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DAY THREE: SRM For Supply Management Professionals

Posted 05-05-2009 at 10:43 PM by 94th Annual
In their presentation, “The 7 Secrets of Strategic Sourcing,” R. David Nelson, C.P.M., senior advisor for the David Nelson Group; and Ken H. Killen, MBA, Ed.D., C.P.M., consultant for Killen Enterprises, discussed how to optimize your supply chain through supplier relationship management (SRM).

The following examines seven leading-edge SRM strategies that will enhance relationships with key suppliers and streamline the supply chain.

1. Form a team or teams (depending on resources you have) to carry out your supplier development program. Build commodity teams that include members from other business functions, such as HR and IT. A strategy for each commodity should be developed that indicates the expectations over the next few years. The expertise of members from other business units can be invaluable as specific supplier issues arise.
2. Make a Pareto Analysis of your supplier base to determine the 20 percent of the suppliers that supply 80 percent of your annual spend. According to the presenters, “When making a Pareto Analysis, one should combine like categories or commodity groups so that you can consolidate like items such as castings or electrical components. In addition, if the same part is carried in inventory under different part numbers then the parts should be renumbered so that only one part number represents all of the items.”
3. Meet with these key suppliers to see which ones seem to be the most interested in cooperating with you in your upcoming supplier development effort. It is imperative to meet with the CEOs of each major supplier to show your commitment to the relationship. Impart that the relationship will be mutually beneficial — both sides will profit from the supplier development efforts. Meet with key suppliers once per year to review the previous three year’s goals and performance, as well as establish the goals for the next three years.
4. Using a supplier matrix, reduce the number of key suppliers for each category to one or two where possible. When scoring a supplier selection matrix, use “excellent,” “needs improvement,” etc. because numbers may not carry the same weight. To move toward a negotiating rather than a bidding process and build a strategic relationship requires a drastic reduction in key suppliers. A realistic partnership includes: choosing the best suppliers, reducing the supplier base and making a friend.
5. Analyze the key suppliers to determine what and how much they need to improve. To know what your suppliers need and where challenges exist, conduct ongoing supplier plant visits to meet with the shop floor workers, engineers and organization leaders. Communication is critical.
6. Establish objectives, timelines and metrics for each. For every major supplier, there should be an up-to-date strategy to ensure everyone knows the game plan. Again, every major commodity and category should have a strategy that is shared with your suppliers. Who should create this strategy? Surprisingly, not the CPO but those who carry out the strategy such as buyers, purchasers, engineers and others in the field.
7. Have your team work with the suppliers to meet the objectives. “This may sound simple, but it’s profound,” says Killen. Collaborate with suppliers to develop goals and objectives, and help them achieve those goals and objectives. Partner with the supplier as you both work toward perfect quality.
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