tulevaisuuden ostaja rakentaa kumppanuutta ja vaatii kilpailukykyä 18.9.2008 / vollmann

© 2008 IMD International. Not to be used or reproduced without permission.

Professor Tom Vollmann

Creating Win-win Customer-Supplier Partnerships

Creating Win-win Customer-Supplier Partnerships 2© IMD 2008

The Classic “Lean” Approaches are Necessary but not Sufficient

Lean Manufacturing

• Factory Focus• Lower Inventories• Faster Throughput Times• Better Quality• Improved Capacity Utilization• Lower Costs• Flawless Execution• Do it Right the First Time

Basic MPC Systems

Lean Business Unit

• Business Unit Focus• Beyond Manufacturing• Order Entry• Logistics• After Sales Service• CRM / SRM• Customer Segmentation• Cross-functional Integration

- Accounting- Human Resource Management- New Product Introduction

ERP Systems

Lean Corporation

• Total Organization Focus• Inter-Business Unit Synergies

- Purchasing- Logistics- Warehousing (hubs)

• Regional/Global Buying• Regional/Global Selling• Enterprise Metrics• Inter-Business Unit

- Planning- Coordination- Flawless Execution

Extended ERP Systems(evolution) (transformation)

CostInventoryPPMOTIFNE

ProfitCustomer SatisfactionCash to cash

Market shareEarnings per share

Measures Measures Measures


The New Game: Win-win Customer-Supplier Partnerships

Actions

• Inter-Company Focus• Joint New Process

Development• Supplier Networks• Third Parties (Logistics)• New Key Account

Management

Measures

• Overall Supply Chain Costand Speed

• Partnership CapacityManagement

• Project Management• End Customer Delight• Win-win

Support

• Trust / Win-win• Short Implementation

Firms• E-based B2B

Infrastructure


1/92 1/92 1/92 1/92 1/92 1/92 1/921/92 1/92 1/92 1/92 1/92 1/92 1/92Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

.7% 3.3%

7.0% 7.56% 7.56% 7.1%

.7% -.2%

-3.1%

-7.9%

-16%-19%

.7%

-3.1%

-7.9%

-16%-19%

.7%

-3.1%

-7.9%

-16%-19%

.7%

-

-7.9%

-16%-19%

Cumulative U.S. Producer Price

Index

A benchmark comparison of programs to reduce incoming materials cost

Results from Honda of America

program

Experience of a well-regarded U.S.

manufacturing firm (Ford)

Change in cost of all procured

parts*

•Over 50% of total automobile cost•Source R. Dave Nelson, former VP Procurement, Honda of America

The Customer Payoff


The Supplier Payoffs are Just as Real!

Volume Guaranteed capacity utilization Sweat the Assets Reduce uncertainty Develop industry best processes Sell at high prices to Honda competitors And then:

– Manage network of sub-suppliers– Sweat their assets– Move up the value chain


- Focus on price andassured supply

- Customer is King attitude

- All suppliers managedequally

- Classic costperformancemeasurement

- Sourcing is adecentralized tacticalfunction

- Traditional buyersresponsible Forstrategic commodities

- Focus on TCO andValue/Cost

- Embedded Attractionphilosophy

- Joint (pair) measurement–not supplier measurement

- Segments within segments:Super SupplierDevelopment

- Buying bundles of goodsand services, not justcommodities

- Focus on price (drivenby cost)

- Enlightened thinking within seniormanagement

- Sourcingbecomes strategic

- Clear suppliersegmentation

- Advanced suppliermeasurement

- Central supplierselection & coordination

- Strategic buyers

Classic Behavior Tomorrow’s Best PracticeToday’s Best Practice

It is Not EasyProcurement Needs to Come out of the Dark Ages


- Compete on price- Play commodity

games- Meet periodic targets- All customers

managed equally- Make unrealistic

promises- Keep colleagues

away fromcustomers

- Customerpartnerships

- New approach to keyaccount management

- Goal of increasingselected accounts by 10x

- Resource deployment tomatch 10x

- Explicit governance

- Segment customerbase

- Sell solutions- Develop team selling- New metrics- Senior management

connections

Classic Behavior Tomorrow’s Best PracticeToday’s Best Practice

So Does Sales


Combative Collaborative

PartnershipPairs of Aces

Partnerships are Highly Selective(Do not Beat Dead Horses!)


