicate the desired effect?

Twelve primary sources of risk

1.Business partners. 2.Competitive. 3.Customer. 4.Distribution. 5.Financial. 6.Operations. 7. People. 8. Political. 9. Regulatory and legislative. 10. Reputational. 11. Strategic. 12. Technological.

Session 3
Selecting and sustaining effective suppliers and retrieving Information from the supply chain

Learning outcomes
At the end of this session candidates will be able to:
Evaluate essential criteria for supplier selection and appraisal Assess the contribution to the function of vendor rating systems Give examples of how vendor rating systems can contribute to overall value of the function Demonstrate the circumstances when supplier switching will be considered Describe the process of new supplier adoption Describe the methods by which external contacts and relationships can be developed to gain market intelligence Evaluate the process for engaging external contacts within the supply market as a source of market intelligence Give examples of specific external information that could be valuable to the procurement business Describe the process of the adoption of a supplier innovation.

Transforming the supply chain

Carters 10 Cs for supplier selection

Original 7 Cs for supplier selection were:
Competency: all staff, all the time (requires evidence) Capacity: sufficient and flexible Commitment: to quality (quality systems) Control: control of process Cash: sufficient funds for the business Cost: cost/price relationships and total cost of ownership Consistency: consistent production of goods or services (ISO 9000).

Three additional Cs
Culture: compatible with similar values Clean: environmentally sound (conforming with legislative requirements) Communications: the supplier is fully integrated with information and communication technology (ICT).

Attributes of a good supplier

Delivers on time Provides consistent quality Gives a good price Has a stable background Provides a good service backup Is responsive to needs Keeps promises Provides technical support Keeps the buyer informed on progress.
Baily et al (1998)

Vendor audit factors large projects

Quality assurance and control procedures Incoming and outgoing quality checks Management capability Plant capacity and vintage Morale/employee attitudes Housekeeping Environmental procedures and conformance with environmental legislation.

Vendor audit factors large projects (continued)

Planned maintenance Tooling procedures/capability Understanding of requirements Samples Order book Corrective action procedures Training and skill levels.

ESI
Are we involving suppliers early in product and process development?
Early involvement recognises that competent suppliers have more to offer a purchaser than simply producing an item according to buyerprovided specifications What is the logic behind early supplier involvement? Expertise Buy-in Shared risk Time.

New product/service development process

1 2 3
Product/ service concept development

Preliminary Idea generation: business/ voice of the technical customer assessment

Product/ Prototype service build, test engineering and pilot/ and design ramp-up

POSSIBLE SUPPLIER INTEGRATION POINTS

Spectrum of supplier integration

None White Box Gray Box Black Box

Formalized No supplier Informal supplier supplier involvement. integration. Supplier Buyer consults integration. Joint development makes to print. with supplier on buyers design. activity between buyer and supplier.

Design is primarily supplier driven, based on buyers performance specifications.

Supplier Responsibility

The structure of an information system

Technology infrastructure
Hardware Systems software Applications software Communications

Personnel
Technology developers Systems operators Systems maintainers Users User support

Data infrastructure
Databases Database management Archiving

Information Providers
Internal List brokers/ profilers External

Full service

Specialist service

Field agency Market Technique Reporting

Data analysis services

Independent consultants

Internal sources of data

Sales figures Operational data stock levels, and so on Customer satisfaction results Advertising spend Customer complaints records Effectiveness data from promotional campaigns Marketing research reports from past studies.

External sources of data

Internet single-search engines, and multiple-search engines Directories Country information Published marketing research reports News sources Newsgroups and discussion lists.

Enablers of supply chain relationships

Common interest both parties have a stake in the outcome of the collaboration to ensure ongoing commitment. Openness collaboration partners must openly discuss their practices and processes. Sometimes this means sharing information that is traditionally considered proprietary and confidential. Mutual help when addressing supply chain problems or opportunities, look for cross company solutions. Clear expectations all parties need to understand what is expected of them and the others in the relationship. Leadership without a champion, collaboration will never be accomplished. Co-operation, not punishment focus on jointly solving problems, not looking for someone to blame.

