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Have You Hugged Your Supplier Today?

The Benefits As A Preferred Customer

NAPMs 85th Intl Conference Workshop

Monday, May 1, 2000 - Session CE

Patrick S. Woods, C.P.M., A.P.P., CPIM

President - Techniques In Professionalism

972.208.6116/[email protected]


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SUPPLIER PARTNERSHIPS,

LONG TERM AGREEMENTS,

STRATEGIC ALLIANCES

What do they really mean?


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Some companies give the word

PARTNERSHIP

lip service


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While actually practicing:

Have You Kicked Your

Supplier Today?


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Presentation Outline

1. Negative Relationship Factors

2. A Clarification Point

3. Partnering Tools

4. Benefits Of Pro-Active Relationships


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Negative Relationship Factors

1. Demanding more than the relationship

should cover

2. Always berating your supplier(s)

3. Micro-managing the customer-supplier

relationship


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Negative Relationship Factors (Con

4. Arguing with every supplier criticism or

feedback of you as the customer

5. Giving lip service only to a contract/long term agreement

6. Entertaining sharp practices in relation to

your supplier(s)


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All Six can produce the following result:

D emanding more than the relationship should cover

A lways berating your supplier(s)

M icro-managing the customer-supplier relationship

A rguing with every supplier criticism/feedback of you

G iving lip service only to a contract/long-term agreement

E ntertaining sharp practices in relation to your supplier(s)


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The Clarifier

Hugging your supplier philosophy

does not mean that you give them a

blank check so that they can take

advantage of you!


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The Three Philosophies - Old

Profits - First

Customers - Second

Employees - Third


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The Three Philosophies - New

Employees - First

Customers - Second

Profits - Third


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The Three Philosophies- Future

Suppliers - First

Customers - Second

Employees - Third


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Partnering Tools

The Supplier Benchmark Audit


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Benchmark (Defn):

Something that serves as

a standard by whichothers can be measured

-Webster

or

A standard or point ofreference in measuring or

judging quality or value

- NAPM


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Bottom Line:

Benchmarkingis anintensive process made up

of a cross-functional team

who visits a suppliersoperation and spends 8-10

hours interviewing the

suppliers personnel and

touring the operation.


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Defining The Standards

Key Areas Of Evaluation:

- Quality Assurance

- Technology

- General Management

- Delivery

- Pricing


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Quality Assurance Questions

. Does the supplier have a documented

QA system in place?

. Is a copy of their QA manual availablefor review?

. Are SPC techniques incorporated as

part of their system

. Is there a continuous QA plan in place?

. Does the supplier set annual quality

objectives with measurements?


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Quality Assurance Questions (Cont)

6. Does the supplier have a QA dept. w/

authority to stop production?

7. Is there a documented QA trainingprogram in place for both hourly

and salaried employees?

8. Are process capability studies

conducted for new products

prior to release?

9. Does the supplier have a documented

evaluation and certification

program for its suppliers?


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Quality Assurance Questions (Cont)

10. Does the supplier have its own

receiving/inspection system in

place that segregates incoming

material and verifies quantities?

11. Are systems in place that insurethat only the latest specifications

are used?


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Technology Questions

1. Does the supplier have a chart that

details their organization?

2. Do they participate with you in joint

development of technology?

3. Is there a program for continuing

education of technical personnel?

4. Are technical personnel involved inthe up-front quoting/planning to

assure that parts/services can be

provided?


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Technology Questions (Cont)

5. Do routers/operation sheets identify

specific operations for each part?

6. Is their equipment adequate to meet

your specifications?

7. Does cross-training for critical skills

exist?

8. Are there currently sufficient peopleto support future business?

9. Is there a union affiliation?


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Technology Questions (Cont)

10. Is there a sufficient outside laborpool to support growth?

11. Does a procedure exist to provide

feedback from production to the

appropriate functions?

12. Does a well defined preventativemaintenance schedule exist?

13. Do backup plans exist to continue

production in the event of

machine downtime?


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General Management Questions

1. Does the supplier have a written

policy on integrity?

2. Does a formal system exist for the

development of an annualbusiness plan?

3. Is the suppliers overall mission

identified?

4. Does the suppliers management

possess a high level of skills inorganization and mangement?

5. Are educational opportunities

offered to all employees?


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General Management Questions (Cont

6. Is a system in place to insure that thesupplier covers all purchase order

requirements?

7. Is there good work interactionbetween the workers and mgmt.?

8. Are the suppliers company values

posted?

9. Is there an ongoing program to

reduce cycle times?

10. Is technical and administrative help

available to fix problems?


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General Management Questions (Cont)

11. Is full responsibility for product

warranty accepted if failuresshould occur?

12. Is excessive follow-up required with

the supplier?

13. Are communication meetings held

with employees to discuss keymeasurements?

14. Are financial audits performed

annually?

15. Is the supplier willing to share key

financial data?


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Delivery Questions

1. Is the supplier aware of your

delivery and cycle time goals?

2. Does the supplier respond favorably

to schedule changes?

3. Are schedule push-outs accepted?

4. Does the supplier have an effective

planning system to insure timelydelivery from its supplier(s)?


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Delivery Questions (Cont)

5. Does the supplier have an effectiveinventory system in place that will

consistently meet your schedule

requirements?

6. Does/will the supplier work with you

on consignment inventory?

7. Is the suppliers packing slips,

invoices and other paperwork

accurately completed?

8. Are P.O. acknowledgements

returned within the requested

timeframe and accurate?


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Delivery Questions (Cont)

9. Are records and supplier personnel

available to review delivery status

on purchase orders?

10. Is the customer promptly notified of

delivery problems or slippage?

11. Is there a plan to reduce lead time?


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Pricing Questions

1. Does the supplier have defined

programs to control its utility

and operating costs?

