To understand key factors that drives relationship between subcontractor & contract provider
To study futuristic potential of supply chain process outsourcing industry.
Improving Supply chain efficiency by managing relationships internal to the organization A Map to Stakeholder Buy-In When your Procurement team attempts to influence business partners, whats the typical reaction? Do the stakeholders quickly adopt the proposal or do you meet strong resistance and endure difficult conversations? Rather than go into discussions blind, Procurement at one company prepares ahead of time by mapping out business partners priorities and matching them with Procurements capabilities to better engage stakeholders in innovative projects. In Brief: A recent poll of finance directors in the UK and Ireland found that 58% of respondents said internal business partners had resisted complying with procurement practices, believing it would harm rather than help their department. Furthermore, 46% of respondents said their business discussed procurement at board level either never or just once a year. The survey also found that just 21% of respondents think of their suppliers as strategic partners. Our View: You may be missing out on the full value of sourcing initiatives if business partners resist participating. Improve relationships with internal stakeholders by showing them how Procurement works in their best interest. Gain further trust by engaging them in strategy development: you'll not only get to know what's most important to them, but also create a strategy they'll be eager to participate in.
How We Can Help: Learn how Sun Chemical changed business partners into advocates by involving them early in the project idea development process. Discover how Aviva's Procurement department established a trust-based relationship with internal business partners. Attend one of our upcoming Internal Relationship Management Bootcamps to learn how to build and maintain relationships with internal stakeholders. customer relationships and cross-functional integration. Firms seem to be better focusing on their customers outside the firm and shoring up the emphasis on cross-functional processes inside the firm. ENCOURAGING EVIDENCE OF COLLABORATION Outstanding examples of collaboration have finally begun to emerge. What will it take to get to the next level in collaborating with partners? Before answering that, lets reflect for a moment on the progress made. The 2000 study referenced above noted that many firm-to-firm supply chain relationships were problematic. The relationships were characterized by an overall lack of trust between the parties, limited or sporadic information sharing across the organizational interface, and the pursuit of short-term, firm-specific benefits at the expense of partners economic interests. To measure the effectiveness of a firms collaboration, the original study used a 10-point scale. A score of 1 signified overt competition or hostility with a lack of constructive relational behavior between the collaborators; a score of 10 indicated full-scale partnering with focused activities and reciprocal accountability for reaching collaboration outcomes. At that time, overall supply chain collaboration across industries averaged between a 2 and 3. Prospects for successful supply chain integration were bleak because the average relationship was adversarial and firms were more likely to offer lip service rather than actually practice collaboration. But the authors predicted that by 2010 a typical collaboration across industries would score much higher. The current (2012) data collection confirms that prediction. Firms across industries range between 5 and 9.3; they average 7.1 on the same scale. This increase offers encouraging evidence that contemporary firms are using collaboration to reduce work duplication and redundancy, streamline work flows and processes, and communicate better around shared objectives. A THREE PART BEST PRACTICE MODEL Still, progress toward strategic collaboration within supply chain relationships has proven difficult for many companies, particularly if it requires changes to organizational culture and structure. If firms can improve on a limited set of identified behavioral drivers, collaborative behavior could potentially be leveraged further with significant impact. Many of the issues that caused some CPFR (collaborative, planning, forecasting, and replenishment) implementations to fail are still with us today. Future collaboration can successfully avoid these traditional challenges by using data analytics to improve service and grow revenue, to cut joint stocks to reduce capital investment and carrying costs, and to improve overall margins. Our best practice model indicates three initial drivers to facilitate a move toward better collaborative relationships. First, both parties need to address collaborations potentially negative aspects. Procedures should be established early to resolve potential disputes, unforeseen issues, and the potential dissolution of a dysfunctional or no longer useful relationship. Second, to share risks and rewards, both parties must develop supporting organizational and inter-organizational structures. This includes work rules, leadership roles, and guidelines that both parties will follow about how responsibilities, risks, and rewards will be shared. Third, mutual trust must be encouraged for strategic and operational integration. This includes establishing shared values and vision. In that shared vision, both must prioritize long-term viability to serve the end customer even when that requires a sacrifice of optimal short-term results. Considered together, these three groupings of relational aspects are critical to the success of collaborative ventures across businesses. Over the last decade they helped move