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Learning, Influence and Persuasion - Key Features of Leading Supply Management Organizations

Author(s):

Vic Van Hul
Vic Van Hul, Vice President, Supply Management, SCA Raw Materials and Logistics, Excelsiorlaan 79 - B1930, Zaventem, Belgium, +322 715 4819, Vic.Van.Hul@RML.sca.se
Peter Evans, Ph.D., FCIPS
Peter Evans, Ph.D., FCIPS, Managing Partner, ADR International Purchasing Consultants (www.adr-international.com), Wallingford, United Kingdom,+44 01344/303078, peter.evans@adr-international.com

85th Annual International Conference Proceedings - 2000 

Abstract. Many multi-national businesses are struggling to establish Purchasing and Supply Management arrangements, which provide the cutting edge of competitive advantage. The need to change and adapt as technology and supply markets continue to develop, requires a strong commitment to be "best in class" in these areas.

In this session we shall describe a comprehensive approach to designing and implementing a major change program in a complex, multi-cultural environment. We will discuss the 4 key pillars of Best Practice Supply Management. These processes, practices, people and priorities required for success will be reviewed in some detail.

Throughout the presentation we will be referring to practical examples experienced in the case study represented by SCA's Supply Management Excellence program.

The Opportunity. Improving Supply Management capability can provide enormous benefits to any company. As well as the obvious cost reductions (from reducing prices paid to suppliers); significant extra value can be delivered by suppliers in a host of different ways. Technical support, access to innovation, creative logistics schemes, co-development of new products, problem solving and analytical capability are just a few of the areas where this extra value can be realized.

We describe ways of identifying, targeting and delivering these benefits without the need for significant extra resources. The benefits are significant, measurable and much appreciated by the business in today's tough commercial environment.

Objectives. Three key objectives of this session are:

  1. To provide a detailed description of "best practice" Supply Management.
  2. To describe a change management process together with processes and tools to maximize the rate of change.
  3. To demonstrate the use of Force Field Analysis in support of Supply Management.

Supply Management Options. Supply Management is considerably broader in scope than traditional Purchasing. We would describe the four key activities of Supply Management as follows:

  • Developing a long term sourcing strategy for each major category of spend;
  • Selecting a supplier base to execute the agreed strategy;
  • Managing the supplier base to deliver the required incremental value;
  • Continually modifying the strategy and tactics as technology changes and supply markets evolve.

We believe that Best Practice Supply Management is supported by the "Four P's" shown in Figure 1. We will discuss each of these pillars in more detail below.

Figure 1: "The Four P's" - Figure 1 is not available in text-only version of this article.

We will be discussing the options in Supply Management, which are illustrated in the chart in Figure 2: each of the options is described in summary in Figure 3.

Figure 2: Supply Management Option - Figure 2 is not available in text-only version of this article.

Figure 3: Supply Management Definitions

  • Business Driven Source Planning: Focused on getting the purchasing process and the supply base to make a substantial contribution to key business aims and objectives
  • Business Driven Supplier Account Management: Focused on managing key suppliers for substantial value and / or cost improvement, aligned to business aims and objectives
  • Commodity/Category Management: Focused on reducing cost and continuously improving service and quality
  • Tactical Cost Management: Focused on driving down price while not impacting quality or service.
  • Transactional Purchasing: Focused on efficient processing of purchasing transactions.

Processes. A strong and clearly defined set of processes is required for long-term success in Supply Management. We describe a process to gain TACTICAL CONTROL over the purchased portfolio in the short-term. This ensures that the appropriate use of the four types of leverage will produce cost improvement in the 30 days to one-year time frame.

In the longer-term the aim is STRATEGIC CONTROL which will be achieved using the Source Planning Process as described in Figure 4. It is the development and implementation of the Source Plans that delivers the extra value and competitive advantage.

Figure 4: Source Planning Process - Figure 4 is not available in text-only version of this article.

Practices. The extensive use of leverage and the execution of source planning will require the availability and deployment of a wide selection of basic and advanced tools, techniques and practices for Supply Management. Figure 5 provides a listing of appropriate tools, practices and techniques for different stages in the process.

