STRATEGY AND PURCHASING

B.GAUCLERE M2 / NEGOCIA 2012 1

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 2

DEFINITION OF NEEDS12 SUPPLIER MARKET ANALYSIS

3 PURCHASING OPTION

SUPPLIER SEARCH & SELECTION45 NEGOTIATION & CONTRACT

6 SUPPLIER MANAGEMENT

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 3

Analyzing the supplier markets is key for:• understanding the players• forecasting the main trends• helping clever decision-making

The central tool used for analyzing the market is the Porter 5 forces’ approach

2 SUPPLIER MARKET ANALYSIS

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 4

2 SUPPLIER MARKET ANALYSIS

Market rivalry

Barriers

• legal• technological • political• environmental

New entrants

Substitute solutions

Suppliers Customers

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 5

1. The supplier market• Organization• Financial concentration• Production capacities• Technology • Quality• Market strategy• Cost structure• Price index and evolution

2 SUPPLIER MARKET ANALYSIS

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 6

2. The supplier’s supplier market• Apply the same analysis to the first tier, second tier and

third tiers suppliers• Key issues:

• Dependency level• Who are the other customers?

• Example: Arcelor-Mittal

2 SUPPLIER MARKET ANALYSIS

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 7

2 SUPPLIER MARKET ANALYSIS

3. The customers bargaining power

Helps identifying who’s buying to the same supplier(s)Key issues:

• demand market organization• capacity consumption and trends• quality level

Example: car manufacturing and steel

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 8

2 SUPPLIER MARKET ANALYSIS

4. Substitute solutions

New technologies / new services available? ? Other solutions to get the same result?What are their costs? What is the cost trend?Availability period?Who are the potential players?

Example: MP3 players

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 9

2 SUPPLIER MARKET ANALYSIS

5. New entrants

Helps identifying who will invest to enter the market as a new supplierKey issues:

• when will they enter? How?• potential impact on strategies?• opportunities?

Example: flat screen TV panel

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 10

When to perform a market analysis?

• For new/urgent projects: ASAP in order to forecast the market trends and its impact

to the decision makers• For ongoing business segments:

At least one yearly review Before defining the segment’s strategyBefore renewing a contract

2 SUPPLIER MARKET ANALYSIS

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 11

Why performing a market analysis?

• To identify market trends

• To bring information on impact of technical decisions to the decision making people (the buyer’s network) / to help influencing the decisions

• To define an ad hoc purchasing strategy per segment

2 SUPPLIER MARKET ANALYSIS

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 12

How to get the information?

• Identify a couple of suppliers: discuss with them, crosscheck information on market trends

• Take subscriptions of specialized magazines• Subscribe to one or two professional federations/unions• Identify specialized Websites• Identify internal sources: sales, marketing, finance, IT ….

they often have their own information sources

2 SUPPLIER MARKET ANALYSIS

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 13

DEFINITION OF NEEDS12 SUPPLIER MARKET ANALYSIS

3 PURCHASING OPTION

SUPPLIER SEARCH & SELECTION45 NEGOTIATION & CONTRACT

6 SUPPLIER MANAGEMENT

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 14

Once the supplier market has been analyzed, you have enough information to decide which purchasing option you will take per segment.

A purchasing option is a general guideline for purchasing based on:

• Level of spend of the segment• Supplier’s market profile and access

3 PURCHASING OPTION

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 15

3 PURCHASING OPTION

CSEGMENTS

DSEGMENTS

ASEGMENTS

BSEGMENTS

- Supply risk +

-

Ann

ual s

pend

+

B) THE PURCHASING PROCESS

B.GAUCLERE M2 / NEGOCIA 2012 16

3 PURCHASING OPTION

- Supply risk +

-

Ann

ual s

pend

+

CUse purchasing power

Immediate savingsSuppliers’ competition

Cost analysisImposed productivity

LCC use

ASimplify process

E-procurementE-catalogues

Standardizationoutsourcing

DLong term savings

PartnershipsSupplier’s integrationProject management

Risk managementStrategic control

BSecure supply / avoid costs

Long term agreementAlternative supplierFunctional analysis

Safety stockBonus / penalties optimization

B.GAUCLERE M2 / NEGOCIA 2012 17

B) THE PURCHASING PROCESS

DEFINITION OF NEEDS12 SUPPLIER MARKET ANALYSIS

3 PURCHASING OPTION

SUPPLIER SEARCH & SELECTION45 NEGOTIATION & CONTRACT

6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 18

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

Once the supplier market analysis is done and the purchasing option is selected, you enter the « technical » phase of the procurement process: searching and selecting the supplier(s) you intend to work with. This stage is also called SOURCING.