collaboration beyond that initial low score. Integrated Information Sharing Rather than simply create generally supportive organizational and inter-organizational structures, collaborating firms need to integrate technology to share real-time information. The value of firm-to-firm information sharing in facilitating supply chain integration is well established. As technology has become easier to acquire and develop, it has become a necessary but insufficient criterion for supply chain success. Accessing technology does not necessarily create value. Partners must analyze the data for opportunities and threats to shared goals; then they can pre-emptively solve problems. An information sharing culture must be developed to support the technology. A venture is likely to underperform if users on both (all) sides are unwilling to enable openness and transparency via the selected technological solution. If an information sharing culture can be developed, collaboration capabilities and benefits are likely to increase. For example, when a key supplier for road construction firms recognized significantly greater demand for its materials along with pressure to better execute on-time, low-cost deliveries, it sought a collaborative solution. The supplier collaborated with a leading technology provider and a long-haul carrier. Together they customized a transportation management system to minimize road miles (and therefore fuel expenditures) while also minimizing how many underpasses and narrow-laned and/or urban roads would be used. The solution worked because the customer firms were willing to estimate job times and locations well in advance. They also shared their forecasts for material requirements. Collectively they created a mutually beneficial venture. Procurement Aims for Improved Stakeholder Relations in 2013 (Supply Management, 8 January 2013) In Brief: Aside from cost-cutting, Procurements top priority for 2013 is to develop positive relationships with stakeholders, according to a new poll. The second-highest ranked topic was managing supplier relationships; the issue with the least votes was risk management. Other concerns identified included sustainability and having a say in new product development. Our View: Respondents to a CEB poll of procurement executives' top priorities for 2013 felt similarly: they told us the topic most important to them in 2013 was working with business partners to increase Procurement's impact. Our research shows that companies relinquish approximately 8% of savings expected from strategic sourcing plans due to a lack of participation from business partners. To protect value, make stakeholders partners in procurement initiatives. First, speak to internal stakeholders to determine their priorities. Then, develop a cost-saving sourcing plan based on their feedback. Finally, explain your strategy to partners: if you can show them how your cost-reduction techniques fit in with their priorities and help them achieve company objectives, they'll be more likely to support the procurement function.
How We Can Help: Use our Business Alignment Tool to identify areas of disconnect between Procurement and your business partners. Discover how British Airways developed a diagnostic to manage stakeholder feedback. Or check out our guide to reframing problems based on the different temperaments of your business partners. Procurement as Internal Consultant (Spend Matters, 17 April 2013) In Brief: More than 35% of procurement executives see their role in the company as that of an internal consultant, with the choices financial expert and relationship broker making up the top three selections, according to a new survey. Procurement leaders should balance their own knowledge and ideas with those of internal stakeholders and use a collaborative rather than heavy-handed approach to determining solutions, this writer says. Our View: To better collaborate with internal stakeholders, first identify the right people to approach. Typically, Procurement approaches business leaders who have expertise in the subject area and the authority to approve projects, but aren't inclined to work with Procurement to develop ideas. Instead, Procurement should target high-potential managers who may not be able to approve projects on their own but who are knowledgeable in their area and are excited about developing transformative ideas. Once you have these managers on board, host joint idea-building workshops. Then, participants can return to their functions and advocate for the proposals they took part in creating.
How We Can Help: Learn how Procurement at one company targets high-potential managers to get buy-in for the development of transformative new projects. Visit our topic center on improving internal relationships for more ideas. Involve Stakeholders in Category Strategies (Supply Management, 12 March 2013) In Brief: Procurement often divides its staff by category, which can be difficult for internal stakeholders who manage processes that fall within multiple categories, according to this article by an executive who collaborates with Procurement in his company. Procurement should view stakeholders as partners to better engage with them, he says. Our View: "It's not that I can't see the benefit of the savings projects that Procurement suggests. I just don't see a link to my business's top five strategic objectives." If this quote from a business leader from one of our member companies sounds familiar, equip your category managers with the tools they need to manage competing priorities. Develop worksheets to evaluate how well proposed projects fit business objectives, and include factors such as strategic alignment, complexity of relationships, and long-term value potential. Consider the scores of projects together and then prioritize those that best match business needs.
