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Hidden Cost of a Supplier
Pascal Reyntjens
Agenda
Return on Supply Management Assets
Supplier Integration
Q&A
Procurement Value Creation or Hidden Cost
Conclusion
Procurement Structure & Maturity
PROCUREMENT MISSION?
300 Month 0000Presentation title in footer
Return on Supply Management Assets
400 Month 0000Presentation title in footer
Agenda
Return on Supply Management Assets
Supplier Integration
Q&A
Procurement Value Creation or Hidden Cost
Conclusion
Procurement Structure & Maturity
Return on Supply Management Assets
600 Month 0000Presentation title in footer
7
Structure
Capabilities
Robust Processes led by skilled People
Supported by efficient system
Pre-requisite: Procurement Structure & Capabilities
• Procurement reporting line (CEO, Manufacturing, Finance, Supply chain,…)
• Procurement Structure, skills and seniority level
• Procurement Processes & Systems
• Procurement part of the leadership team of the Mkt, IT, Manufacturing,
R&D,….
• Procurement practices embedded in the company WOW and supported by
CEO
• Procurement owner of the Supplier relationship
• Get lowest price
from given
suppliers
• Support business units
• Facilitate
improvements
• Optimize total cost
• Optimize Value for
Money
• Achieve full potential
from external
resources
Mission
Mandate • Provide transaction
services
• Manage all sourcing
decisions including make vs.
buy
• Accountable for third party
relationship management
• Negotiate with
suppliers for all BU’s
• Ensure compliance
• Buy specified
products at lowest
price
• Select suppliers
by total cost
• Challenge
• Ensure reliable
& cheap supply
The role of Procurement in the organization
Increasing sophistication of existing processes, systems & capabilities, leadership & soft skills leverage
capabilities
Unit ServerUnit
optimizerService provider Sparring partner
World-class business
partner
High level of synergies across BUs
High value from BUs focusHow we buy? What we buy?
Agenda
Return on Supply Management Assets
Supplier Integration
Q&A
Procurement Value Creation or Hidden Cost
Conclusion
Procurement Structure & Maturity
Return on Supply Management Assets
1000 Month 0000Presentation title in footer
GMP
Eudralex
Canada
WHO
EP
Japan
JP
Brazil
China
CFRAustralia
USP
PPRC
Importance of documentation: Pharma industry under complex regulations
governing GMP
Return on Supply Management AssetsBeing Compliance is the license to Operate but has a cost
Return on Supply Management Assets
1200 Month 0000Presentation title in footer
• How fast the procurement organization is capable to take benefits of Market
Capabilities
• Take benefits of Business Growth, R&D leverage, Company Image/reputation
• Take benefits of Market structure modification ( new entrants, capacity change,
….)
Return on Supply Management Assets
1300 Month 0000Presentation title in footer
Value Creation through Supplier or
Cost impact in case of change
• Make or buy: Outsourced non core activities:
• Non Core activities
• Material Testing
• Logistic operations
• Internal distribution
• Material assembly
• Validation works….
• Competitive dimension:
• Use supplier knowledge through SRM
• Benchmark organisational design through Supplier
• Use Discovery Survey Program from Suppliers
• Deploy competitive features from Suppliers
• Reduce Cost per unit:
• Increase Material quality & reliability
• Transfer activities to Suppliers
• Push Investment to supplier base
• Leverage supplier innovation
• Improve throughput & throughput time:
• Increase efficiency (material spec)
• Reduce material lead time
• Reduce IM testing time
• Increase supplier flexibility
Procurement Contribution
• Mindset change:
• Supplier is part of supply chain
• Supplier is more than material provider
• Accept supplier knowhow & expertise
• If it is non core, does GSK need to invest
• Give opportunity to supplier to bring his value
• Supplier is source of Benchmark
• Material Management
• Business Rules
• Testing Regime
• Animal free, Halal, …
• Sustainability
• Stock Management
• Source of simplification, rationalisation
• Technologies used
• Inbound Supply chain Infrastructure:
• Warehousing
• QC testing
• Supplier Network
• Supplier location
Procurement Contribution
Value Creation through Supplier or
Cost impact in case of change
Kraljic model. To position the need versus business risk
• High cost for change are :
– Leverage items:
• level of additional services or integration could be
high
• Supplier is interested to keep his customer
• Customer is interested to increase value for money
– Strategic items:
• Level of integration could be high to increase service
level, reducing waste & TCO
• Both company have interest to increase their
collaboration
• Middle cost for change:
– Critical items – no internal support for integration or
additional services. Securisation should be external
(BCP at supplier level)
• Low cost for change:
– Non-critical items – on the shelf items – no internal
support for integration or deep collaboration
Leverage Items
Exploiting of purchasing power.
Strategic Items
Diversify, balance, or exploit.
Non-critical Items
Efficient Processing.
Critical
Capacity assurance
Project deadline
Low High
High
Supply risk
Imp
ort
ance o
f th
e Ite
ms
in th
e o
rga
niz
ation
Balance of power
Kraljic model to identify high hidden cost or value opportunity
Hidden Costs are linked to Value Opportunities
Innovation
Supplier IntegrationSpec Review
Make or buy Inventory Level Reduction
Sourcing & Contract
ManagementEHS/ Risk Management
Innovation
Supplier IntegrationSpec Review
Make or buy
Inventory Reduction
Sourcing & Contract
ManagementEHS/ Risk Management
• Reduce Testing
• Delegation of testing
• Vendor Manage Inventory
• Use supplier resources for training,
• Validation, project management
• Shared development Platform
• Batch size
• Spec evolution
• Yield criteria
• Acceptance criteria
• Standardization / Harmonization
• Packaging waste reduction
• Working with Leading or follower supplier?