Financial benefits of established supply chain relationships

Reduced inventory Improved customer service More efficient use of human resources and Better delivery through reduced cycle times.

Non-financial benefits of established supply chain relationships

Faster speed to market of new products; Stronger focus on core competencies; Enhanced public image; Greater trust and interdependence; Increased sharing of information, ideas and technology; Stronger emphasis on the supply chain as a whole; Improved shareholder value; Competitive advantage over other supply chains.

Session 4
Identifying supplier capability and communicating effectively

Learning outcomes
At the end of this session candidates will be able to:
Evaluate the effectiveness of supplier performance systems that segment the supply base Describe the importance of effective communications with suppliers Assess how specification issues are effectively communicated Explain the techniques for ensuring compliance with the buyers specification.

Responsibilities of first-tier suppliers

The management of sub-contractors Adopting a JIT philosophy Customer-dedicated staff who work in conjunction with the design and production team of the supplier Responsibility for warranty and end-user customer claims Research and development into technologies that are being applied to the suppliers product.

Aims of supplier associations

To improve the abilities of the suppliers especially in techniques such as JIT, TQM, SPC and so on To produce uniformity in the supply system To facilitate the flow of information and strategy formulation between the parties To increase trust between the parties To keep suppliers and customers in touch with market developments and therefore aiding the translation of the voice of the customer To enhance the reputation of the customer as someone the suppliers should do business with To increase the length of relations To allow the sharing of development benefits To provide an example to sub-contractors of how to co-ordinate and develop their own suppliers.

World class organisations

Commitment to total quality management Commitment to just-in-time Commitment to total cycle time reduction Multidimensional and integrative strategic plans Supplier relationships Strategic cost management Performance measurements Training and professional development Service excellence Corporate social responsibility Learning Management and leadership A push for world class status requires suppliers of a similar stature.

Qualities of desirable suppliers

Deliver on key KPIs Competitive prices Quality Lead times A commitment to continuous improvement A commitment to being leaders in their industry in terms of technology and innovation Adaptability and the ability to invest in new areas and technologies.

Supplier characteristics for lean supply

Strong team emphasis JIT system in place Total quality management systems in place Waste reduction teams Electronic data interchange (EDI) Extensive forecasting and modelling capacity Order status tracking capability Vendor managed inventory Product development cost tracking.

Key functions of a specification

It should indicate the fitness for purpose and use It should clearly communicate the requirements of the user or purchaser to the supplier It should provide the basis of what is actually supplied with the purpose, quality and performance stated in the specification Provides evidence in case of dispute as to what the performance standard should have been.

Presenting a specification BS7373

Identification title and so on Issue number Contents list Forward Introduction Scope Definitions Requirements/guidance/methods/statem ents the main body of the specification Index cross references References to organisational, national, international standards.

Examples of SLAs
Delivery to due date and time Adherence to agreed cost Adherence to agreed reliability standards Adherence to agreed standards of consistency Ability to change in response to changing conditions or requirements Ability to innovate and improve in design or production Quality of service in delivery.

Session 5
Managing costs, improving value and involving suppliers

Learning outcomes
At the end of this session candidates will be able to:
Explain how cost-reduction programmes are a normal part of business strategy Evaluate the techniques for delivery of acceptable price changes Describe how contracts are used to produce price decreases Give examples of how the customer can contribute to cost reductions Assess the importance of introducing tighter stock control systems Describe and evaluate JIT and stockless purchasing models Compare joint performance systems with standard vendor assessments. Explain how more complex feedback systems can improve performance of suppliers Evaluate the effectiveness of supplier risk management.

Discounts
Can be negotiated by buyers as Recognition of prompt payment Quantity discounts, although there is some risk in taking additional quantities if they are to be stored, and this has to be compared with the benefits of possible additional production at marginal costs. If a contract is extended beyond the typical twelve months (subject to acceptable termination or option clauses), it may be possible to secure an additional discount for the longevity of the contract. Discounts for technical breakthrough by the supplier. It would be expected that some of the benefits will be passed down the supply chain. Discounts can be given to intermediaries, where stockists or agents take responsibility for the distribution down the supply chain. Special discounts are possible for seasonal variations in demand, promotional offers, a desire to increase brand recognition or market share.