How We Can Help: Learn how this insurance company ranks business needs and identifies the trade- offs required to implement projects. Discover how one company matches sourcing projects with business priorities. Take a look at this company's method for prioritizing projects, which includes offering stakeholders tips on how to move their plans to the top of the queue. Innovative Security System Prevents Wine Theft (The Grocer, 13 April 2013) In Brief: London wine store Hedonism Wines has worked with American retail security company Checkpoint Systems to create a special security tag, which allows the shop to display expensive types of wine while preventing damage to the bottle. Our View: Suppliers can be a great source of innovation, but how do you know which suppliers to work with on new ideas? It's not necessarily your strategic suppliers you should be turning to. Instead, choose suppliers who have a passion for innovation. One member company hosts innovation training sessions for suppliers interested in developing new projects. At the end of the session, suppliers receive an optional "homework" assignment, which asks suppliers to come up with possible solutions to one of the company's needs discussed in training. The company then looks at which suppliers completed the assignment as well as the quality of the solutions proposed to determine which suppliers to work with.
How We Can Help: Discover how one company identifies the suppliers most likely to produce high- quality innovation ideas. Use this "back of the envelope" assessment to estimate the potential costs and benefits of working with a supplier. Take a look at our topic center on collaborating with selected suppliers for more resources. To study supplier collaboration tactics
Boost Your Supply Chains Effectiveness Through Segmentation (EBN, 2 January 2013) In Brief: More and more companies are adopting supply chain segmentation strategies, according to this writer. First-tier suppliers can sometimes require specific strategies aimed at evolving the relationship, she says. Although some procurement professionals may believe they dont have time to create customized approaches for each supplier, specialized strategies can actually be more effective than one overarching plan. Our View: Although most procurement organizations have segmentation models, only a few use them to full potential, CEB research has found. To effectively segment your supply base, first determine your company's most critical suppliers. Then, modify your strategy to focus the majority of your time on these suppliers. If resources are scarce, make sure you're not spending too much time on low- value suppliers.
How We Can Help: Review our supplier segmentation toolkit to determine which model is best for your company. Use our supplier segmentation tool to identify your most critical suppliers. Or for more on allocating resources and creating strategies, check out the replay of our supplier segmentation webinar. The best companies have a standard set of criteria and a definitive process for segmenting their suppliers. This allows Procurement and others across the business to spend more time on the suppliers that matter most. Set up clearly defined roles for your function, your suppliers, and your business partners in your segmentation model. Although most companies segment suppliers by spend, criticality, or risk, consider adding other criteria if they fit your business objectives: other choices our members use include value potential, capacity, and innovation.
(CEB, 30 May 2013) The purchasing arm of the UKs National Health Service has helped one of its suppliers to cut transportation and packaging costs by 63% as part of a new pilot program which will help NHS purchasers reduce their own costs, too - a good example of how leading Procurement organizations can turn to collaboration with suppliers, rather than just hard-line negotiations, to add value to the business.
Rewarding Suppliers for Going Above and Beyond Supplier summits and supplier awards can be a great way to recognize suppliers for providing value beyond just whats dictated in a contract. Aprils Spot Benchmarking Survey explores how common these events are and what types of awards we give. Participants will receive results in a few weeks but everyone else will have to wait until the Summer to see the data.
Reduce Risk Through Supplier Improvement (Business2Community, 18 March 2013) In Brief: To better prepare for supply chain risk, Procurement should collaborate with suppliers, develop resilient supply chains, and be able to quickly identify and deal with risks as they appear, this writer says. Our View: Another way to reduce risk is by tracking and measuring your suppliers' performance to help them improve. Select a broad array of metrics for a complete picture of your suppliers' overall performance across categories such as cost, cultural fit, delivery, quality, service, and innovation. Consider using a total cost analysis for key suppliers to help you and your business partners gain insight into the costs and benefits of working with suppliers. One member, whose company used a total cost impact scorecard, said suppliers reacted positively to the scorecard: "They look at me and say, 'You're putting a value on my performance in total rather than just my invoice price,'" the member said.