2. Are there processes for control &

leverage of raw material costs?

3. Is there sufficient knowledge of

industry and market trends to

control raw material costs?

4. Does the supplier submit alternative

proposals to reduce costs?


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Pricing Questions (Cont)

5. Are productivity improvement

suggestions submitted for cost

reduction?

6. Are quotation prices fixed for an

acceptable period of time?

7. Are P.O.s accepted for required

quantities without a minimum

buy requirement?

8. Are schedule adjustments allowed

without unit price increases?


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Pricing Questions (Cont)

9. Is unit pricing within a competitive

range of markets served?

10. Is total cost within the competitive

range of the market?


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Quantifying The Standards

Scoring

5 = BEST, 0 = WORST

5 - Implemented - Proven Process

4 - Implemented - Not Proven

3 - Started Implementation - NotManaged Well

2 - Recognized Or In Plan - NotImplemented

1- Recognized - No Plan

0 - No Recognition


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Weighting Each Section

Quality 20 Points Max

Technology 20 Points MaxMgmt./Financial 20 Points Max

Delivery 15 Points Max

Pricing 25 Points Max

Total = 100 Points Max


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Total Condition

85% Or Greater Best In Class

75 - 85 % Acceptable

60 - 75 % Marginal

60% Or Less Unacceptable


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Contract Language - Cost Reduction


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Specific Clauses - Goals

Supplier agrees to provide

customer with total annual cost

reductions of ___ % under this

agreement. Cost reductions will

be measured on the total value of

products purchased under the

agreement on an annual basis. If

supplier does not provide the

agreed cost reduction percentagein a given year, supplier will

rebate the amount of the

shortfall to the customer within

45 days after the applicable year.

The parties will share costreductions in excess of ___%

equally, as described below.


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Specific Clauses -Calculations

Once a cost reduction program is

implemented, the measurable cost

reduction percentage will be tracked by

the steering committee on a quarterly orsemi-annual basis. For purposes of

calculating the total annual cost

reductions under this agreement,

specific cost reduction programs will be

counted for a period of no longer than

12 consecutive months. If a cost

reduction program requires a capital

expenditure by one or more parties, the

party or parties making thatexpenditure will be entitled to the entire

benefit of the resulting cost reductions

until its or their capital expen- ditures

have been recouped.


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Specific Clauses - Admin.The steering committee will be

responsible for creating, implementing,

managing and approving cost reduction

programs. The customer will provide

reasonable necessary support to the

supplier to assist in creating cost

reduction programs under this

agreement. All proposed cost reductionprojects will be submitted in writing to

the steering committee. By ___ of each

year during which the agreement is in

force, beginning with the first year

covered by agreement, the steeringcommittee will deliver the following to

management:


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Specific Clauses - Admin. (Cont)

- A proposal, including cost reduction

targets, for the up-coming 12 monthperiod to reduce costs under the

agreement,

and

- A report detailing its cost reduction

efforts during the preceding 12 months,

including the measurable cost reductionpercentage achieved.


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Contract Language - Ratings

Quality, Delivery, Technology


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Specific Clauses - Quality Goals

Examples

PPM

% Shipments Defective

% Scrap

CpK


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Sample Language

Supplier agrees to achieve,

during the term of this

agreement, a quality measure of

__PPM. On the productssupplied, Supplier will main-tain

a ___ CpK or better for the

customer defined, critical key

characteristics during this

agreement.


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Specific Clauses - Delivery Goals

This agreement will set a time

period after the issuance of a

purchase order in which an

order will be deemed delivered

on-time. If a delivery is notexpected to be made on-time,

supplier will notify the customer

and will take all reasonable steps

at its own cost to expedite

delivery. If a delivery is notmade on-time or if notice is given

that a delivery is expected to be

late, the customer may cancel the

order immediately by delivery

written notice of the cancellation

to the supplier.


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Specific Clauses

- Delivery GoalsAbsent such cancellation notice,

supplier will deliver the order on

an expedited basis at its own

cost. Upon such cancellation, the

customer will not have any

further obligation with respect to

such issue. If a delivery is not on

time and is cancelled by thecustomer, the customer will be

free to purchase the late

products from a third party and

deduct from payment of future

invoice(s) from supplier for anydifference between the third

party purchase price and what

the customer would have had to

pay for such late products.


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Specific Clauses -TechnologyAs supplier is privy to new

technology related to production,

material and/or application, it

will share this information with

customer and incorporate into

customers products, per

customers product engineering

approval. As requested by

customer, supplier will provideprototype (timely) support to

engineering cost reduction

programs.


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The Top 10 Benefits Of Being A

Preferred Customer

10. Your supplier will promote you to the

business world as one who displays

fairness and high ethical principles.

9. In our changing business marketplace, if

your supplier should also become your

customer, then you have strengthened

the relationship for future growth.

8. As your relationship continues and grows,

you will eliminate or minimize the costs

of trying to locate replacement sources.


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Preferred Customer

7 . By saving time in trying to find suppliers

for replacements, you can now focus on

other strategic projects.

6. Your partnered supplier will be willing to

share new ideas and new opportunities

with their key customer, you.

5. By utilizing good customer-supplier type

relationships, your company will have

a competitive edge.


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Preferred Customer

4 . With contract clauses such as the 50/50

Share, the supplier now has incentive

and will/should make improvements.

3. Since your supplier relationships are

positive, this should lead to a lower

stress level and much happier folks.

2. Since their customer relationships are

positive, your supplier should have

a lower stress level as well with

happier folks.


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and the Number 1 reason to become a

Preferred Customer to your supplier is:


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Preferred Customer

1 . As your supplier works to assist you, its

Preferred Customer, in reducing the

costs of purchases, the results go

straight to the bottom line!

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