Source One Management Services, LLC
Presents:
Lesson 7:
Knowledge-Based Supply Management
Lesson 8:
Supply Chain Self-Measurement
www.SourceOneInc.com
Lesson 7:
Knowledge-Based Supply Management
Knowledge-Based Supply Management
 A process driven by factors that influence the
ability of supply to contribute to the long term
success of the business
Factors:
 Knowledge about customers
 Organizational strategy
 The economy
 Supply base
 Supply is in a unique organizational position to
process input from:
 Internal Business Partners
 The Supply base
 The Customer Base
Contemporary Sourcing Models
 Spend-Driven Sourcing
 Risk-Driven Sourcing
 Strategy-Driven Sourcing
Contemporary Sourcing Models
Spend-Driven Sourcing
Contemporary Sourcing Models
Spend-Driven Sourcing
 Starts with spend analysis




What is being bought
For whom
In what quantities
Ts & Cs
 Resources allocated to highest spend
 Leads to wider application of the
structured sourcing process to
nontraditional purchases
 Benefits
 Energy
 Travel
Manage Stakeholders &
Supplier Relationships
Implement Strategy
Source & Select Suppliers
Develop Category Strategy
Conduct Market Analysis
Determine needs
Conduct spend analysis
Spend-Driven Sourcing
Spend-Driven Sourcing
Conduct Spend Analysis *
Determine Needs*
Conduct Market Analysis* Develop Category Strategy*
Manage Stakeholders &
Supplier Relationships
Implement Strategy
Source & Select Suppliers
Develop Category Strategy
Conduct Market Analysis
Determine needs
Conduct spend analysis
Source & Select Suppliers* Implement Strategy*
Manage Stakeholders & Supplier Relationships
Spend-Driven Sourcing
 Better understanding of spend by category
 Policies tailored to each category
 Categories prioritized
 Categories more easily defined
 Target Supply Management Knowledge Base to
Appropriate Spend Category
Spend-Driven Sourcing
BASICALLY…
Getting the right person to find the right
thing for the right place at the right time
for the right price from the right supplier
with the right level of service!
Risk-Driven Sourcing
 Sourcing begins identifying the
risks to the company supply
 Assess risk and institute risk
mitigation strategies
 Know the company mission
 Understand the impact of supply
strategies and programs
 This puts the focus on the root
causes of risk
 New suppliers
 Riskier supply chains (overseas)
 High levels of customization
Risk-Driven Sourcing
Bottleneck
Strategic
Noncritical
Leverage
Risk-Driven Sourcing
Medium-High Risk
Bottleneck
•Unique specifications
•Supplier’s technology important
•Substitution is difficult
•Unpredictable usage
•Few sources of supply
Strategic
Noncritical
Leverage
Risk-Driven Sourcing
Medium-High Risk
Bottleneck
Noncritical
Strategic
•Availability essential
•Supplier technology important
•Few suppliers
•Supplier switch difficult
•Substitution difficult
Leverage
Risk-Driven Sourcing
Bottleneck
Strategic
Low-Medium Risk
Noncritical
•Standard spec or commodity item
•Easily substituted
•Many sources
Leverage
Risk-Driven Sourcing
Bottleneck
Strategic
Low-Medium Risk
Noncritical
Leverage
•Standard spec or commodity item
•Volume price breaks (price is key)
•Substitution possible
•Several sources
It is important to know what
approach best fits your
company!
Risk-Driven vs. Spend-Driven
Brand X
Brand Y
Spend
1.
2.
3.
4.
5.
Aluminum
Copper wire
Plastic molding
Microchips
Speakers
$14.7m
$8.3m
$7.6m
$7.3m
$5.7m
11. Light sensors $1.3m
Strategy-Driven Sourcing
 Start with A company-wide Strategic Plan incorporating input



from all the relevant stakeholders
Resources are allocated to purchases that have the greatest
potential impact
Maximize opportunities
Minimize risk
 Is a purchase strategic or operational?
 Operational has little effect on final
customers
 Strategic impacts final customers or has
significant impact on company’s bottom
line.
Apply a strategy to fit the purchase
Evaluating & Selecting Suppliers
 Too few suppliers often
leads to sub-par results
 Properly specifying the
requirement is essential
 Two step process
 Identify suppliers that
could be considered
 Narrow the list to
perform a better analysis
First-Cut Strategic Considerations
Develop criteria for finding sources
Classify purchases according to strategy
Immediate considerations:
Incumbent performance
Single source vs. multiple suppliers
Vendor size/capabilities
Location
Supplier relationship desired
Contract length
Type of supplier
External considerations
Financial viability
Narrowing the Field
Evaluate a Supplier’s Ability to Perform
Quality assurance
Operational capability
Logistics and distribution
Service
Finances
Organization/Management
Labor issues
Legal issues
Narrowing the Field
Analyzing Supplier Performance
A formalized
performance
measurement
program increases
discipline and
consistency
Narrowing the Field
Analyzing Supplier Performance
Characteristics of a Successful program:
Key Performance Indicators
Designed Metrics to distinguish suppliers
Aligned with organizational strategy
Clearly defined and prioritized
Encourage desired behaviors
Price Cost and Metrics
Different ways to measure
Overemphasis may miss bigger financial picture
Full cost analysis leads to more robust
understanding
Narrowing the Field
Analyzing Supplier Performance
Characteristics of a Successful program:
Quality
Does it meet specifications?