B.GAUCLERE M2 / NEGOCIA 2012 19

STEP 7

SEARCH CRITERIADEFINITION

SEARCH FOR POTENTIAL SUPPLIERS

RFI

SITE VISIT

SUPPLIER SELECTION

PORTFOLIO MANAGEMENT

Current suppliers

STEP 1

RFQ

STEP 2

STEP 3

STEP 4

STEP 5

STEP 6

NEEDS MET?

NEEDS MET?

ELIGIBLE?

YES

YES

YES

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 20

Company’s purchasing guidelines

Purchasing strategy per segment

Technical needs per segment

• Ownership• Capacity• Location• Logistic features• ...

• Equipment type• Process type• R&D capacity• Patents• Logistics• ...

• Financial situation• Minimal size• Maximum share with one

customer• Quality certifications• Ethical charter• Environmental constraints

Search criteria

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 21

Criteria definitionGO / NOGO preselect / discard supplier

IMPORTANT select supplier

SECONDARY define supplier’s share

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 22

Poids : 1– 2 - 3

Potential suppliers’ analysis using weighted selection criteria

POIDS

Qualité Système de contrôle qualité 1

Niveau 3

Prix Prix par rapport aux concurrents locaux 2

TCO de la solution 3

Niveau par rapport à notre objectif 2

Innovation Capacité à innover 1

Savoir-faire, connaissances techniques 2

Fonctionnement Capacité 2

Ordre et propreté 1

Contrôle et gestion 1

Général Santé financière 3

Désir de développement avec votre entreprise 1

Organisation 2

Langue de travail 1

TOTAL PONDERE (125 maxi.)

Critères

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 23

STEP 7

SEARCH CRITERIADEFINITION

SEARCH FOR POTENTIAL SUPPLIERS

RFI

SITE VISIT

SUPPLIER SELECTION

PORTFOLIO MANAGEMENT

Current suppliers

STEP 1

RFQ

STEP 2

STEP 3

STEP 4

STEP 5

STEP 6

NEEDS MET?

NEEDS MET?

SELECTABLE?

YES

YES

YES

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 24

Start with « generalist » sources Generalist directories, … Professional directories Chambre of Commerce directories …

Specialized sources Specialized press – from international to local Shows, fairs, exhibitions Consultancy

WEB sources Specialized portals and Marketplaces Your potential suppliers’ websites Your competitors’ websites

Informal sources Associations (buyers groups) Personal contacts

Company’s internal database

STEP 2 – Search for potential suppliers

B.GAUCLERE M2 / NEGOCIA 2012 25

Most of available sources will provide you with generic data such as Name, Address, Turnover, business area …

Is it enough to decide whether the supplier meets / doesn’t meet your company’s requirements?

NO !!!

STEP 2 – Search for potential suppliers

B.GAUCLERE M2 / NEGOCIA 2012 26

STEP 7

SEARCH CRITERIADEFINITION

SEARCH FOR POTENTIAL SUPPLIERS

RFI

SITE VISIT

SUPPLIER SELECTION

PORTFOLIO MANAGEMENT

Current suppliers

STEP 1

RFQ

STEP 2

STEP 3

STEP 4

STEP 5

STEP 6

NEEDS MET?

NEEDS MET?

SELECTABLE?

YES

YES

YES

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 27

A questionnaire has to be used to obtain detailed information about the supplier in order to:

Feed a structured databaseDecide whether the supplier meets minimal

criteria to become a potential supplierThe typical questionnaire will have 2

parts:

GENERAL INFORMATION: whoever the supplier is

SPECIFIC INFORMATION: for a given family or segment

STEP 3 – Get information Building a questionnaire

B.GAUCLERE M2 / NEGOCIA 2012 28

STEP 7

SEARCH CRITERIADEFINITION

SEARCH FOR POTENTIAL SUPPLIERS

RFI

SITE VISIT

SUPPLIER SELECTION

PORTFOLIO MANAGEMENT

Current suppliers

STEP 1

RFQ

STEP 2

STEP 3

STEP 4

STEP 5

STEP 6

NEEDS MET?

