Are you a good customer?

Are you a good customer to your suppliers? Do you even care what your suppliers think of you?

There is a lot of discussion about supplier relationship management (SRM), but often a missing − but important piece – of SRM is finding out how a supply management organization can become a better customer. It involves peeling back the layers of the relationship to get at its core, because suppliers often will not be truthful with customers.

Christopher Silva, CPSM, C.P.M., associate director, strategic procurement, Alkermes, Inc., shared his journey to building better customer relations with suppliers during a Tuesday afternoon workshop “Becoming a Better Customer: Results & Implications for Supply Managers.” Silva says when his organization began asking suppliers about whether it was a good customer, most told him everything was fine. “But their performance as suppliers did not match what they were telling us,” Silva adds.

Silva’s supply organization developed a survey with 13 open-ended questions and sent it to 140 of its suppliers. The questions asked suppliers to rate the organization on how well it met their needs in terms of (1) frequency and method of communications (2) timely problem resolution and (3) meeting forecast requirements, for example. After compiling the data from the 40 percent of supplier respondents, the company decided to meet with suppliers one-on-one to discuss the results. He notes that managers throughout the company received SRM training because they also met with suppliers since it was too large an undertaking for supply management on its own.

He says the survey started a dialogue with suppliers that greatly helped the organization realize its strong points and its weaknesses. “You have to first find out what the real issues are,” says Silva. “Then you have to personalize the relationship but depersonalize the issues.” The survey has helped Alkermes customize its relationship with its supply base, “because you can’t treat all suppliers the same,” he says.

Cost savings and risk mitigation, while not specific goals, were realized through improved relationships and dialogue with suppliers, he adds.

Take Collaboration to a New Level

How well are you collaborating with your supply chain partners? And at what level of collaboration is best? Arnaud Deshais, CPIM, CSCP, C.P.M., CPSM, head, global value chain for Novartis Vaccines & Diagnostics, presented on the topic “Collaboration: The Path To Maximizing the Quality, Service and Cost Equation.”

The prerequisite to any collaborative effort is trust ― first and foremost. Without this foundation, relationships will likely falter. How important are relationships today? Supply management’s role is evolving toward partnership management. In essence, supply management professionals are ambassadors for their company as they work with global partners.

When examining collaborative relationships, there are three levels ― 1) transactional, 2) information sharing and 3) strategic. Depending on the nature of the relationship, supply managers will decide at what level to segment their partners.

Transactional level. Nearly 80 percent of relationships are categorized as transactional. While collaboration does occur, it’s short term. What type of relationship constitutes transactional? If the relationship is centered on processing purchase orders, customer orders and receipts, then it’s purely transactional. This doesn’t mean that it’s not important, however. The data exchanged must be accurate or the value is lost. Such systems as EDI and IDE can make transactional collaboration more efficient.

Information sharing level. Once critical data such as costs, forecasts and market intelligence are exchanged, collaboration evolves into information sharing. At this level, a true partnership takes shape because partners are exchanging information to help each other be more efficient and make better decisions. Using such tools as S&OP can provide the transparency required for both partners to succeed. Integration of critical information enables the parties to discuss variations and decide on alternate strategies.

Strategic relationship level. The highest level of collaboration is a strategic relationship where supply management partners are truly involved in a joint venture with long-term commitments. At the heart of a strategic relationship is a relationship manager who develops personal relationships between the company and its partners. This individual shares his or her knowledge to colleagues and ensures alignment of expectations, governance and decisionmaking.

While the relationship manager is critical, so too are quarterly business reviews among high-level participants from the organization and supplier partners. These business reviews allow all parties to evaluate goals, objectives and metrics, as well as review performance and progress.

From a contractual standpoint, supply management professionals should establish a joint services agreement (JSA) that outlines what the collaborative relationship entails and the expectations. This document does not replace the contract, but is an addendum.

Together with the relationship manager, quarterly business review and JSA, there’s a strong foundation for managing the collaborative relationship at the strategic level.