How We Can Help: Learn how one company develops customer-focused metrics. Take a look at our compendium of supplier performance metrics for inspiration. Visit our topic center on improving supplier performance for more resources. Segmenting Suppliers by Risk (Outsourcing-Pharma, 3 April 2013) In Brief: British pharmaceutical company GlaxoSmithKline plans to map risks associated with key suppliers, conducting audits to collect information. Our View: To segment suppliers by risk, consider two factors: how important the supplier or its product is to your business and the amount of money you spend on that supplier. Rank suppliers by how highly they register on either one of these factors - not necessarily both. Better define a supplier's business impact by thinking about aspects such as the uniqueness of a material or service supplied, willingness to collaborate on cost efficiencies, and potential innovation opportunities. Your last tier should include suppliers who are easily replaceable. When the potential risks outweigh the benefits your company receives from the relationship, it's time to think about working with a different supplier.
How We Can Help: Take a look at our Supplier Segmentation Toolkit for different approaches to segmentation. Review our research on your peers' supplier segmentation practices. Replay our webinar and read our work on using segmentation results to develop supplier strategies. Setting Clear Expectations in Supplier Relationships (Industry Week, 28 March 2013) In Brief: Clarity is key when working with suppliers to prevent risks that could damage your companys reputation, this writer says. Companies should first determine exactly what they want in a supply relationship, from costs to logistics concerns. They should then incorporate these needs into a document that clearly sets out expectations for suppliers, he says. Our View: Start developing a plan for supplier partnerships by identifying expectations from both your company and your suppliers. Encourage business partners and suppliers to share their concerns, reassuring them that you will use this information only to improve the partnership. You could consider factors such as the metrics your company will use to measure supplier performance. Then use this list to measure current behaviors against ideal behaviors; boil your list down to a set of realistic activities that will positively affect the partnership. Monitor satisfaction with the plan during times when your company and your suppliers are likely to be highly focused on the relationship, such as at the start of a new project, for more meaningful insight.
How We Can Help: Learn how one company created a model outlining expectations on both sides for its relationships with suppliers. Take our Voice of Supplier survey to benchmark your supplier relationships and discover how key suppliers view your company. Sourcing Cost-Cutting Ideas from Suppliers (The Telegraph, 23 March 2013) In Brief: British textile design company Laura Ashley has asked its suppliers to reduce their prices by 10% on future orders, as well as orders already placed but not yet fulfilled. It means we end up losing money on work wed already negotiated prices for and agreed with our own suppliers, one supplier to the company said about the request. The company said it had long-term relationships with its suppliers and holds ongoing positive conversations with them. Our View: By helping suppliers reduce costs in their own supply chain, Procurement can trigger a price reduction that will benefit your company, too. One member company creates "should-cost" models to gain insight into the costs of each step of the supply chain. It then uses this model as a base to launch a conversation with its suppliers: they can provide details of their own costs and can help you evaluate potential alternative solutions.
How We Can Help: Discover how one company uses a should-cost model to identify opportunities for savings. Learn how Kodak deepens its relationships with suppliers by tracking and evaluating their ideas. Take a look at our topic center on procurement-driven cost savings for more cost-cutting ideas. Working with Suppliers to Minimize Sub-Tier Supplier Risks (CEB, 10 June 2014) A number of US companies revealed their products may contain North Korean gold, potentially violating US sanctions against the country, according to an article in the Wall Street Journal. The discovery was prompted by regulations requiring businesses to investigate their supply chains for the potential use of conflict minerals, according to the article. To reduce risks in the lower levels of their supply chains, Procurement executives should keep an eye out for red flags that signal problems, but also consider what unintentional effects Procurements actions can have throughout the supply chain such as an unexpected change in order leading a supplier to cut corners with its own suppliers. This post offers advice on tracking and minimizing your exposure to these risks. Thought Leaders
Collaboration Preferred for Procurement (Supply Management, 2 January 2013) In Brief: Four in five procurement executives reported problems stemming from suppliers failing to deliver on promises, according to a recent report. But just over 30% of buyers preferred to work with suppliers to deal with the shortage, compared to 25% who would rather go to a competitor. Participants also revealed mixed feelings about their suppliers prices, with 67% satisfied with the cost. Our View: How do your suppliers see you? By becoming a customer of choice, your company can earn itself a place at the top of the list in times of shortage. Consider the priorities of both your company and your suppliers. Then, clearly define expectations and behaviors from each side. By understanding how Procurement's demands affect suppliers, you can work to decrease your cost-to- serve and become a customer of choice.
