BIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYOctober 8-9, 2012

Crowne Plaza, Foster City, CA

Strategic Management of Suppliers

Maintaining Efficient Manufacturing Options

• Share the rationale for Strategic Supplier Management (SSM)

• Define an approach for SSM

• Illustrate tools that can be used for SSM

Session Objectives

Strategic Supplier Management (SSM) is•The systematic, enterprise-wide assessment of suppliers’ assets and capabilities with respect to overall business strategy;•Determination of what activities to engage in with different suppliers;•Planning and execution of all interactions with suppliers in a coordinated fashion across the relationship lifecycle,•To maximize the value realized through those interactions

What is Strategic Supplier Management?

Source: Adapted from “Maximizing the Value of Supplier Relationships“

SSM Rationale

• Increased outsourcing and reliance on suppliers

• Globalization of business and of supply chains

• Greater complexity in managing suppliers

• Increased supply risks

• View of suppliers not only as a cost, but also as a

strategic input to our bottom line

Why we need SSM

SSM Rationale

• Align supplier capabilities with business requirements

• Improve supplier capabilities to increase value for the Company

• Achieve cost reduction targets or service level objectives

• Collaborate to meet continuous improvement objectives

• Reduce inventory levels (in house and at supplier locations)

• Accelerate time to commercial manufacturing

• Implement frameworks to monitor environmental, social responsibility or supplier diversity objectives

Benefits of SSM

SSM Rationale

1. Secure active support from leadership

2. Identify participants (by commodity, spend category, and site)

3. Link supplier goals to corporate goals

4. Encourage and facilitate communications between parties

5. Create formal documents and processes to capture results

How do you establish a SSM program?Getting Started

SSM Approach

Which suppliers should you focus on?

Core, Strategic High Volume/Spend

Sole Source/Critical

SSM Approach

Tiers help segment suppliers

SSM Approach

Higher Tier Suppliers Lower Tier Suppliers

Global resource coordination Local or regional supply base

Multi-level communication network

Site-specific resource and communication coordination

Joint development of shared goals Effective and efficient transactions

Aligned technology and innovation road-mapping Independent goal setting

Long-term focused Short term planning horizon

Illustrative Supplier Segmentation Criteria

SSM Approach

Criteria Area Specific Criteria Evaluated

FinancialAnnual spendExpected change in spendSwitching costs

RiskSupply market profileApproved second source statusFailure impact

OpportunityOpportunity to harness incremental valueSupplier willingness to engage in SSMSupplier cultural alignment

Once you have selected your suppliers, what should you measure?

• Quality

• Technology

• Delivery

• Service

• Cost

SSM Approach

Quality Metric Objectives

• Quality goal of zero defects• Defect free raw materials, parts, assemblies and services• Quality expected to be achieved through

– Superior design– Continuous improvement– Process, test and inspector controls– Reduced product variability

• All materials must be fit for intended use

SSM Approach

Sample Quality Metrics & Goals

IncomingInspection

Supplier Corrective

Action Request

SupplierAudit Results

95% acceptance rate

Response deadline and action plan

Documented audits and scoring mechanism

SSM Approach

Technology Metric Objectives

• Demonstrated commitment to technology to meet current and future needs

• Proven thought leadership

• Tangible benefits delivered through technological advances– Reduced costs

– Reduced cycle time

SSM Approach

Sample Technology Metrics & Goals

% Of Revenue Spent On

Technology

Innovation & Awards

Documentation & Compliance

Within top quartile of peer set

Nationally or globally recognized within industry

ISO certification, etc.