Compliance in the supply chain

As supply managers source around the globe, it is imperative that they engage their organization’s trade compliance division early on because compliance is a “steel thread” that winds throughout the supply chain. Professionals examined the need for cross-functional alignment between supply management and a company’s global trade compliance organization during an Advanced Global Supply Chain Management workshop on Tuesday.

Too often compliance with the variety of federal customs regulations regarding the import and export of goods in the United States is seen as a roadblock to getting products from point A to point B, says Rennie Alston, president, American River International. But failing to comply with regulations or not properly documenting the shipment of goods around the world can result in serious problems for companies.

He says the challenges to compliance in a company include:

• Success despite non-compliance. (It’s difficult to sell compliance if a company is meeting its goals without complying with regulations.)
• Complacency
• Non-focused service providers
• Lean operations (no time to include compliance, limited head count)
• Cost (always an obstacle)
• Getting everyone on the same page (executive level, finance, risk management)

Depending on the company, compliance can report to the legal department, manufacturing, tax/finance, logistics or supply chain management, explains Mark S. Baxa, director, global trade & compliance, Monsanto Company. Baxa says he believes the compliance organization should report to supply management because compliance involves commodities, risk management and strong alignments with suppliers and logistics providers. “But no matter how compliance is organized, it starts with executive support,” he says. “You have to have great leadership that understands international trade.”

Trade compliance in an organization involves investment, commitment and then execution, explains Marie P. Cabral, director, import/export compliance, America II Electronics, Inc. “If you are the person in charge of compliance, it is difficult, especially when you are viewed as a hindrance,” Cabral says. But she notes that compliance is essential in today’s global economy, and it is important for supply managers to “understand commodities and know how to move them around the world.”

Achieve Successful Early Supplier Involvement

In a Tuesday morning session, Rodney Glass, vice president, global quality for HID Global, presented “New Product Innovation: Getting It Right with Early Supplier Involvement.” As the session implies, early supplier involvement (ESI) is critical to a flawless product launch and ongoing innovative growth.

What is critical to understand prior to any ESI initiative, is that organizations must have internal team collaboration established. Without an internal process in place, collaboration with outside partners will be difficult to achieve and suppliers will not take the organization seriously. Once an internal collaborative process is established, discussions about how suppliers will be integrated into the process are needed.

What is an effective process for working with suppliers to ensure alignment and accountability throughout the product launch and innovation processes? It requires:

• Supplier assessment ― Have you selected the right supplier to do the work? Can they meet your requirements? Does the supplier share your same values and commitment to quality?

• Supplier reviews ― Meet weekly with the supplier to address concerns in the product development process. The earlier concerns are recognized and dealt with jointly, the quicker they can be resolved and the process moved forward.

• Supplier scorecards ― This is an evaluation that occurs once per quarter that evaluates metrics such as quality, delivery, new product introductions and strategic initiatives.

• Supplier cost recovery ― Where can the product or process be made more efficient for less cost?

• Perfect quality planning ― At this stage, the organization can involve critical contract manufacturers that can impact the top and bottom line.

How does an organization create a culture that is focused on a flawless product launch? Provide transparency to leadership about the progress of an initiative. Prevent product delays with internal cross-functional collaboration. Are all the necessary departments involved in the discussions?

What does it take to achieve effective supplier collaboration during a new product launch? First and foremost, listen to your suppliers and address the concerns identified in discussions. This will prevent delays later in the process. Second, establish metrics that align with the expectations from product concept to customer delivery.

Ultimately, cultural paradigms must be broken to ensure process alignment and transparency throughout the product development and launch process. Also, accountability must be established with measureable metrics. Rely on data to inform leadership and partners about shortfalls and concerns — this will help remove the emotion from the discussion and focus on the facts.

There is no one-size-fits-all approach to ESI. And while most organizations recognize that suppliers must be involved in new product development, they overlook that it needs to occur early in the process.

Economic recovery slow

The economy is showing signs of improvement, especially in the manufacturing sector, but it continues to be hampered by high unemployment, low consumer confidence and high debt.  Also, a wild card in the economy’s recovery is the path that federal spending will take in the coming years.