Value of exceeding specs?
Cost of underperformance?
Price Cost and Metrics
Delivery
Freight Costs
Improper delivery
inventory
Service
Different ways to measure
Problem
Overemphasis may miss bigger
financialResolution
picture
Support
availability
Full cost analysis leads to more robust
Clearly defined prior to Quote
understanding
Objective scoring
Narrowing the Field
Analyzing Supplier Performance
Supplier Performance Rating Methods:
Categorical Method
keep
a records of all suppliers and their products and
services
Establish a list of factors to grade
Periodic evaluation
Cost-Ratio Method
Identifies
all costs to the value of each shipment
The lower the ratio, the higher the rating
Weighted-Point Method
Each
factor assigned a weighted value
Each factor graded
Our approach for AmeriGas
Market Intelligence
“Sustainable intelligence is required to successfully and continually
turn information and data into usable and actionable knowledge”
Three key areas:
1. Identification of supply
opportunities
2. Prediction of future trends
3. Identification of lower cost
alternatives to meet
requirements
Chapter 8:
Supply Chain Self-Measurement
Supply Chain Self-Measurement
The fall of communism
Market driven economies in Southeast Asia
End of African Colonialism
innovation
Technology
Robust Global Economy
The world was both stable and experiencing unprecedented growth
Terrorism
War
Rising Gas Prices
Global
Uncertainty
The World is now at Risk
Supply Chain Self-Measurement
Globalization requires supply
professionals to manage risk better
Supply
The
Management
World is now
is NOT
at Risk
exempt
Globalization requires supply
professionals to manage risk better
Globalization requires supply
professionals to manage risk better
“Supply Professionals no longer have the luxury of not knowing
what best practices are and how their operations (and Supply
chains) compare to those practices.”
Formalize expectations
Understand potential risk
Have measurement protocols in place
Pre-qualify sources of supply
Avoid Disruptions to supply!
Globalization requires supply
professionals to manage risk better
Know Your Role!
Know Your Place!
Know Your Plan!
“Supply Professionals no longer have the luxury of not knowing
what best practices are and how their operations (and Supply
chains) compare to those practices.”
Know Your Role!
Know Your Place!
Know Your Plan!
Differentiate between the levels of
value and risk to identify operational
importance and to manage risk
Operational
Critical
Transactional
Commodity
Scope of measurement and evaluation process
 Collaborative Process
 Interdisciplinary (external & Internal)
 Involve all stakeholders
 Supply must orchestrate requirements and expectations
No longer is supply just going through a buyer or purchasing department
There are now multiple points of contact across multiple levels of the
company
It is, therefore, now necessary to assess both supplier performance and
also measure how well supply manages the supply chain
Scope of measurement
Supply Profiles
and evaluation process
Supply management should set standards for qualitative and
quantitative criteria to evaluate
form
fit
functionality
The supply professional must understand:
Concept of supply management
How measurements are applied
Elements and implications of measurement
How this will improve profits, efficiency,
and progress
When incentive-based performance
measurements are appropriate
Impact of supply management on
development and long-term relationships
Supply Profiles
The emphasis of Supply measurement is the development of supplier assessment and
evaluation profiles that quantitatively and qualitatively measure capabilities and
performance
Key questions when developing a profile:
1. Organizational structure –where do
functions and process reside
2. Information systems and operating
protocols
3. Locations, physical assets, location
capabilities
4. Supply chains to supply
chains…looking further down the line
5. Financial stability of the
supplier/protections in place
6. Management team
Supply Profiles
This profile will show how the supply chain manages…
Order Management
Personnel
Development
Customer Service
Quality
Cash Flow
Supply Commitment
Compliance
Commitment
Social Responsibility
Research & Development
Cost Competitiveness
Logistics
Finances
Inventory
Project Management
Supplier data baseline profile
Research what the experts
and industry leaders think
Then do your own
worse
better
good
Evolving and ongoing process
Self-assessment of capabilities and attributes
Comparative analysis in order to rank
Create benchmarks
Competitive analysis for future RFP
Identify new opportunities
Key supplier performance matrices
Deliver
materials or services on time
Two requested
basic tenants
Delivery
performance
measurements
Quantitative
performance
Cost-effective
materials
and services
Qualitative
performance
Inventory
accuracy
Supply’s
responsibility to formalize measurement process
Weekly surveys
Actual performance
Current concerns to specific situation
Open-ended questionaire
Supply chain performance against
changing stakeholder requirements
Cycle time reductions in
processes and resources
 Reduction in process
cycle times exposes
process problems
 Improves resource
management
 Reduces overall costs
 Is a Critical success
factor
 Lowering inventories
 Improving customer
service
 Improving quality
 More efficient
Knowledge-Based Supply Management
A process of using the skills and
information available to the supply team
to best tailor a supply initiative to the
specific supply opportunity.
Supply chain self measurement
Allows the supply management team to
ensure that the supply initiatives it has
instituted are successful by creating a
means to objectively measure
performance
So what’s it all mean?
Resources:
The Supply Chain Management
Handbook – 7th Edition
Part Two:
Going To Market With Today’s Crucial Imperatives