Opportunities for innovation

Scientific invention Adjusting products to anticipated customer needs Redefining the product so that further market segments are reached Applying existing techniques and technologies in new sectors Eliminating a link in the supply chain Revamping products in mature markets.
(Doole & Lowe, 2005)

Buyers contribution to new products success

Quality assurance or defect prevention Value engineering and value analysis Discussion with the design department about the availability and cost of materials Evaluation of cheaper alternative methods Agreement of alternatives when specified materials are not available Importance of buying complete systems rather than individual components Discussions about buying rather than making Building co-makership/designership relationships Creation of an information centre surrounding the design and development.

Why manage inventory?

The provision of a quality service to customers The avoidance of overstocking and bottlenecks Keeping costs to a minimum by variety reduction, economical lot sizes and cost analysis of carrying inventories. Variety reduction can make substantial cost savings on the inventory if there is both rationalising and standardisation of components and parts kept in stock.

Objectives of Just-in-time (JIT)

Zero defects so that the quality expectations of the customer is exceeded Zero set-up time Zero inventories Zero handling wherever possible eliminate all non-value added handling Zero lead time impossible in some industries but the aim is to use small batches of components or assemblies Lot size of one, which enables speedy adaptation if the market changes.

Advantages of JIT
Reduced stock levels of purchased supplies Enhanced product quality and reduction of scrap and waste Greater productivity and less re-work Shorter manufacturing lead times Greater flexibility in changing the production mix Faster design response Smoother production flow and fewer disruptions through late deliveries Greater workplace participation Higher productivity Reduced space relationships Improved relationships with suppliers.

Potential organisational problems caused by JIT

Adequate systems must be in place to allow effective communication down the supply chain Forecasting must not be faulty Suppliers do not always perform to specification Failure to hold any buffer stocks can be a considerable risk, and this includes the class C goods which can on occasions cause major disruption if not available Short life-cycle goods do not fit well with JIT systems because of the pace of change JIT is more suitable with flow production lines rather than batch production It may not always be possible to negotiate the necessary savings with JIT contracts Transportation disruptions are a feature of congested economies.

Partnerships make sense when

Synergy, where customers and suppliers seek to identify opportunities that arise from joint activities Collaborative strategy development Risk and gain sharing Joint problem-solving activity Mutual incentive to improve products and processes Creation of common goals Trust A long-term commitment Increased information sharing Increased communication.

Collaborative alliances make sense when.

There is a possibility of adding value to a product Strengthening operations by lowering systems costs Adding technological strength Enhancing strategic growth Enhancing organisational skills Building financial strength.
(Lewis, 1990)

Objectives for cross-functional teams:

Quality? Customer service? Innovation in product or service design or delivery? Cost reduction? Delivery improvement? Improvements in product or service flexibility?

Activities to ensure effective supply chain management

Sourcing strategy Vendor assessment (surveys, site visits) Supplier rating and qualification Supplier award programmes Use of new technology (for example, computer-supported collaborative working, advanced planning and scheduling) Cross or multi-disciplinary team working Supply base reduction.

Activities to ensure effective supply chain management (continued)

Joint supplier problem-solving team Supplier development 1 (Kaizen teams) Supplier development 2 (re-design of internal processes) Electronic data interchange Supplier associations (Kyoryoku Kai) Longer-term contracts.

Activities to ensure effective supply chain management (continued)

Partnership (win-win negotiation, partnering agreements) Lean supply (JIT, for example) Standards development Supplier tiering Cost analysis methods (VA, ABC, WLC, TCO) Cost management.

Responsibilities of first-tier suppliers

The management of sub-contractors Adopting a JIT philosophy Customer-dedicated staff who work in conjunction with the design and production team of the supplier Responsibility for warranty and end-user customer claims Research and development into technologies that are being applied to the suppliers product.