Those were just some of the conclusions of a panel of economists and supply management leaders during an Economic Outlook presentation that kicked off the third day of the ISM conference. The panel included Norbert J. Ore, CPSM, C.P.M, chair of the ISM Manufacturing Business Survey Committee; Anthony S. Nieves, C.P.M, CFPM, chair of the ISM Non-Manufacturing Business Survey Committee; William Dunkelberg, professor of economics, Temple University; and David Hensley, executive director and global economics coordinator, economics research department, J.P. Morgan.

Some of the economic predictions and findings of the panel include:

• Manufacturing is expected to grow significantly this year, with the April 2011 operating rate at 83.2 percent.
• Prices in the manufacturing sector are expected to increase a total of 7.4 percent for all of 2011, indicating an expected increase in prices of 1.3 percent for the remainder of this year.
• The non-manufacturing sector is expected to continue growing slowly in 2011, with revenues predicted to increase 2.1 percent.
• Prices in the non-manufacturing sector are expected to increase an additional 0.6 percent for the remainder of the year, for a total 2011 increase of 4.7 percent.
• Small businesses in the United States are not pulling themselves out of the recession as quickly as other business sectors.
• The major complaints of small businesses are lack of consumer spending, taxes, government regulations and red tape.
• Small business owners are satisfied with inventory on hand and don’t plan to purchase more inventory.
• The U.S. has a long way to go in its job creation efforts, although it appears businesses are no longer laying off workers at high rates.
• High hopes for economic growth in 2011are hampered by high energy prices, weather-related disasters, high food prices, the debt crisis in Europe and the earthquake and tsunami in Japan.
• Commodity price shock is dampening spending.
• Financial markets remain resilient, creating a bullish market despite a slowing economy.
• Inflation is expected to peak mid-2011, although the real inflation challenge lies in the emerging markets.

Another perfect storm for logistics?

Before the recession hit, supply management organizations struggled with capacity constraints in all forms of transportation as they tried to move products around the world during booming economic times. But that picture has changed considerably over the past few years, and supply managers now face new logistics challenges as the world tries to climb back from the economic downturn.

But the fact remains that 10 percent of the value of any product is in logistics costs, so moving products efficiently and effectively is a key component of a supply manager’s role, according to Lee Buddress, Ph.D., C.P.M., professor and director, supply and logistics management, Portland State University. During a workshop presentation Monday, Buddress gave a statistical picture of the “State of Logistics” before, during and after the recession.

He says many of the problems in 2008 that created a “logistics perfect storm,” such as high fuel prices, aging rail car fleet and a chronic shortage of long-haul truck drivers, are reappearing along with raw material cost increases and challenges to the supply chain from the Japan earthquake. “The cost of operations is growing faster than most companies’ ability to raise prices,” he says. He also predicted that it will take Japan “at least a decade to recover” from the disaster.

A major concern in the United States is its deteriorating infrastructure, Buddress says. “And no country can be competitive unless it has a good infrastructure. Our infrastructure is not giving us a competitive advantage.”

Buddress says key concerns for supply management professionals in the area of logistics include:

• Infrastructure deterioration
• Reverse outsourcing
• Industry (rail, trucking) consolidation and privatization
• Retirements (of  the Baby Boomer generation)
• Sustainability
• Supply chain uncertainties

Supply management professionals need to understand that logistics conditions are likely to change rapidly, so close working relationships with carriers are essential, he says.

Commodities outlook uncertain

Commodity volatility will continue  this year and into next year, fueled by high crude oil prices and China’s voracious appetite for industrial raw materials. Hilary Ewing, senior analyst, custom research, Economist Intelligence Unit, offered a look at what supply managers can expect in the areas of consumption, price and productivity for various commodities.