New Purchasing Realities

Make clear choices in supplier segments and the ways in which you will work with them

Understand the need for big changes and joint work to achieve win-wins

Change the objectives, measures and benchmarks Change mind sets and perceptions Do not be naïve as to “partnerships” Do not underestimate the leadership requirements Recognize that each partnership is unique


Define clear customer segments: Make choices! Sell as customers wish to buy Leading edge customers will consolidate (¾ x ¾) Select key accounts (10X = minimum) and deploy resources accordingly Fewer purchasing agents / fewer sales people (others instead) Negotiation more periodic – less continuous New systems / logistics linkages Make difficult personnel changes

Sales / Marketing Must Reflect These New Realities

New Sales Realities


10 Golden Rules of Becoming an Attractive Customer

Be a demanding customer: challenge your suppliers but do not crush them

Determine which suppliers are important Recognize – explicitly – that attraction is two edged Increase the comfort level of the supplier Help the supplier properly evaluate their expected payoffs Manage the misalignment Manage the perceptions Understand and manage how the supplier allocates resources

and ideas Help your suppliers leverage the learning Sell the opportunities in your company to the supplier


10 Golden Rules for Being an Attractive Supplier

1. Execute flawlessly2. Tell the truth3. Select / choose / segment4. Don’t beat dead horses5. Encourage selected customers to be interested in more than

prices6. Work to create joint metrics7. Create awareness in your company of special customer

relationships8. Be very open as to intellectual property issues9. Expect misalignment10.Be ready to accept all challenges


Classic Barriers to True Partnership

What does your customer do that costs you money?Are any of these familiar?

They do not pay invoices according to contractual terms and this issue is worse near the end of their financial reporting periods

They deliberately overestimate demand to be sure that you will make enough – and to negotiate lower prices

They specify unnecessarily tight delivery time windowsThey continually revise their plansThey blame all problems on you


Suppliers Create Problems as well

How about your suppliers?And – would your customers say these things about you?

They ship products known to be inferior – especially when supplies are tight

They push inventory on me as a customer They make promises they know they cannot keep They overcharge for services not explicitly in the

contract They are not proactive in suggesting improvements


The Joint Focus on Value / Cost

How can we reduce joint (chain) costs? How can we increase joint value creation? How can we jointly bring new products to market

sooner? How can we rapidly respond to changing market

conditions? How can we reduce contractual and other bureaucratic

relationships? How can we develop ways to jointly “sweat” the most

capital intensive assets?


The Rubik’s Cube ofCustomer-Supplier Partnerships

MISALIGNMENT

WIN-WIN TRUST

STRATEGY


Back-up Slides


Connecting the Marketplace to the Infrastructure: Lean Manufacturing: Marketplace Infrastructure

Marketplace

• Local• Price based• Minimum loyalty

Bundles

• Products• Minimum service• Credit ?

Working

• Functional• Job shop• Cellular

manufacturing ?

Infrastructure

• MRP• SPC• Product /

Job order costing

Strategy

• Faster• Better• Cheaper

Actions

• Basic scheduling• TQM• Head count reduction

Measures

• OTIFNE• PPM• Inventory turns• Cost


Evolving Objectives: Lean Business Unit: Marketplace Infrastructure

Marketplace

• Regional / global• Market segments• Solutions selling

Bundles

• Products + logistics• Services• NPD

Working

• Business unit• Functional integration• Process focus

Infrastructure

• ERP• CRM• Software packages

Strategy

• Financial• Customer lock-on• Leverage

from interaction

Actions

• Sales force specialization

• Supply baserationalization

• Transactionsimplification

Measures

• Business unitprofitability

• Customer satisfaction• Cash to cash cycle


Pushing Further: Lean Corporation: Marketplace Infrastructure

Marketplace

• Global customers• “Local jewels”• Key account

management

Bundles

• Consolidated / tailored

• Value chain positioning

• Standardization / rationalization

Working

• Cross organizational• Outsourcing• 3rd party logistics

Infrastructure

• Extended ERP ?• Modular systems• Middleware linkages

Strategy

• Growth• Brand leverage• Concentration

Actions

• Regional / local buying

• Serving global customers

• Redefine logistics / distribution

Measures

• Market share• Enterprise profitability• Earnings per share


The Present Winning Combination: Lean Partnerships: Marketplace Infrastructure

Marketplace

• Extended focus• Partnerships• Sourcing units

vs. selling units

Bundles

• Simplicity• Complexity

as required• Upstream

orchestration

Working

• Cross company• Dyads• Fast implementation

Infrastructure

• Modularity• E-based systems• Flexible integration

Strategy

• Customer / supplierlock-on

• Continual enhancement

• Leverage learning

Actions

• Joint (we not they)• Exchange of

prisoners• Cross company BPR

Measures

• Overall supply chain cost and speed

• Partnership capacitymanagement

• End customer delight• Win-win


Move up the value chain New positioning

Original positioning

New positioning

Original positioning

CU

STO

MER

SUPP

LIE

R

TRANSFER OF CAPABILITIESWITH WIN-WIN APPROACH

CUSTOMER HAS TO LEARN

Extend Lean Across Company Boundaries

Partnerships Imply Moving up the Value Chain, Outsourcing and Changing Infrastructure