Session 6
Doing research and using technology

Learning outcomes
At the end of this session candidates will be able to: Assess the contribution that research can make to the organisation Give examples of the potential for research into supply markets Demonstrate the link to ongoing research and improvements in logistics Evaluate the potential for major business process improvements in organisations Give examples of improvements to the procurement function Make recommendations for the application of techniques to improve business process performance.

Sources of Secondary Data

Catalogues Trade directories Databases The Internet Trade journals Chambers of Commerce Government sources such as the Department of Trade and Industry, the Office for National Statistics. Banks Importers The Journal of the European Union Competitors annual reports News items Competitors promotional material Research centres, for example universities, professional institutions such as the CIPS, consultants.

Major research areas of interest

Purchased materials, products or services Major purchased commodities Vendors The purchasing system.

Relevant research areas (Miles, 1972)

Materials, commodities and services Purchasing policies and procedures Economic aspects Purchasing organisation Human resource aspects of purchasing Suppliers Inventory Negotiation Support tools Purchasing performance.

Information processing
Input DATA Output/input INFORMATION Output INTELLIGENCE

Value added Uninformed Minimum cost Total uncertainty

Value added Informed Maximum cost Less uncertainty Source: Hines

The knowledge age

Huge volumes of information now available Managers need to be selective and systematic As data is drawn from multiple sources, needs to be combined and analysed for it to be of value.

The Management Information System (MIS)

A system within an organisation that supplies information and communication services and resources to meet organisation needs.

Stages of system development

Business needs analysis Specification of needs Design & development System testing Implementation Acceptance & go live

Criteria for assessing the effectiveness of an IS

Information outputs (the benefits): Relevance to managers needs Accurate (or known accuracy) Supports decision making Timeliness Costs involved in running and maintaining the system.

The marketing research process

1. Identification of problems and opportunities 2. Formulation of research needs/ brief 3a. Selection of research agency/provider 3b. Creation of research design/choice of method

4. Collection of secondary data 5. Collection of primary data 6. Analysis of data 7. Preparation and presentation of research findings and recommendations Source: Wilson, A - 2003

Research brief
Background the organisation, its products and its markets Rationale Origin and development of research needed Decision areas to be addressed by research Objectives Definition of areas of problem/opportunity to be explored Outline of possible method Reporting and presentational requirements Time scales.

Research proposal - content

Background Objectives Approach and method Reporting/presentation procedures Timing Fees CVs Related experience and references Contact details Contract details.

Quantitative methods
Face-to-face surveys Telephone surveys Self-administered surveys Omnibus surveys Hall tests Placement tests Simulated test markets Panels.

Qualitative methods
Used mainly for Exploratory research New product development research Creative development research Depth interviews Group discussions Projective techniques.

Benefits of e-business
The potential to be available on a 24-hour basis the timeless availability of information may be critical to business operations. Allows for the aggregation of information from several sources and permits access from a single point of contact Collects information on all products throughout the supply chain process Allows managers to track transactions through audit trails and seek areas of greatest efficiency and cost savings Enables the business to customise its information flows Allows collaboration with supply chain partners and helps to manage risk and uncertainty.

Examples of automated systems

Production focussed processes which include electronic links with suppliers, includes Manufacturing Resource Planning (MRPII), Enterprise Resource Planning (ERP). The growth of collaborative relationships has transformed ERP into ERPII as the whole supply chain becomes involved and the system has moved from an internal system to an open webbased system. Advanced Planning and Scheduling (APS) Customer focussed process including Customer Relationship Management (CRM) The provision of internal employee services through the intranet.

Computer driven capabilities enable..

Intranet portals which allow employees to access all the information they need to do their job via a desktop application. Email Data exchange, including EDI Transportation product tracking Supply chain management Exchange platforms to share information and trade with supply chain partners Databases.