Ewing told conference attendee at the “Commodities Outlook” workshop that overall commodity prices will continue to rise because of “loose monetary policies and the belief by investors that commodities are the best performing assets.” When looking to the future, Ewing noted that that:

• It is premature to think that oil prices will fall.
• Concerns remain about the durability of the economic recovery.
• Commodities will remain attractive to investors.

Following are some commodity highlights:

Crude Oil – Global consumption will continue to rise, driven by consumption in emerging countries. The second half of 2011 will see some retraction in price over fear that high gas prices in the United States will constrict growth. China’s consumption will slow this year because of tighter economic policies. Crude oil production is expected to grow by 4.5 percent and, despite concerns over Middle East political unrest, significant disruption to oil supply and output is not expected.

Steel – Steel is expected to grow by 4.5 percent in 2011, largely due to China’s growth. However, demand is expected to slow in the second half of the year because of monetary policy changes in China. Globally, steel demand will slow as construction in developed countries continues its downturn. Global output will increase by 4.4 percent in 2011 and remain flat in 2012.

Nickel – Consumption bounced back in 2010, but a global slowdown is expected for the rest of this year and into next year. The Japan disaster will affect both production and demand. However, when rebuilding begins in Japan, a strong demand for nickel is predicted.

Peel Layers Back to Solve Business Problems

What would your reaction be if someone walked into your organization and said “Skip your biggest problem?” This is exactly what Daniel Burrus, technology futurist and business strategist, proclaims to his Fortune 1,000 clients. And this was his advice to Conference attendees during his keynote address/luncheon this afternoon.

Energetic and full of humor, Burrus discussed things from environmental sensors to hard trends versus soft trends. What attendees learned is that “Whatever problem you’ve got, that’s not it.” Like an onion, you’ve got to peel back your challenges to find the solution within. For example, a pharmaceutical company felt constrained because the budget didn’t exist to hire more researchers to find molecular cell advances. What the company realized once it “peeled” back the problem, was that it could crowdsource molecular innovation with hundreds of researchers online. Now, innovations were flowing in for the company to evaluate and potentially purchase.

Where is the future heading and how do supply management professionals respond? On a daily basis, supply managers face certainties and uncertainties in their decisionmaking. Burrus says pay attention to the sensors that are out there. Like a tsunami, when the water recedes, it means something is coming in. While there’s no crystal ball, take note of what you’re certain will or won’t occur. Not only does this lower the risk, but it gives you credibility later on.

Knowing what’s certain means understanding the difference between soft trends and hard trends. A soft trend may turn out to be something bigger or it may not, while a hard trend is a certainty it will happen. Some of the economic failures over the last few years are due to reliance on soft trends. Because hard trends are measureable and tangible, you can place much more trust in them. Such things as cycles, demographics and regulations are hard trends that predict near-certain outcomes.

Ultimately, recognizing the sensors and knowing the difference between fads, soft trends and certainties, enables organizations to transform and remain competitive. The technology that’s available today and the transformations that are going to take place over the next five years, will likely transform how supply management operates and is perceived by the organization. Why? It’s because we live in the human age where success relies on human relationships. And technology will transform how supply managers interact with their suppliers and customers.

However, to transform, organizations must train, educate, sell, market and innovate. Burrus acknowledged that supply management is where competitive advantage lies in organizations. To capitalize on that, supply management professionals must understand the future very well. That knowledge will make it much easier to sell innovative ideas to senior management. There’s greater buy-in when there’s more certainty behind the idea. “To control our destiny, we must create change from the inside up,” says Burrus.

Once a week, stop putting out the fires for an hour and write down what you’re certain about and what you can predict. “Take action on what you know,” advises Burrus. “Let’s change the perception of reality of who we are.”

Achieve Alignment With Business Partners

The Monday morning session “Engaging Business Partners to Align Strategies and Fuel Results,” presented by Paula Tolliver, vice president, global purchasing for The Dow Chemical Company, focused on purchasing’s strategic sourcing transformation to align with its global business partners.