LogisticsSchedulingManufacturingQuality

SalesQualityManufacturing

AccountingIndustrial EngineeringSystems Design

AccountingIndustrial EngineeringSystems Design

DesignProcurement

MarketingDesign

Senior ManagementStrategic Planning

Senior ManagementStrategic Planning

StrategicAlignment

CustomerSupplier

Value/cost

Total Costof Ownership

FlawlessExecution

What is Needed?Four Stages of Collaboration / Joint Efforts


The Hierarchy ofSupply Chain Metrics

DemandForecastAccuracy

PerfectOrder

SCM Cost

AccountsPayable

InventoryTotal

AccountsReceivable

SupplierQuality

SupplierOn-TimeDelivery

RMInventory

PurchCosts

Dir MtlCosts

CostDetail

ProdSched

Variance

PlantUtilization

WIP & FGInventory

OrderCycle Time

PerfectOrderDetail

Cash-to-Cash

Top Tier

Mid Tier

GroundLevel

Assess

Diagnose

Correct

Source: AMR Benchmark AnalytixMaterial reprinted with permission from Supply Chain Management Review (www.scmr.com)

Classic Supply Chain Metrics are Grossly Inferior


PlanManufacturing

Pay Invoice

Stock OutflowForecast

(X)

Evaluate(confirm)

Replenishment(X)

EvaluateForecast (X)

ProposeReplenishment

(X)

ProjectedBalance

CreateInvoice (X)

Manufacturing Finance Raw Materials Purchasing Sales Manufacturing FinishedGoods

Finance

Create (X)Purchase Order

Receive Goods

PlanManufacturing

Issue toManufacturing

ReconcileInventory

PlanManufacturing

Create Consignment

Stock Order (VMI)Pick Ship

Create (X)Sales OrderUpdate VMI

ReconcileInventory

Customer Supplier

IT Systems are Another Barrier


The Joint Efforts Stairstep to Partnership

ConsolidatedPurchasing

Joint CostReduction

Joint ValueCreation

VirtualOrganisation

Industry-BestSupplier

New Bundlesof Goods /Services

Logistics /Transaction

CostReduction

Economiesof Scale

Purchase price

Chain cost

Customerperceived

value

Dominantinfrastructure

Competitiveadvantage

Leveragenew

competencies

Marginmaintenance

Volume basedcost reduction

True PartnershipRelationship

Building

ProjectsExchange of Prisoners

Traditional Purchasing - Sales


Customer-Supplier Partnerships –Maxims to Live by

If you win the rat race you are still a rat!

It is better to be approximately right than exactly wrong!

Obtaining a contract for a supply chain partnership is about as usefulas a marriage license for achieving a happy married life.

Putting lipstick on a pig doesn’t improve its looks.

If you own a dog and you wish to own a cat, no amount of kickingthe dog will accomplish your objective.

Never choose stupid partners!

Partnership is too often proposed to suppliers, when whatresults is nonsense.

If you are in the commodity business – you deserve it:

Win-win is not hitting the other guy twice


A Case Study of BreakthroughPartnership Improvements


The Firm used a Structured Approach to Improve Key Relationships

The approach needed to go beyond facts - to perceptions and opinions

A third party brought “the good, the bad and the ugly” to the table, through a proven methodology

The defined process led to sorting out the key issues and created tangible action plans for improvement

The intervention approach had a tightly defined time table


A Structured Process Produced Tangible Results

Interviews & Surveys

• Understand current environment, attitudes, perceptions

• Mapping interaction and social networks

• Assessing the current level of attractivity

• Identifying key workshop challenges

Analysis Workshop Execution

2 Day Workshop

•Findings from analysis presented and discussed

•Identification of improvement areas

•Development of detailed action plans

•Develoment of attractivity metrics

Implementation

•Champions & Steering committee monitoring dyad development

•Execution of action plans

•Implementation of attractivity metrics

•“5000 Mile check”

OB

JEC

TIV

ES


Several Counter-Intuitive Conclusions Were Obtained

Perception is more important than reality At least 50% of problems were typically due to the

customer Alignment and perceptions varied within the firms Alignment is even more divergent between firms Misalignment had to be recognized and managed Classic confrontation was replaced by collaboration


A Concrete Example Demonstrates the Process & Results

Commercial

• Single or multi-location enquires• No standard for commercial requirements• Variation of quantities• Variation of demands

• Cost, quality and delivery difficulties• No economies of scale• Higher inventories• Planning difficulties• Conflict and misunderstanding

Technical

• Customer driven specifications – no standard• Minimised chance to standardise• Minimised chance to optimise• “Over” specified

Result

Business Relationship Before the InitiativeCompany A and B


A Collaborative Agenda Yields Major Pay-Offs

Early Involvement in the technical specification of the Customer project

Long term supply agreements on the basis of catalogue solutions

General terms and conditions

Clear commitment to a partnership by openness and fairness

Higher standardisation and lower costs

Economies of scale; reduction in time to market and working capital

Reduction of administrative costs and conflict potential

Long term trust

Win / Win


Collaboration Requires Major Joint Efforts