How We Can Help: Take our Voice of Supplier survey to see your company from your suppliers' perspectives. Review our webinar to learn how to become a customer of choice. Discover how Micron set behaviors and expectations for itself and its suppliers by developing an ideal partnership model.
Procurement staff should make the most of the limited opportunities they have to connect with stakeholders as many are already disinclined to work with Procurementespecially on projects outside the functions traditional purview. This blog post describes two Procurement organizations techniques for effectively communicating with stakeholders when delivering presentations and interpreting informal feedback. Encouraging Information Sharing (Industry Week, 5 April 2013) In Brief: Companies should work closely with suppliers to make their supply chains more flexible, these writers say. Encourage suppliers to give you access to company information so you can better evaluate the reliability of your supply chain, they say. Our View: Suppliers may be wary of handing over their data and concerned about how you'll use it. Build or rebuild - trust by explaining to suppliers how you'll use their information. You could develop a "Supplier Bill of Rights," setting out what your company will do (use the information to assess stability, share any conclusions drawn, protect data securely) and what you won't do (drive down prices, suddenly switch suppliers). Then, when you make a request for information, reference this document. Suppliers will be prepared and theyll be more likely to find your statements credible.
How We Can Help: Use this sample introductory letter and "Supplier Bill of Rights" to build credibility with your suppliers. Learn how this chemical company increases supplier trust by demonstrating how its internal incentives promote data security. Discover how this other company encourages information sharing by providing detailed financial feedback to suppliers. Encouraging Positive Partnerships (Spend Matters, 18 March 2013) In Brief: Procurement executives should seek to foster positive, collaborative relationships with suppliers, this writer says. Companies that favor a little understanding over hard-line negotiations can become customers of choice, which is a better long-term strategy, he says. Our View: Look to your company's relationships with suppliers to target areas of improvement to become a customer of choice. Are there any actions you - or your business partners - may be taking that negatively influence your suppliers? Think about issues such as fines charged to suppliers, last- minute changes to orders, and forecast accuracy. Identify these factors to reduce your cost-to-serve and improve your standing with suppliers. By doing so, you'll receive standout innovation opportunities, top performance, and access to scarce resources.
How We Can Help: Review our research on becoming a customer of choice, and take a look at our work on partnering with suppliers. Use this diagnostic to identify potential drivers of high cost-to-serve with key suppliers. Encouraging Supplier and Stakeholder Collaboration (Supply Management, 10 April 2013) In Brief: Procurement executives are increasingly relying on supplier knowledge and innovation in their roles, according to a new survey. Also, 67% of buyers reported internal customer satisfaction as the primary measure of their performance, the survey said. Our View: To develop innovative projects with your supply base, guide suppliers and internal business partners through the collaboration process. First, develop a database to track new projects so you can easily compare the performance of specific suppliers or business units. This will help you identify those that need extra guidance - for example, perhaps a certain project is taking a long time, or a certain supplier is producing only a small amount of ideas. Procurement can then step in for targeted coaching, using information from the database to demonstrate how peers complete projects. One member company that developed such a program implemented 71% more innovation and collaboration initiatives per year since the first full year of tracking.
How We Can Help: Learn how one company tracks and analyzes collaborations between suppliers and business units, providing advice when necessary. Discover how Tetra Pak facilitates supplier partnerships by producing a simple document that captures the relationship's priorities, aimed at both stakeholders and suppliers. Measuring Supplier Partnership Value (CEB, 6 March 2014) Suppliers are a natural source of innovation for Procurement functions seeking to add value to the business. One American automaker, for example, is currently attempting to build better supplier relationships with a program that evaluates the performance of suppliers and offers new opportunities to those that rate highly, according to Automotive News. Many Procurement functions miss out on chances to add value because they assess suppliers based only on what theyve asked of them in the past. One company developed a metric to evaluate vendors ability to add value, which helped Procurementand business partnersdetermine which suppliers are the best candidates for future partnership opportunities. Measuring the Value of Supplier Innovation (CEB, 20 February 2014) Many Procurement executives dont invest in supplier innovation because they cant credibly demonstrate to stakeholders the value these projects add to the business. Procurement at one company developed a supplier contribution metric to assess the value of these projects, building trust with business partners by asking them to confirm the suppliers contribution.
