Nov
8
Buyers and Suppliers don’t have to do battle – why SRM and long term relationships matter
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Lets face it – the key result that most procurement professionals are still attempting to get is leverage on price. Cost down is still the top draw for many senior executives and decision makers and for many, the primary reason for the procurement team to exist. Developing relationships is often the last consideration and where it is considered the “how to implement part” is glossed over.
The standard relationship can place buyers and suppliers in gladiatorial combat at different ends of the arena with each focusing on their own primary targets (cost/margin) and failing to capitalize on any benefits that might be obtained through closer collaboration. Such a method relies on adversarial positions and relationships that foster competition (either squeezing or retaining margin).
Procurement executives should consider that there is more than one method that can be used to generate benefit and that the procurement task does not stop at contract sign off but involves close scrutiny of requirements AND the development of post contract opportunities which can both generate significant benefit.
Companies must consider appropriate mechanisms or incentives that foster this approach.
The contract is still one of the best weapons in the procurement executives’ arsenal. However, all to often the approach is not robust and focus on the initial contract phase is weak – all too often one of two things happen –
1/ The contract requirements are ill thought through focusing on short term goals overcoming long term aspirations and while today’s requirements (often current target price or crazy lead times) are met tomorrows (stability, efficiency, capability) are not.
2/ The contract is generated outside of the procurement team with often little focus on long term requirements (e.g. sustainability or compliancy). These contracts get thrown “over the fence” and the procurement team is left to pick up the pieces.
One key issue that businesses need to address is that to foster success, the contracting phase and relationship management need to be closely coupled and embedded within the same process.
If the contract is constructed correctly then everyone benefits. Total requirements are met, long term efficiencies targeted and mutually beneficial relationships developed.
When you think about it a robust approach to mutually beneficial supplier relationships makes sense – suppliers are looking to develop long term revenue streams and stable margins whilst buyers are looking to manage cost and consistency of supply whilst mitigating potential future issues – these requirements are far better suited to collaboration than fighting over a $10 dollar reduction in the price of the piece part.
Significantly a key issue of this approach is that it requires a greater perspective than merely Cost, Quality and Delivery (QCD). Businesses must consider how innovation and collaboration are included and measured. Both organizations MUST consider total acquisition cost rather than purely the initial purchase price. This is especially true for those organizations that maybe faced with increasing compliancy issues (sustainability) or other issues such as high levels of obsolescence.
Summary
Close relationships between buyers and suppliers does bring its own challenges (for example differing cultures, well established supplier networks). Companies must ask themselves how easy is it to revisit existing supplier contracts. Perhaps the key issue is that SRM must be approached from both perspectives. It is no good if the supplier retains an adversarial position focused purely on protecting margin where the buyer may want to form closer working ties. The skill is of course spotting and developing the opportunities and developing back office processes including sourcing and contract negotiation and ownership that compliment the strategy.
Nov
3
Introduction to obsolescence management
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Managing obsolescence is increasingly becoming a key business process requiring organizational buy in and cross-functional support which can often include the end user or customer.
What is Obsolescence?
Obsolescence frequently occurs because either:
- Raw materials become unavailable
- New products come out which are superior in some or more aspects and replace pre-existing parts.
Whilst obsolescence is preceded by declines in popularity it can also be facilitated by new technology and manufacturing practices that create new products or redesign old ones. Obsolescence can occur at various stages within a bill of material – for example a PCB component may become obsolete (and replaced) in a radio – this does not render the radio obsolete merely the component part.
Robust management and processes are critical especially with consumer demand for sustainability and products with increased life cycles. But how should companies manage obsolescence? Typically organizations will appoint an obsolescence management team.
The role of team is to develop and deploy processes which facilitate the prediction of materials and equipment obsolescence and develop mitigation plans that minimize cost increases and schedule challenges.
- Obsolescence Management boils down to three core activities
Reduce likelihood of future occurrences
Awareness of possible issues
Mitigation of issues
This will often involve the development of a database that contains parts and can be used to track obsolescence issues. Additions to the database are typically triggered by the issuing of obsolescence notices from suppliers – the database can then be used to track notices against parts and ensure that corresponding action is taking place.
There are inherent problems in relying on suppliers and manufacturers to send notices in a timely fashion coupled with issues in identifying users to send notices too in the first place (many organizations will offer obsolescence notices as a subscription service). The obsolescence management team must make sure the data gets sent to the right person within the organization as notices can easily be misdirected.
Obsolescence management centers around a control database. Most companies have commodity managers or system experts who are knowledgeable about (and often have responsibility for the management of) material commodities such as electronics. Utilizing the obsolescence database and the knowledge of the commodity expert individual component parts can be tracked issues can be captured codified then prioritized in terms of criticality.
Many businesses conduct regular reviews of their parts master / parts list to review possible obsolescence issues. This regular health check encourages confidence prior to manufacture and where issues emerge, the design team can review the options available based on feedback from the Obsolescence management team.
Summary
Obsolescence management is a key activity and one that requires resources and tools. Whilst often overlooked it can be of such criticality that a failure to identify obsolescence issues can bring manufacturing processes to a standstill or see costs skyrocket.