NEEDS MET?

SELECTABLE?

YES

YES

YES

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 29

STEP 4 – site visit Building a process for the visit

The supplier’s site visit (for those meeting the criteria built in the questionnaire) is a KEY part of the sourcing process as it allows to:o Check the accuracy of data given by the suppliero Introduce your company and its needs, strategy...o Ensure feasibility of a future collaboration

Check their capacity (eye-witnessing) Check their strategy and their real will to work with you

B.GAUCLERE M2 / NEGOCIA 2012 30

Before the visit:Set the targetsGather existing data about the supplierIdentify people to meet (sales, but also: top

management, quality, R&D, production, purchasing, etc.)

Organize a programme / structure the visit and send these informations to the supplier

Obtain the supplier questionnaire (filled!)Prepare the bidPrepare a presentation of your company, your

purchasing policy and process, bring samples, etc.…

STEP 4 – site visit Building a process for the visit

B.GAUCLERE M2 / NEGOCIA 2012 31

During the visit:Stick to the agendaSearch for any available information

(documents, notes….)Write a report with the supplier

After the visit:Debrief with the people present during the visitComplete the visit report and dispatch itSettle an action plan: what are the next steps

the supplier is supposed to follow?

STEP 4 – site visit Building a process for the visit

B.GAUCLERE M2 / NEGOCIA 2012 32

Be sure there are no supply risks (short & mid terms)

Use your company’s financial analysis toolsUse financial services providers (Dunn & Bradstreet)

Starting at first visit with a regular follow-up in case of common work

WHYI

WHEN

HOW

STEP 4 – site visit Analyze financial situation

B.GAUCLERE M2 / NEGOCIA 2012 33

STEP 7

SEARCH CRITERIADEFINITION

SEARCH FOR POTENTIAL SUPPLIERS

RFI

SITE VISIT

SUPPLIER SELECTION

PORTFOLIO MANAGEMENT

Current suppliers

STEP 1

RFQ

STEP 2

STEP 3

STEP 4

STEP 5

STEP 6

NEEDS MET?

NEEDS MET?

SELECTABLE?

YES

YES

YES

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 34

STEP 5 – analyse a proposal

WHY

HOW

WHEN

To know the supplier’s price level compared to the market price and to our targets

In asking an RFQ on already existing parts (1rst stage)

For standard products –after the questionnaireFor complex products – after the first visit

B.GAUCLERE M2 / NEGOCIA 2012 35

STEP 7

SEARCH CRITERIADEFINITION

SEARCH FOR POTENTIAL SUPPLIERS

RFI

SITE VISIT

SUPPLIER SELECTION

PORTFOLIO MANAGEMENT

Current suppliers

STEP 1

RFQ

STEP 2

STEP 3

STEP 4

STEP 5

STEP 6

NEEDS MET?

NEEDS MET?

SELECTABLE?

YES

YES

YES

B) THE PURCHASING PROCESSSUPPLIER SEARCH & SELECTION4

B.GAUCLERE M2 / NEGOCIA 2012 36

Listed supplier(s) track record

Strategic fitanalysis

Potential suppliers’ analysis using

selection criteria

Preferred suppliers’ list

Listed and potential suppliers

Most valuable suppliers

STEP 6 – supplier selection

B.GAUCLERE M2 / NEGOCIA 2012 37

POIDS FOURNISSEUR AFOURNISSEUR BFOURNISSEUR C

Qualité Système de contrôle qualité 1 2 3 3

Niveau 3 4 3 5

Prix Prix par rapport aux concurrents locaux 2 1 2 2

TCO de la solution 3 3 1 4

Niveau par rapport à notre objectif 2 1 4 5

Innovation Capacité à innover 1 3 5 4

Savoir-faire, connaissances techniques 2 2 1 1

Fonctionnement Capacité 2 5 3 2

Ordre et propreté 1 3 2 5

Contrôle et gestion 1 1 4 3

Général Santé financière 3 4 5 1

Désir de développement avec votre entreprise 1 2 1 4

Organisation 2 1 3 2

Langue de travail 1 5 2 3

TOTAL PONDERE (125 maxi.) 69 73 76

Critères

SCALE: 1 insufficient – 5 excellent Weight : 1 low importance – 3 great importance