Partner With Suppliers for Cost-Saving Collaborations (Sourcing Innovation, 3 February 2013) In Brief: This tongue-in-cheek article presents nine rules for stifling supplier innovation: items such as Be suspicious of ideas that come from your suppliers, If a new idea comes in from a supplier, immediately put it out to the rest of your suppliers to see if they can provide it cheaper, and Sit on ideas for as long as possible. Instead, to encourage innovation and become a customer of choice, the author recommends following these nine counterpoints to the rules. Companies interested in supplier innovation should embrace behaviors like sharing information with suppliers so they can come up with better ideas and encourage business partners to work with suppliers on new ideas. Our View: Telling suppliers no doesnt necessarily curb innovation; rather, its clarity that suppliers are looking for: "Suppliers prefer 'yes,' but would rather have a hard 'no' than an indefinite 'maybe,'" a member told us. Encourage your suppliers to participate by setting up a user-friendly system to capture their innovations. Once suppliers have submitted their ideas, provide them with clear and timely feedback around your decision. Savings through supplier innovations can be substantial: our research shows companies can save an average of $100 million-200 million through collaboration with suppliers.
How We Can Help: Discover how Kraft works with business partners and suppliers to manage innovation opportunities. Use Whirlpool's template to help suppliers communicate their innovations and the potential benefits - to your company. Learn how HP created a strategic supplier development team to encourage better collaboration initiatives. Partnering with Stakeholders: The IT Point of View (Supply Management, 11 December 2012) In Brief: IT should partner with Procurement to cut costs, glean innovative ideas from suppliers, and achieve business objectives, says this CIO. IT needs collaborators, rather than just suppliers, and Procurement can use its expertise to communicate with vendors, he says. The writer adds that these improved supplier relationships have changed his perceptions of Procurement, saying that Procurements cost-saving techniques combined with ITs practice knowledge have led to a more focused and cost-effective supply chain. Our View: Do you face resistance from business partners in executing category strategies? If so, reexamine these strategies with an eye towards uncovering the needs of your partners. Empower your category managers to discover your business units' top priorities; then, use these objectives to develop comprehensive category management strategies whose value stakeholders will understand. A lack of strong relationships can cost you: poor alignment with business partners can result in a loss of nearly 8% of projected procurement savings. "This process has given us an avenue to support other business areas. We are starting to see benefits beyond what we expected. We're no longer seen as 'order processors,' but as consultative and analytical partners, said a member whose company implemented a priority assessment system.
How We Can Help: Learn how Hartford assessed business stakeholders' priorities to create robust category strategies. Learn how Nike reframed business partners' problems to change perspectives and encourage collaboration. Check out our internal relationship management topic center or register for one of our 2013 internal relationship management bootcamps for more on working with your business partners.
Capturing Suppliers Process Improvement Ideas (Supply Management, 28 March 2013) In Brief: Fifty-two percent of procurement executives said they get more cost-saving ideas from their suppliers than they did two years ago, according to a recent poll. Our View: Suppliers can be a great source of new ideas - even in areas you may not have previously considered. Consider involving suppliers in your cost-cutting efforts by focusing on process improvements. One member company invites selected suppliers to walk through a product's life cycle from the time the company receives goods from a supplier to the time the finished product leaves the facility. Suppliers take notes as they go, noting inefficiencies that can be easily eliminated for minimal cost: "This isn't a big formal process, and you don't need to be a lean manufacturing company to implement the methodology," a member from the company said.
How We Can Help: Learn how one company asks its suppliers to help identify potential cost-saving process improvements. Review our resources on collaborating with suppliers on innovations and cost- reduction ideas.
Improving supply chain performance through collaborative & relation building approach