Benefits of procurement software

Cost reduction -- as a result of operational efficiencies through the reduction of search and process management. Integrates systems such as those used by major retailers enable goods to be re-ordered from the cash till of the retailer. Speed and efficiency -- in terms of ordering, delivery, reductions in inventory levels, improvements in warehousing and distribution logistics, and information flow that assists demand forecasting. Quality improvements -- because of the greater access to suppliers through the automated systems.

Levels of electronic commerce

Level one: One-way communication Email, file transfers and browsing. Level two: Database access Data-entry forms Status enquiries and purchases can be made via the Internet Data on suppliers and problem reports. Internet sites to match buyers and sellers. There has been some development of commercial e-marketplaces: Vertical e-marketplaces - specific industry Horizontal marketplaces - range of organisations in different market segments Supplier marketplaces - controlled by a particular supplier.

Levels of electronic commerce (continued)

Level three: Data Exchange EDI Level four: Sharing processes Supplier relationship management (SRM) Customer relationship management (CRM) Strategic supply management Supply chain collaboration Direct materials procurement execution Collaborative planning, forecasting and replenishment systems.

Business re-engineering
Rebuilding the whole organisation around processes as opposed to functional specialities. Begins with strategic review, then definition of core processes, reevaluation of competencies, skills and working practices. Dramatic, demanding and risky. Takes time.
8.4

process efficiency

Re-engineering versus continuous improvement

Continuous improvement Step change improvements through re-engineering

Continuous improvement

time

8.4

What is Benchmarking?
Analysis of your current position Identification of others who are performing better than yourself Learning how they achieve that performance Adapting your methods and practices to reflect what has been learned Implementation of change to achieve similar or superior performance
Benchmarking. Sylvia Codling

9.4

What to benchmark
Three important questions 1. What do we need to be good at? 2. What would significantly improve customer satisfaction? 3. What would significantly improve profitability?

9.5

Session 7
Negotiation

Learning outcomes
At the end of this session candidates will be able to:
Describe the negotiation process in commercial situations Compare and contrast different approaches to negotiation Identify cultural issues that would have to be taken into account in international transactions Assess examples of approaches that maximise the reward in negotiation Assess the risk in negotiations Design a negotiation campaign in line with business strategy Apply negotiating tactics to specific organisational objectives Relate negotiating strategies with ethical policy.

Steps to making negotiation easier

Paying attention to preparation Structuring the negotiation Managing the time-line Managing the information exchange Understanding the process taking place and the way that process links to other processes.

Considerations in planning
The supply market in terms of:
Competition Growth Geography Power

The procurement decision in terms of:

Purchasing risk Complexity

The relationship between the parties in terms of:

History and time-line The skill base of the negotiating parties

Critical variables in a negotiation

Power

Time

Information

Negotiation styles
Competitive Accommodation Avoidance Compromise Collaboration.

The meeting
Focus Empathise Make it easy for them to agree Work towards a win-win agreement.

Dealing with Tactics

Tactics that may be used include:
Good guy/bad guy Highball and lowball Bogey The nibble Chicken Intimidation Aggressive behaviour.

Options include:
Ignore tactics Discuss tactics Respond in kind Co-opt the other party.

Standard negotiating approach

Opening Exploring issues and inventing options Making offers Offering concessions Reaching closure Documentation.

Post-negotiation evaluation
How good was our preparation? Were our entry and exit points realistic? Did we follow and achieve our MILs? (MustIntend-Like) Did we make too may concessions? Did we maintain relationships? Did we close correctly and at the right time? Are all parties happy with the deal? Did the team perform well if not, what did we do wrong? How did we perform in the face-to-face sense; did we handle the situation well?

Impact on decision making

Market adaptability Taking on the competition Adding value through enhanced performance or value Achieving low costs through manufacture Delivering human resource objectives Establishing a link between manufacturing and marketing.

Ethics for purchasing

Purchasing staff are the representatives of the organisation in its dealings with suppliers Sound ethical conduct in dealing with suppliers is essential to the creation of long-term relationships and the establishment of supplier goodwill Purchasing staff are probably more exposed to the temptation to act unethically than most other employees It is impossible to claim professional status for purchasing without reference to a consideration of its ethical aspects.