Figure 5: Progressive Supply Management Tools, Techniques and Practices

Progressive Supply Management Tools, Techniques and Practices

Sourcing Strategy Development

  • Identifying business needs
  • Sourcing history analysis
  • Market analysis
  • Supplier analysis
  • Supply chain analysis
  • Technology analysis
  • Risk analysis
  • Option generation & evaluation

Supplier Strategy Development

  • Supplier analysis
  • Technology analysis
  • Risk analysis
  • Option generation & evaluation
  • Constituency analysis
  • Consensus sourcing
  • Supplier appraisal
  • Supplier development

Post Contract Supplier Management

  • Relationship assessment
  • Relationship management
  • Key supplier development
  • Managing continuous cost improvement
  • Managing continuous value improvement
  • Developing performance measures
  • Managing performance reviews

Supplier Selection & Contracting

  • Supplier analysis
  • Negotiation planning
  • Strategic negotiation
  • Performance contracting
  • Principled pricing
  • Incentivisation
  • Contract planning
  • Contract drafting

Price & Cost Control

  • Supplier analysis
  • Negotiation planning
  • Tactical negotiation
  • Performance contracting
  • Price list analysis
  • PPCA
  • Price forecasting
  • Target setting for price

Competitive Leverage Activity

  • Portfolio analysis
  • Creating competition
  • Conditioning & information control
  • Tendering & enquiries
  • Tender enquiry & bid analysis
  • Volume leverage
  • Innovative pricing
  • Market intervention

People. The implementation of a major change program in Supply Management requires a significant upgrading in the skill levels and capability of all people working in Supply Management. Figure 6 shows the Learning Process.

Figure 6: The Learning Process - Figure 6 is not available in text-only version of this article.

There is a need to train and develop the large numbers of people who interface with suppliers and influence the specification of the equipment, goods and services to be purchased. We will describe the need to influence people with different attitudes to change (the "resisters", "supporters" and "pretenders".

Priority. A successful Supply Management Initiative will need to be given high priority by management at all levels. The old adage "there is no such thing as a free lunch" holds true in Supply Management.

We discuss the need for extensive internal communication at all levels of the organization. It is imperative to alert senior management to expect significant increases in value from their supplier base. Of course, there is an equivalent need to increase communications with suppliers and prospective suppliers. Another important aspect is to recognize and reward those individuals whose attitudes, efforts and actions ensure progress and the success of Supply Management.

Case Study. SCA is an integrated paper company that produces absorbent hygiene products, corrugated packaging and graphic papers. It is headquartered in Sweden with its main markets in Western Europe. The total 1998 sales was 61 billion SEK (about $7 billion) with some 200 locations in 30 countries and 32,000 employees.

SCA is a company growing organically and by acquisition. In 1997 it set up a Raw Materials and Logistics Division (SCA RML) to exploit synergies across the company.

Supply Management is one of the four networks of SCA RML with a clearly defined mission across the company:

  • To present an agreed single agenda to suppliers
  • To reduce the total cost of purchased materials, services and equipment at all locations
  • To increase the value delivered by suppliers

The "Supply Management Excellence" program was designed, developed and launched in early 1998. This development led program has addressed all the elements of Best Practice Supply Management described above.

A major feature has been the deployment of cross-functional teams to involve the required "experts" in the Supply Management processes. This has the additional advantage of "borrowing" extra resources for Supply Management purposes.

Strong support has been received from SCA senior management. This group is now much more conscious of Supply Management in their business planning and performance improvement activities.

Key Learning Points. These can be summarized as follows:

  • Involve senior and middle management in the basic training
  • Implicate the entire organization - build critical mass
  • Cross-functional working is mandatory
  • Quick successes build confidence
  • Communicate the message (over and over)
  • Continually review expectations and upgrade
  • Support local units across the company
  • Provide an effective communication network across the company
  • Make sure new employees are trained and made aware of the program
  • Results speak louder than words!

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