B.GAUCLERE
M2 / NEGOCIA 2012
1
B) THE PURCHASING PROCESS
1
DEFINITION OF NEEDS
2
SUPPLIER MARKET ANALYSIS
3
PURCHASING OPTION
4
SUPPLIER SEARCH & SELECTION
5
NEGOTIATION & CONTRACT
6
SUPPLIER MANAGEMENT
B.GAUCLERE
M2 / NEGOCIA 2012
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B) THE PURCHASING PROCESS
2
SUPPLIER MARKET ANALYSIS
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
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B) THE PURCHASING PROCESS
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SUPPLIER MARKET ANALYSIS
• legal
New entrants
• technological
• political
• environmental
Barriers
Market
rivalry
Suppliers
Customers
Substitute solutions
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B) THE PURCHASING PROCESS
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SUPPLIER MARKET ANALYSIS
1. The supplier market
• Organization
• Financial concentration
• Production capacities
• Technology
• Quality
• Market strategy
• Cost structure
• Price index and evolution
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B) THE PURCHASING PROCESS
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SUPPLIER MARKET ANALYSIS
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
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B) THE PURCHASING PROCESS
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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
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B) THE PURCHASING PROCESS
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.GAUCLERE
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B) THE PURCHASING PROCESS
2
SUPPLIER MARKET ANALYSIS
5. New entrants
Helps identifying who will invest to enter the market
as a new supplier
Key issues:
• when will they enter? How?
• potential impact on strategies?
• opportunities?
Example: flat screen TV panel
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B) THE PURCHASING PROCESS
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SUPPLIER MARKET ANALYSIS
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 strategy
Before renewing a contract
B.GAUCLERE
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B) THE PURCHASING PROCESS
2
SUPPLIER MARKET ANALYSIS
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
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B) THE PURCHASING PROCESS
2
SUPPLIER MARKET ANALYSIS
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
B.GAUCLERE
M2 / NEGOCIA 2012
12
B) THE PURCHASING PROCESS
1
DEFINITION OF NEEDS
2
SUPPLIER MARKET ANALYSIS
3
PURCHASING OPTION
4
SUPPLIER SEARCH & SELECTION
5
NEGOTIATION & CONTRACT
6
SUPPLIER MANAGEMENT
B.GAUCLERE
M2 / NEGOCIA 2012
13
B) THE PURCHASING PROCESS
3
PURCHASING OPTION
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
B.GAUCLERE
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B) THE PURCHASING PROCESS
3
C
SEGMENTS
D
SEGMENTS
A
SEGMENTS
B
SEGMENTS
-
Annual spend
+
PURCHASING OPTION
-
B.GAUCLERE
Supply risk
M2 / NEGOCIA 2012
+
15
B) THE PURCHASING PROCESS
-
Annual spend
+
3
PURCHASING OPTION
C
D
Use purchasing power
Immediate savings
Suppliers’ competition
Cost analysis
Imposed productivity
LCC use
Long term savings
Partnerships
Supplier’s integration
Project management
Risk management
Strategic control
B
A
Simplify process
E-procurement
E-catalogues
Standardization
outsourcing
B.GAUCLERE
Secure supply / avoid costs
Long term agreement
Alternative supplier
Functional analysis
Safety stock
Bonus / penalties optimization
Supply risk
M2 / NEGOCIA 2012
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16
B) THE PURCHASING PROCESS
1
DEFINITION OF NEEDS
2
SUPPLIER MARKET ANALYSIS
3
PURCHASING OPTION
4
SUPPLIER SEARCH & SELECTION
5
NEGOTIATION & CONTRACT
6
SUPPLIER MANAGEMENT
B.GAUCLERE
/ NEGOCIA 2012
M2
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
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.
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/ NEGOCIA 2012
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B) THE PURCHASING PROCESS
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SUPPLIER SEARCH & SELECTION
STEP 1
SEARCH CRITERIA
DEFINITION
STEP 2
SEARCH FOR
POTENTIAL SUPPLIERS
STEP 3
RFI
NEEDS MET?
YES
SITE VISIT
STEP 4
NEEDS MET?
YES
RFQ
STEP 5
ELIGIBLE?