CIPS Code of Conduct

The general benefits of having a code are the following: It provides guidance as to the cultural values of the business and the expected style of managers and employees It signals expectations of proper conduct to those dealing with the organisation It nurtures a business environment of open communications which is essential in building the sort of relationships necessary for flexible supplier response It prevents possible legal proceedings.

Session 8
Advanced negotiation techniques and developing supplier relationships

Learning outcomes
At the end of this session candidates will be able to: Assess the contribution of transactional analysis to negotiating styles Evaluate the psychology behind game theory Explain the techniques behind influencing skills Describe the importance of developing relationships within the organisation Give examples of how inter-organisational relationships can be meaningfully developed Explain the theory behind the establishment of collaborative and partnership agreements with suppliers Describe how a sound negotiating and influencing style can contribute to positive supplier relationships Demonstrate how skilled and effective negotiating can influence the outcome of minor disputes between suppliers Describe how a sound negotiating and influencing style can contribute to positive supplier relationships Give examples of how outside agencies can contribute to dispute resolution

Transactional analysis (Berne, 1966)

Parent-ego state Adult-ego state Child-ego state.

Contractual approach
Transactional analysis is a contractual approach. All need to agree: Why they want to do something With whom What they are going to do By when Any fees, payment or exchanges there will be.

BATNA
Best Alternative to Negotiated Agreement Also known as Fallback

MIL

Game theory
Definition Game theory is the study of the ways in which strategic interactions among rational players produce outcomes with respect to the preferences (or utilities) of those players, none of which might have been intended by any of them. It is the mathematical theory of bargaining.

Game theory
In many situations, you will have to determine your strategy without knowledge of what your rival is doing at the same time
Product design Pricing and marketing some new product Contract negotiation

Even if the moves are not literally taking place at the same moment, if your move is in ignorance of your rivals, the game is classed as a simultaneous game.

Game theory first move always an advantage?

Example: Procurement contracts:
Two firms are bidding for a procurement contract, which will be awarded to the low bidder There is a cost to preparing a bid Firm 1 chooses its bid followed by firm 2 Clearly it pays to go second and undercut the bid of the first firm.

Body language
Leaning forward when making a point - interested, wants to emphasise a point Avoiding eye contact - may be embarrassed, not telling the truth Arms folded, body turned away - defensive, no compromise, not interested Body turned towards you, leaning forward - interested, warming towards your comments Looking at a watch or window - wants to leave or avoid any further discussion Hands supporting head and leaning back - confidence Stroking nose regularly avoiding eye contact may be lying Good eye contact, fingers stroking face - interested in what you are saying
(Baily et al)

Influencing skills
Good influencers can Work collaboratively in changing environments, respond to pressure and achieve goals and objectives Establish rapport and gain buy-in, support, and commitment Motivate others to do more with less Dissolve or overcome resistance Create positive partnerships critical for success in the future.

Influencing skills model (Margerison-McCann)

Pacing Inquiry Diagnosis Summarising Leading Proposing Directing.

Collaborative working
Collaborative working tools Communities of practice Service level agreements Training.

Communities of practice
Communities of practice share information, insights, experience and tools about an area of common interest. This could be:
A professional discipline such as production engineering A skill such as machine repair A topic such as a technology, an industry or a segment of a production process.

Dealing with conflict

Conflict can be a problem: If it becomes disruptive If it takes away time and energy from the real task at hand Altered judgment if emotions run high Loser effects, if one party feels they are being exploited Future cooperation may suffer.

Potential benefits of conflict

Motivating energy Making underlying issues explicit Sharpening peoples understanding of real goals and interests Enhancing mutual understanding Stimulating a sense of urgency Discouraging engagement in avoidance behaviour Preventing dangerous and premature resolution problems.

Win-win strategies
(Johnson et al, 1975)

Define the conflict as a mutual problem Pursue joint outcomes Find creative agreements that satisfy both groups Use open, honest and accurate communication of group needs, goals and proposals Avoid threats Communicate flexibility of position.