Potential supplier analysis using selection criteria - EXAMPLE

B.GAUCLERE M2 / NEGOCIA 2012 38

Strategic fit analysis for suppliers acting on strategic segments

Supplier / company fit has to be examined in order to give an idea on how the relationship may evolve on time

An analysis needs to be run with each listed and potential supplier in order to identify strategic segments and bottleneck segments

B.GAUCLERE M2 / NEGOCIA 2012 39

How to measure the supplier’s fit? Strategic fit :

What is the supplier’s general strategy (quality, innovation, costs, geographical location , growth, etc.) ? What is its strategy against your area ? Our competitors ? Is there a link with your company’s strategy ?

Has the supplier the right capacity and motivation to implement cost reduction plans ?

What is the level of risk in terms of dependency ? Technological fit :

Is the technology / process of the supplier compatible with your current needs? Future needs?

Cultural fit : Is the supplier’s culture fitting yours? Are there serious

communication issues? Is its organization adapted to the type of relations you want to develop with him?

Is the management of this supplier a difficult task for your company ?

B.GAUCLERE M2 / NEGOCIA 2012 40

Strategic / critical suppliers Critical supplier :

You cannot avoid working with him. You’d like to change but it’s difficult : high

switching costs,, technological dependency, dependency on capacities. …

Past decisions can explain today’s situation Strategic supplier:

You chose him !You know WHY you want to work with him This supplier will bring VALUE to your company in

the future

B.GAUCLERE M2 / NEGOCIA 2012 41

The relationship with the supplier depends on the ATTRACTIVENESS of both parties towards each other

Having our company As a customer has a strategic importance

LOW HIGH

HIGH

LOW

STRATEGIC FIT

The supplier has a strategic importance for us

How to measure the supplier’s fit?

B.GAUCLERE M2 / NEGOCIA 2012 42

Conclusion Companies need a preferred supplier basis

meeting the company’s requirements The sourcing process needs to be structured.

Companies also need suppliers considering them as preferred customers

B.GAUCLERE M2 / NEGOCIA 2012 43

B) THE PURCHASING PROCESS

DEFINITION OF NEEDS12 SUPPLIER MARKET ANALYSIS

3 PURCHASING OPTION

SUPPLIER SEARCH & SELECTION45 NEGOTIATION & CONTRACT

6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 44

B) THE PURCHASING PROCESS

Cost management and TCO

Imposing permanent reductions on prices has put enormous pressure on the suppliers’ shoulders.

In the recent period, it has favored bankruptcy of many suppliers as they hadn’t enough cash to stand a severe drop in activity

A more balanced approach will use TCO

6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 45

B) THE PURCHASING PROCESS

Cost management and TCO

TCO (Total Cost of Ownership) has been created by the Gartner Group in 1987. It represents the total cost associated with a product or a service during its whole life cycle, including pre-acquisition, acquisition, use, maintenance and disposal.

6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 46

How does a TCO look like?

UPSTREAM COSTS

PURCHASING COSTS

DOWNSTREAM COSTS

VISIBLE

NOT VISIBLE

PARTLY VISIBLE

B) THE PURCHASING PROCESS6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 47

PURCHASING COSTS

Raw materialProductionAmortizingFluidsOverheadSales/marketing costsLogisticsProfit

B) THE PURCHASING PROCESS6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 48

Definition of requirementsSuppliers’ sourcing processProduct’s qualification

UPSTREAM COSTS

B) THE PURCHASING PROCESS6 SUPPLIER MANAGEMENT

B.GAUCLERE M2 / NEGOCIA 2012 49

Administrative costs(issuing order, invoice,Order follow-up)DeliveryInsurancePayment terms

InstallationMaintenanceWarranty

DOWNSTREAM COSTS

Supplier managementUsageRecyclingDisposalContractInternal policiesNon-qualityNon-delivery

B) THE PURCHASING PROCESS6 SUPPLIER MANAGEMENT