• Access to supplier R&D?
• Co-Investment/Co-development
• Pre-Assembly
• Contingent Worker services, website,…
• Non core business (eg: 4PL, Spare Parts stock
Management, on site distribution…)
• OTIF performance
• Lead-time performance
• PreDelivery Sample, supplier safety stock,…
• VMI, Consignment Stock
• Collaborative Planning
• Contract negotiation
• Liabilities & Penalties negotiation
• Claim Management
• Service Level performance
• Quality Improvement
• Supplier base rationalization
• DPO performance
• Incoming Material Securisation:
Key IM
Mono/Single sourcing
Critical
• Ergonomic impact on your worker
• Carbon Footprint strategy
Agenda
Return on Supply Management Assets
Supplier Integration
Q&A
Procurement Value Creation or Hidden Cost
Conclusion
Procurement Structure & Maturity
21
How deeply your supplier is integrated within your company?
4 dimensions to manage
How your supplier base is contribting to the Strategy / Objectives
of the Company
Time Line
Partnership
Supplier Evaluation
Ma
turi
ty
Segmentation &
SRM
Supplier
Capability
Innovation mgt
Supplier
Forum
23
Based on hard and soft critieriasSupplier Segmentation
Level 1
PARTNERS
Level 2
STRATEGIC
VENDORS
Level 3
KEY VENDORS
Level 4
TRANSACTIONAL
# Suppliers
10
100
1000
6000
High level Selection Criteria
Valu
e P
ote
nti
al
Su
pp
lier
Cap
ab
ilit
y
Su
pp
lier
Perf
orm
an
ce
Ris
k
Imp
act
Att
itu
de /
Wil
lin
gn
ess
SRM Tools
SRM needs your support GOP
Dec 2013
Strategic
Partnership
Governance Model
SPE, BRM
Ad-Hoc Interactions,
meetings
Ponctual contacts,
e-Catalog,
Supplier Portal
Global SRM Governance model
BRM
TRM
Steering
Comittee
Quality Steering
Commitee
Supplier Performance Evaluation
Innovation –Technology Day
Local and global Operational Review Meetings
Performance and project follow up
(Logistics, Quality, Commercial & Risk, etc.)
• Strategy sharing from both Companies
• Business optimization and synergy opportunities
• projects prioritization and Resources allocation
• Potential additional business
• Total Cost reduction plan
• “Voice of the customer”
• Quality Trends analysis and supplier capability
• Supplier Key parameters analysis
• Supplier QMS evolution
• GSK Quality expectation evolution
• Quality Improvement plan
• Supplier performance on logistic, Quality, Risk, competitiveness and
project management
• Fix performance target for the next year
• Supplier performance on logistic, Quality, competitiveness and project
management
• Ensure assurance of supply
• Drive Supplier performance
• Supplier Technology Road Map
• GSK Bi expectation for future business
Master Data Alignment
VET / IOLT Relationship
Sponsorship
Co-development
Joint IPFit for purpose Specifications
Full Certification
Release by supplier
Inventory visibility OTIF improvement program
Collaborative Quality
Management
Lead-time reduction
program
Collaborative Risk
Mitigation
e-Procure to Pay Process /
EDI
Supplier Capability Evaluation /
Monitoring
SLA/ Balanced Scorecard VMI/Collaborative Inventory,
Capacity Planning & ForecastingStructured SRM governance
Collaborative TCO
Reduction Program
Reduced
QC Testing
Knowledge transfer by
suppliers to GSK
GSK Process
improvements
Level 1
PARTNERS
Level 3
KEY VENDORS
Level 2
STRATEGIC
VENDORS
“Supplier Integration” is a structured, progressive and merit-based approach focused on mutual value
generation
Level 4
TRANSACTIONAL / OCCASIONAL BUSINESS
26
How deeply your supplier is integrated within your company?
4 dimensions to manage
Procurement
Suppliers
Operations - Procurement collaboration model
Operations
?
Operations
Procurement
Governance
Suppliers
28
How deeply your supplier is integrated within your company?
4 dimensions to manage
Global-Local Supplier Integration & Collaboration
Time Line
Succesful Organisation
Mindset & Behaviour
Ma
turi
ty
Alignement
Team build up
Team Work
UNCLASSIFIED
Supplier Presence at Company level
Objectives Sharing
UNCLASSIFIED
Common Objectives
Supplier Presence at Company level
Agenda
Return on Supply Management Assets
Supplier Integration
Q&A
Procurement Value Creation or Hidden Cost
Conclusion
Procurement Structure & Maturity
The Future?
UNCLASSIFIED
Manufacturing Strategy: Activity & Network
Operations Yield & Performance
Boost innovation & competitive advantage
Leverage supplier capabilities: Validation, Project mgt, Supply,
Inventory, testing,….
Internal resources impact
Cirisis Management
Throughput time, WorkingCapital
Internal company structure
Cost & Profit
Supplier Impact on Company strategie
Value Creation/Ihidden costs identification should be used to
better manage the change and better negotiate with supplier base.
Not to avoid the change