Current suppliers
STEP 6
SUPPLIER SELECTION
STEP 7
B.GAUCLERE
YES
PORTFOLIO
MANAGEMENT
M2 / NEGOCIA 2012
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
Search criteria
Company’s
purchasing guidelines
Purchasing strategy
per segment
Technical needs per
segment
• Financial situation
• Ownership
• Equipment type
• Minimal size
• Capacity
• Process type
• Maximum share with one
customer
• Location
• R&D capacity
• Logistic features
• Patents
• ...
• Logistics
• Quality certifications
• Ethical charter
• ...
• Environmental constraints
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B) THE PURCHASING PROCESS
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SUPPLIER SEARCH & SELECTION
Criteria definition
GO / NOGO
preselect / discard supplier
IMPORTANT
select supplier
SECONDARY
define supplier’s share
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B) THE PURCHASING PROCESS
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SUPPLIER SEARCH & SELECTION
Potential suppliers’ analysis using
weighted selection criteria
Critères
Qualité
Prix
Innovation
Système de contrôle qualité
1
Niveau
3
Prix par rapport aux concurrents locaux
2
TCO de la solution
3
Niveau par rapport à notre objectif
2
Capacité à innover
1
Savoir-faire, connaissances techniques
2
Fonctionnement Capacité
Général
POIDS
2
Ordre et propreté
1
Contrôle et gestion
1
Santé financière
3
Désir de développement avec votre entreprise
1
Organisation
2
Langue de travail
1
Poids : 1– 2 - 3 TOTAL PONDERE (125 maxi.)
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
STEP 1
SEARCH CRITERIA
DEFINITION
STEP 2
SEARCH FOR
POTENTIAL SUPPLIERS
STEP 3
RFI
NEEDS MET?
YES
SITE VISIT
STEP 4
NEEDS MET?
YES
RFQ
STEP 5
SELECTABLE?
Current suppliers
STEP 6
SUPPLIER SELECTION
STEP 7
B.GAUCLERE
YES
PORTFOLIO
MANAGEMENT
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STEP 2 – Search for potential suppliers
 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
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STEP 2 – Search for potential suppliers
 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 !!!
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
STEP 1
SEARCH CRITERIA
DEFINITION
STEP 2
SEARCH FOR
POTENTIAL SUPPLIERS
STEP 3
RFI
NEEDS MET?
YES
SITE VISIT
STEP 4
NEEDS MET?
YES
RFQ
STEP 5
SELECTABLE?
Current suppliers
STEP 6
SUPPLIER SELECTION
STEP 7
B.GAUCLERE
YES
PORTFOLIO
MANAGEMENT
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STEP 3 – Get information
Building a questionnaire
 A questionnaire has to be used to obtain
detailed information about the supplier in
order to:
 Feed a structured database
 Decide whether the supplier meets minimal criteria to
become a potential supplier
 The typical questionnaire will have 2 parts:
 GENERAL INFORMATION: whoever the supplier is
 SPECIFIC INFORMATION: for a given family or segment
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
STEP 1
SEARCH CRITERIA
DEFINITION
STEP 2
SEARCH FOR
POTENTIAL SUPPLIERS
STEP 3
RFI
NEEDS MET?
YES
SITE VISIT
STEP 4
NEEDS MET?
YES
RFQ
STEP 5
SELECTABLE?
Current suppliers
STEP 6
SUPPLIER SELECTION
STEP 7
B.GAUCLERE
YES
PORTFOLIO
MANAGEMENT
M2 / NEGOCIA 2012
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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 supplier
o 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
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STEP 4 – site visit
Building a process for the visit
 Before the visit:
 Set the targets
 Gather existing data about the supplier
 Identify 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 bid
 Prepare a presentation of your company, your
purchasing policy and process, bring samples, etc.…
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STEP 4 – site visit
Building a process for the visit
During the visit:
 Stick to the agenda
 Search for any available information (documents,
notes….)
 Write a report with the supplier
After the visit:
 Debrief with the people present during the visit
 Complete the visit report and dispatch it
 Settle an action plan: what are the next steps the
supplier is supposed to follow?
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STEP 4 – site visit
Analyze financial situation
WHYI
Be sure there are no supply risks (short & mid terms)
HOW
Use your company’s financial analysis tools
Use financial services providers (Dunn & Bradstreet)
WHEN
Starting at first visit with a regular follow-up in case of
common work
B.GAUCLERE
M2 / NEGOCIA 2012
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
STEP 1
SEARCH CRITERIA
DEFINITION
STEP 2
SEARCH FOR
POTENTIAL SUPPLIERS
STEP 3
RFI
NEEDS MET?