As a $53.7 billion company, Dow Chemical has undergone three major transformations in its 114-year history. It is a leveraged sourcing organization that is center-led. From a global purchasing standpoint, a major challenge is gaining a seat at the executive table. Beginning in 2006, however, Tolliver and her team set out to move beyond commodity standardization to strategic sourcing where risk management, partner engagement and value beyond cost were the focus.

A key component to achieving this initiative was cultivating partner collaboration with purchasing’s business partners within Dow. This required credibility, visibility and clarity, and accountable metrics for procurement and its partners. Tolliver and her team established an Executive Strategic Sourcing Council (comprised of senior executive-level purchasing participants and business unit presidents) and a Strategic Sourcing Council (comprised of category leaders and directors in purchasing as well as business unit directors and select leadership members).

The strategic sourcing councils met on an ongoing basis, with the purpose of aligning purchasing and business unit strategies; understanding supply needs; providing strategic input and market intelligence to the business units; and measuring performance on agreed upon metrics, among others. Scorecards were developed to monitor the progress and ensure strategic initiatives were being achieved. The scorecard elements, included:

• Spend profile

• Strategy alignment

• Key commodity dashboard

• Purchasing impact and benefits

• Partner specific metrics.

What enabled alignment to occur was communication with the business unit presidents to drive the strategy and transformation beyond purchasing. Tolliver and her team realized that “strategic” can mean different things to different business units. Thus, it was critical to ensure consistency throughout the process. A governance structure was a key component in driving consistency and reducing project cycle times.

Ultimately, purchasing transformed its engagement and collaboration within Dow Chemical ― leading to an increase of 19 percent in satisfaction levels, reduction of 50 percent in project cycle time and a significant increase in total procurement benefits value across the organization. These major wins for purchasing have led to an increase in talent recruitment, greater investment in purchasing initiatives and recognition as a major contributor to the organization’s bottom line.

As other organizations consider a similar procurement transformation, know that communication is one of the most critical aspects to success. This means direct communication between purchasing and other business units —passiveness will not suffice. It’s also critical that those involved in the business units match the stature that is required to drive the initiative. Don’t allow senior leaders to pass the objectives down the chain of command where they can’t be achieved or supported. In the end, it’s those relationships that bring you to the seat at the table and create involvement in strategic discussions. And always market your wins so that the organization recognizes your progress and achievements.

At what stage are you at in your organization in partnering with internal business units and establishing transparency of purchasing strategies?

How visible is your organization?

An Internet search for information about the benefits of supply management turns up 14.8 million hits, while a search for problems in the supply chain results in 48.4 hits. Does that mean that a good supply management organization is one you never hear about?

In a presentation at the 96^th Annual International Supply Management Conference and Educational Exhibit in Orlando today, three supply management professors agree that the Internet search simply shows that supply managers need to do a better job of making their organizations’ value more visible to top management.

To become truly visible to upper management, supply organizations must be more outcome driven, says Steven A. Melnyk, Ph.D., professor of operations and supply chain management at Michigan State University. He told conference attendees that supply management organizations that are not linked to the company’s overall strategic objectives and are solely price-driven will maintain a “cloak of invisibility.” He lists four “pillars of strategic supply chain management” that will help lift that cloak and attract attention. The four pillars are:

• Understanding cost and revenue
• Performance measurement and management
• Talent management
• Functions versus business models

Nicholas C. Little, CPSM, assistant director, executive development programs, Michigan State University, explains that supply management must understand performance beyond cost by focusing on its role in revenue generation, asset management and total cost of ownership. “Supply management has to focus on how it can help the company grow revenue and how it can help bring innovations from the supply base,” he says.

Too often supply management fails in its effort to become more visible to top management because it doesn’t talk in terms that matter to executives, says M. Bixby Cooper, Ph.D., associate professor of supply chain management at Michigan State University. He suggests using financial metrics that have meaning and impact for top management, such a return on assets and profitability. “We need to talk in terms of how supply management impacts the price the company can charge customers, the impact it has on quantity of goods and how supply management impacts expenses,” he says.

The only way that supply management will be considered a corporate asset is to be recognized by top management, Melnyk says.