SSM Approach

Delivery Metric Objectives

• Accurate delivery quantity

• Timely delivery shipments

• Lead time stability/reduction

SSM Approach

Sample Delivery Metrics & Goals

No tolerance for over/under shipments

On time delivery

% variance from forecast to actual

# of out of stocks

Duration of plant closures or line delays due to late shipments

SSM Approach

Service Metric Objectives

• Response time for normal inquiries– Engineering samples and material specifications

– Price and availability

– Repair and maintenance

• Communication of process changes and/or quality problems before they happen

• Accurate bill of materials and invoices

SSM Approach

Sample Service Metrics & Goals

Rapid response time for standard

issues

Proactive communications

Accurate billing

24 hours to provide response

Account management plan, relationship map, escalation plan

Zero error rate in deliveries to P.O. specifications

SSM Approach

Cost Metric Objectives

• Best price for product/service

• Joint commitment to cost reduction programs

• Transparency

SSM Approach

Sample Cost Metrics & Goals

Best price

Annual cost reduction goal

Pricing Transparency

Breakdown of cost components“Cost plus” pricing modelsBenchmark rates

Gain sharing agreements% of revenue

Pass through invoicesGuaranteed profit %

SSM Approach

Best Practices In SSM

• Common Processes/Tools

• Performance Improvement Action Item Tracking

• Supplier Satisfaction Survey

• Formal Issue Escalation Process

• Trigger Points for Elimination of Underperforming Suppliers

• Tiered Awards and Incentives Program

SSM Approach

SSM Formats

“Top to Top”

QuarterlyBusinessReviews (QBRS)

Continuous Improvement

SSM Approach

Audiences and objectives for different SSM formats

Topto Top

QuarterlyBusiness

Reviews (QBRS)

Continuous Improvement

Audience Objectives

Executive leaders Share vision

Operationalrelationshipowners

Maintain accountability

All participants

Set goals

Evolve

SSM Approach

Tools to execute Top to TopsSSM Tools

Topto Top

QuarterlyBusiness

Reviews (QBRS)

Continuous Improvement

• Format: In person• Frequency: Annually• Critical Success Factors:

– Appropriate participation– Clear agenda and priorities– Agreed outcomes and actions

Example Biotech Firm Uses Annual Supplier Risk Assessments To Inform SSM Plan

SSM Tools

Tools to execute QBRs

SSM Tools

Topto Top

QuarterlyBusiness

Reviews (QBRS)

Continuous Improvement

• Format: In person or telecon• Frequency: Quarterly• Critical Success Factors:

– Functional participation– Metrics and performance data– Remediation and action plan– Links to incentive compensation

(as appropriate)

Some form of scorecard data is required

SSM Tools

Yellow – Some issues exist within this category, but have been identified and are being reviewed/ addressed •50% - 74% average score in categoryRed – Issues exist within the scope of the category

•Issues are persistent/ reoccurring, and are not being resolved in a timely manner to satisfaction •Below 50% average score in category

Green – No major issues exist •75% or greater average score in category

Supplier Name Annual Objectives:Date of Evaluation

Panel 1 - Account Support Score 50 Status Y Panel 2 - Quality Score 95 Status G

Panel 3 - Delivery Score 46 Status R Panel 4 - Value Score 87 Status G

Score 76 Overall SM Program Status Y

Issues & Opportunities - Issues & Opportunities -

Issues & Opportunities - Issues & Opportunities -

Panel 5 - Overall Performance & Customer Satisfaction

Issues & Opportunities -

Sophisticated SSM platforms exist

SSM Tools

Illustration of Ariba SSM tool

In these QBRs, you must document agreed upon actions and outcomes…

SSM Tools

Illustrative corrective action plan from QBR

Tools to execute QBRs

SSM Tools

Topto Top

QuarterlyBusiness

Reviews (QBRS)

Continuous Improvement

• Format: Various• Frequency: Ongoing• Critical Success Factors:

– Anyone can generate ideas– Document and track progress

against them– Delineate between suppliers who

do – and don’t – participate

Sample Continuous Improvement Opportunity Plan

SSM Tools

Illustrative Continuous Improvement Plan

• Start with your most important suppliers

• Agree on format, frequency and type of SSM program

• Generate appropriate participation

• Execute consistently

• Promote success and outcomes to broaden participation

SummaryStrategic Supplier Management