Welcome To Same World Networking

Sameworld.net is the networking blog for Supply Chain Specialists interested in creating channel partners around the globe.

A key essence for success in a new market is to identify the ‘Right Partner’. We appreciate the huge importance of this aspect and are willing to invest the necessary time and effort to get it right. There is NO substitute for "Grunt Work" and it is essential to meet the prospective partner, understand their technical capabilities, visit their manufacturing unit and assess the management team. With the partners who add to this blog we hope to achieve that. Mark Kennedy Same World Trading


Wednesday, 8 December 2010

Procurement Rules of Engagement

It was suggested to me by a colleague that I might want to blog about the “rules of engagement” for global procurement. I always thought this sounded like something you decide when you’re getting ready for to battle, dig in and shell your suppliers.

I would start out by saying that’s not the direction I see supplier relationships going … the successful ones, anyway.

We’re not looking to wage war at all; we’re here to make peace… and live in prosperity. At Same World, we aim to drive the message of winning by collaboration and cooperation, not conflict or confrontation.

Someone once said about being caught up in the Rat Race; that “even if you win, you’re still a rat.” We think that pretty much sums up the old price-focused approach to procurement. One side bashes the other until they can’t stand up anymore, and no one ends up winning, at least not in the long run.

Let me give you some quick background, most companies strive to become your customers’ best supplier, seems simple enough. But to reach that desired result can mean changing everything upstream in the procurement process. That’s not so simple.

At Same World we are often invited to come aboard to drive the implementation of supply chain management best practices.

We work on transforming that OEM’s procurement practices; and to do this we often use lean supplier development to excellent advantage. Working in tandem with suppliers to cut waste, expense, and develop the best possible product for the best possible cost. Lean practices helped make OEMs, and their suppliers, the most competitive and the most profitable.

I often feel more like a preacher sometimes than a purchasing executive, because to affect the changes and to stay competitive means getting the board to take a big leap of faith, to take a new approach to their working relationships, and develop trust in people they’ve long considered adversaries.


We need to take a leaf out of the Japanese book, because the Japanese corporate culture requires partner participation. Nobody needs to be sold on the ideas behind the collaborative approach, because it’s the accepted practice.

Many companies have to go straight to “Square One” and change the philosophical underpinnings in your company and to reverse the perceptions and values that had been formed by years of contentious, price-focused activity. Often a change of heart is needed within the company in order to make the leap to a system that rewards continuous improvement and business practices that are conducted in good faith.

So, in order to go in the right direction and navigate by a recalibrated compass, your aim now is to build relationships based on mutual trust and collaboration. We are talking about getting lean, not mean. It’s not just a nice thing to do, but a smart thing to do. It’s a lot easier – and more effective and long-lasting – to work as a team to remove waste and inefficiency from the value stream.
In order to transform the extended value stream, you need to take specific steps that will substantially alter your procurement landscape.

First, you need to move to transform your supply base. What do I mean by that? Simply stated, it means you will have far fewer suppliers you work with. But it will result in strong trust-based relationships with those remaining suppliers we choose to do business with. And they will be partners who share in our success.

For you to become a world-class lean enterprise, you must partner with our suppliers to remove all forms of waste – which equals cost – from their portion of our joint value streams. We’re doing this because about 50 to 60 percent of your costs come from our supply base.

To achieve this you need to be focused on “total cost,” improving processes, trimming time to market, encouraging a freer flow of ideas through trust and partnerships, and achieving elevated financial performance. Of course, this is easier said than done.

Your first strategy is to develop strategic suppliers and commodity strategies. Why? Because we need fewer suppliers to be agile. The trick is in selecting the right ones.

Statistics have shown that companies tend to have 75% more suppliers than they need because they try to play on off against the other on price.

The formula needs to be that components with high value and complexity are core and will ultimately be sourced to a group of about 2.5% of your supplier base, strategic suppliers with whom we will have close and deep relationships. Lower value materials, but still with high complexity, may require to be nearer 5% of near-core suppliers.

Niche suppliers – those in unique products or with patents that restrict your ability to compete – and commodities with low value and less complexity will round out our supply base.

Your expectations of these newly defined “Strategic Suppliers” should be high. These suppliers must exhibit a history of flawless launches, meeting zero PPM and zero disruptions and improving first-time quality. They must be willing to work with you, early in the program design and development phase, to establish cost targets that satisfy your companies model-to-model cost improvement goals. And they must be committed with the right attitude toward continuous waste reduction and lean thinking. That’s crucial, because not everyone is willing or able to travel this new path with you.

Your nest strategy is to develop and manage cost standards that determine what a part, or service, “should” cost, with real details.
Once you really know what something should cost, the entire design and sourcing dynamic changes from an “auction mentality” to a joint waste elimination focus. This best practice leads to better designs and better processes and the highest level of true competitiveness.
However, it’s imperative that this information be handled with the utmost integrity and confidentiality by both parties.

This is a leading-edge approach because many business models in our industry still tend to push costs down the supply chain rather than remove the waste. In contrast, your business needs to establish
Best-in-the-World cost standards and use them in everything you design and buy.

Cost standards allow you to clearly see the gap between our price and the most competitive scientific cost the part or service can be purchased for. They also help reveal gaps in design and manufacturing costs, and permit us to gain knowledge, unlock value and promote continuous improvement through joint activity.

Your next strategy is lean supplier development engineering. It is generating dramatic results and it is beginning to build new levels of trust within our supply base.

This strategy requires the expertise of lean supplier development engineers, dedicated to enabling suppliers to achieve the best levels of lean manufacturing in their operations.

The lean supplier development process starts with a meeting, then a workshop that includes you and the supplier’s CEO, laying out your expectations of each other, with regards to reduction in people costs generally ranging from 20 to nearly 50 percent, increases in productivity need to range from 30 to 60 percent, first- time quality should improve in a range of 10 to 45 percent.

And, as you can guess, this process generates savings, which helps everyone involved. Remember, this is not about eroding margins; it is about eliminating waste and thereby reducing cost. Just as margins are important to your company, your strategic suppliers also need them to remain the most competitive suppliers in the world.

Obviously it is critical that we work with our suppliers and customers as early as possible in the design process, not only to eliminate waste and save money but also to ensure on-time product and flawless vehicle launches.

When you begin to consider the many possible applications for lean principles in design, engineering and production, you begin to understand the profound potential these tools offer us in operating at maximum efficiency and profitability. They are too powerful to ignore!

This is winning by collaboration. It means redefining our idea of “business relationship” – a term that in too many cases has become devalued to mean simply “lunch and a round of golf.” The collaborative model has room for both to win, and plenty of compelling reasons for both to intensify the lean process, since both stand to benefit.

That’s why I said at the beginning … lean supplier best practices are not just a nice thing to do but also a smart thing to do. I sincerely believe that the end result of this approach is a better product at a better price.

The people who truly understand how to implement lean end up with the most competitive product in the marketplace. There’s nothing mystical about it. It’s just good business – and the proof shows up in the bottom line. Seeing these bottom-line results and forging strong relationships with suppliers motivates your team and me to do more. It’s just that simple.

The golden rules really boil down to forming long-term partnerships with a few key suppliers, based on mutual trust. We share ideas, designs, best practices, and the rewards that are derived from eliminating waste from our combined processes. This includes the savings as well as the practical knowledge that we gain from our efforts.

We get stronger, leaner, smarter, more profitable, and more interdependent, which further cements that relationship. It’s certainly easier to develop the necessary trust when you can see the tangible results.

And that’s the best part – we know it works.

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