Understanding the context of a negotiation

The supply market in terms of: Competition Growth Geography Power: Who owns the suppliers? What level of turnover do the suppliers have? What is their financial status? What proportion of their turnover does this contract represent?

Understanding the context of a negotiation (continued)

The procurement decision in terms of: Purchasing risk: What is the nature of the purchase you are making in terms of its level of risk, and level of expenditure? Complexity: How complex is the good or service that is being purchased?

Techniques to assist dispute resolution

Mediation Conciliation Adjudication Arbitration.

Session 9
Information flows and competitive advantage

Learning outcomes
At the end of this session candidates will be able to:
Assess the contribution to business efficiency of improved information and knowledge systems Show diagrammatically models of communication flows and the reduction of 'noise' Give examples of how computer technology contributes to speedier business solution flows internally and externally Evaluate the contribution of knowledge sharing to the long-term benefit of the business.

Achieving a competitive advantage through knowledge

Knowledge is contained in an organisations human capital When an employee leaves the organisation their knowledge leaves with them Knowledge management seeks to create a system for sharing knowledge and storing it for future use Explicit knowledge can be captured and protected patents and copyright Tacit knowledge is more difficult to manage.

Knowledge management

Adding value throughout the supply chain

Innovation which requires all those in the supply chain as well as the specialists within the organisation to be able to relate scientific discoveries with customer demands and expectations Quality involves everyone in the supply chain playing their part and understanding its importance to customer value and cost reduction Delivery requires everyone communicating about orders, capacity and potential bottlenecks The removal of waste needs good communication systems.

Communications model

Encode

Decode

Sender

Message
Feedback loop

Receiver

Coding a message
(Heltriegel & Slocum, 1988)

Relevancy -- Make the message meaningful and significant with careful selection of words, symbols and gestures Simplicity -- Put the message in the simplest possible terms, reducing the number of words, symbols or gestures Organisation -- Organise the message as a series of points to aid understanding Repetition --Restate the key parts of the message at least twice Focus --Concentrate on the essential aspects of the message.

Technology-driven systems
Supplier management relationship software E-procurement E-marketplaces E-tendering Reverse auctions Tracking contracts.

Session 10
Developing suppliers and a technological strategy

Learning outcomes
At the end of this session candidates will be able to:
Explain the importance of sophisticated extranets as an aid to information flows Give examples from organisational life of e-sourcing and e-ordering Assess the value to the efficiency of the organisation of automated payment and accounting systems Determine the contribution of technology to planning, monitoring and control of organisational operations Explain the contribution of ICT to specific operational advances within the supply chain. Specify areas of ICT contribution to knowledge management Explore the rationale for joint development of systems with suppliers.

Features of an extranet
The use of internet technologies and standards The use of web browsers Security Central server/repository.

E-procurement - benefits
Improved information flow and service Reduced transaction costs Increased speed and efficiency Removal of maverick purchases made outside the organisational contractual arrangements The ability to aggregate purchasing across the organisation.

E-procurement key elements

E-procurement now accounts for a significant amount of MRO (maintenance, repair and operating systems). Hubs, where several networks can be connected together Exchanges, a B2B website where buyers and sellers meet to transact business Marketplaces, vertical or horizontal e-markets, either supplier/purchaser owned or neutral E-catalogues facilitate real-time, two-way communication between buyers and suppliers and allow for improved vendor relationships through improved vendor services and information to purchasers E-auctions Reverse auctions.

Automated processes
EDI Electronic Data Interchange Bar-coding EPOS Electronic Point of Sale Automated payment schemes for example BACS, CHAPS.

Using technology to collaborate

Video teleconferencing Data sharing Document sharing Shared whiteboards Chat Instant messaging On-line presence (for example, ICQ, Ding) Bulletin boards Threaded news and discussion group systems Email Mailing lists Voting/polling Virtual communities Virtual reality Voice over Internet protocol (VoIP).

Enterprise resource planning

Shared systems
Benefits Control Communications Risk Understanding Buy-in Planning. Concerns Locked-in Implementation Areas of responsibility Flexibility.