YES
SITE VISIT
STEP 4
NEEDS MET?
YES
RFQ
STEP 5
SELECTABLE?
Current suppliers
STEP 6
SUPPLIER SELECTION
STEP 7
B.GAUCLERE
YES
PORTFOLIO
MANAGEMENT
M2 / NEGOCIA 2012
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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 questionnaire
For complex products – after the first visit
B.GAUCLERE
M2 / NEGOCIA 2012
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B) THE PURCHASING PROCESS
4
SUPPLIER SEARCH & SELECTION
STEP 1
SEARCH CRITERIA
DEFINITION
STEP 2
SEARCH FOR
POTENTIAL SUPPLIERS
STEP 3
RFI
NEEDS MET?
YES
SITE VISIT
STEP 4
NEEDS MET?
YES
RFQ
STEP 5
SELECTABLE?
Current suppliers
STEP 6
SUPPLIER SELECTION
STEP 7
B.GAUCLERE
YES
PORTFOLIO
MANAGEMENT
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STEP 6 – supplier selection
Listed and potential suppliers
Listed supplier(s)
track record
Potential suppliers’
analysis using
selection criteria
Strategic fit
analysis
Most valuable
suppliers
Preferred suppliers’ list
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Potential supplier analysis using
selection criteria - EXAMPLE
Critères
Qualité
Prix
Innovation
POIDS
Système de contrôle qualité
1
2
3
3
Niveau
3
4
3
5
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
Capacité à innover
1
3
5
4
Savoir-faire, connaissances techniques
2
2
1
1
2
5
3
2
Ordre et propreté
1
3
2
5
Contrôle et gestion
1
1
4
3
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
69
73
76
Fonctionnement Capacité
Général
FOURNISSEUR AFOURNISSEUR BFOURNISSEUR C
TOTAL PONDERE (125 maxi.)
SCALE: 1 insufficient – 5 excellent
B.GAUCLERE
Weight
: 1 low importance – 3 great importance
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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
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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 ?
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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
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How to measure the supplier’s fit?
 The relationship with the supplier depends on the
ATTRACTIVENESS of both parties towards each
other
HIGH
STRATEGIC
FIT
Having our company
As a customer has a
strategic importance
LOW
LOW
HIGH
The supplier has a strategic importance for us
B.GAUCLERE
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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
42
B) THE PURCHASING PROCESS
1
DEFINITION OF NEEDS
2
SUPPLIER MARKET ANALYSIS
3
PURCHASING OPTION
4
SUPPLIER SEARCH & SELECTION
5
NEGOTIATION & CONTRACT
6
SUPPLIER MANAGEMENT
B.GAUCLERE
/ NEGOCIA 2012
M2
43
B) THE PURCHASING PROCESS
6
SUPPLIER MANAGEMENT
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
B.GAUCLERE
/ NEGOCIA 2012
M2
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B) THE PURCHASING PROCESS
6
SUPPLIER MANAGEMENT
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.
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/ NEGOCIA 2012
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B) THE PURCHASING PROCESS
6
SUPPLIER MANAGEMENT
How does a TCO look like?
NOT VISIBLE
UPSTREAM COSTS
VISIBLE
PURCHASING COSTS
PARTLY VISIBLE
DOWNSTREAM COSTS
B.GAUCLERE
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B) THE PURCHASING PROCESS
6
SUPPLIER MANAGEMENT
PURCHASING COSTS
Raw material
Production
Amortizing
Fluids
Overhead
Sales/marketing costs
Logistics
Profit
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B) THE PURCHASING PROCESS
6
SUPPLIER MANAGEMENT
UPSTREAM COSTS
Definition of requirements
Suppliers’ sourcing process
Product’s qualification
B.GAUCLERE
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B) THE PURCHASING PROCESS
6
SUPPLIER MANAGEMENT
DOWNSTREAM COSTS
Administrative costs
(issuing order, invoice,
Order follow-up)
Delivery
Insurance
Payment terms
Installation
Maintenance
Warranty
B.GAUCLERE
Supplier management
Usage
Recycling
Disposal
Contract
Internal policies
Non-quality
Non-delivery
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