Strategic Portfolio Management
Proven Ideas from Successful Executives Session 3
Strategic Portfolio Management
Adapting Strategy, Action and Metrics to our Situation nutshell
Deliverable:
3 more good ideas to apply Monday morning 1 ISM CV Governors Club April 8
Global Sourcing Solutions
Today‟s Agenda 9:00
“Supply Chain Management”
9:50
short break
10:00
“Quality Leadership”
10:55
short break
11:05
“Portfolio Management”
12:00
short break
12:15
Lunch
1:00
“Ten Things I Wish I Knew…”
1:30
Adjourn
Lowell Hoffman Mike Adams‟
Lowell Hoffman
Lowell Hoffman
2 ISM CV Governors Club April 8
Global Sourcing Solutions
The World according to Dilbert*…
“People enter the Marketing profession when they realize that they have grown up without any particular skills!”
*With full credit and appreciation to Scott Adams 3 ISM CV Governors Club April 8
Global Sourcing Solutions
The Product Manager speaks…
“I say that we should listen to our Customers and give them what they want”
We should remain customer-focused 4 ISM CV Governors Club April 8
Global Sourcing Solutions
Market Research Responds….
“ What they want is better products .. for free !”
For they have listened to the Customer! 5 ISM CV Governors Club April 8
Global Sourcing Solutions
The Product Manager responds…
“OK, Then let’s just sell them what we’ve got and call it a Strategy !”
And it may not be Strategic!
What we are doing now, may not be working ! 6 ISM CV Governors Club April 8
Global Sourcing Solutions
“If all you have is a hammer,
everything looks like a nail!” www.sourcing-solutions.com
7 ISM CV Governors Club April 8
Global Sourcing Solutions
A PROCESS
7 Step Process for Strategy Development SWOT
Situation Analysis
Strategies
KPIs Actions
OBJECTIVE
& A TOOL BOX Supply Chain Model
GSS Supplier Relationship Model
Sourcing
Cost
S W
Portfolio
Driver
O T
Cultural Radar Screen
KPI Metrics
Charter 5 Forces
Strategy on 1 Page
ARCI
Strategy Development Worksheet Managing Your CEO
8 ISM CV Governors Club April 8
Global Sourcing Solutions
Sourcing Groups are Purchased Materials or Services Similar chemistry, manufacturing processes Similar group of Suppliers
Similar distribution channels
Example Sourcing Groups: Corrugated Packaging Laboratory Supplies Rental Cars Fragrances Contract Packaging Services Patent Attorneys
9 ISM CV Governors Club April 8
Global Sourcing Solutions
Sourcing Groups are Purchased Materials or Services Similar chemistry, manufacturing processes Similar group of Suppliers
Similar distribution channels
Example Sourcing Groups:
Find things you can leverage
Corrugated Packaging
Plant capacity
Laboratory Supplies
Common raw materials
Rental Cars
Logistics cost savings
Fragrances
Sales/service efficiencies
Contract Packaging Services
Combining Business Unit spend
Patent Attorneys
Internal Knowledge / Technology
10 ISM CV Governors Club April 8
Global Sourcing Solutions
To help us Focus • Choose one of your Sourcing Groups (Use as a reference)
• Take a “portfolio management” view • Apply the principles • Develop “improved” strategy
I call this “Sitting on the GoalPost” ....
11 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Strategy toolbox contains a Sourcing Portfolio template
Should all Sourcing Groups utilize the same approach ? • length of contract? • number of alternate suppliers? • invoice price or „total cost‟? • “auction” or RFP & team negotiation? • supplier „partnerships‟? • “shared” information or “arms-length”
Your choices can have strategic consequence! 12 ISM CV Governors Club April 8
Global Sourcing Solutions
Value/Opportunity
Strategic Portfolio Management High Value/Low Risk
High Value/High Risk
Low Value/Low Risk
Low Value/High Risk
Risk / Market Complexity
Four families of strategic choices exist 13 ISM CV Governors Club April 8
Global Sourcing Solutions
Each of our sourcing groups will differ in:
Value • • • •
Significance (total purchase €) Importance to your product / differentiation High leverage opportunity in the marketplace Competitive advantage contribution
14 ISM CV Governors Club April 8
Global Sourcing Solutions
Each of our sourcing groups will differ in: Value
Risk » Few suppliers by choice or market circumstance » Unique specification or capability » 1-time issues or “crisis” requires urgent action » Critical to our business operations
15 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Each Quadrant has a “Name” Leverage
Strategic
Commodity
Bottleneck
Risk / Market Complexity
Our “Names” suggest optimal strategy 16 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Matrix has multiple uses for Strategic Sourcing & Supply
L
S
• 20 yrs of utilization: Kraljic portfolio matrix “Purchasing must become supply management” HBR Sept/Oct, 1983
C B Risk / Market Complexity
• Categorize our “Sourcing Groups”
• Guide our Supply Strategy Utilize this Strategic tool to:
• Focus our Supplier Relationships • Benchmark our Allocation of Resources • Create our Negotiation Objectives
Successful Strategy requires that we are doing the right things 17 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Each Quadrant has its own “personality”
Leverage • Many equivalent suppliers
Strategic •
• Cost is a key consideration • Significant Purchase € $
Commodity •
Bottleneck •
Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 18 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Your Supplier may “want to be” in the Strategic Quadrant ?
Leverage • Many equivalent suppliers
Strategic • Critical to product “position”
• Cost is a key consideration • Few qualified suppliers • Important supplier • Significant Purchase € $ relationship
Commodity •
Bottleneck •
Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 19 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Commodity Management has its merits !
Leverage
Strategic
• Many equivalent suppliers
• Critical to product “position”
• Cost is a key consideration
• Few qualified suppliers
• Significant Purchase € $
• Important supplier relationship
Commodity • Multiple supply choices
Bottleneck •
• Many transactions
• Low unit cost
Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 20 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Bottlenecks Happen !
Leverage
Strategic
• Many equivalent suppliers
• Critical to product “position”
• Cost is a key consideration
• Few qualified suppliers
• Significant Purchase € $
• Important supplier relationship
Commodity
Bottleneck
• Multiple supply choices
• Sole supplier/ low trust
• Many transactions
• Performance failures
• Low unit cost
• Catastrophe / Crisis/ Tight Supply Markets Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 21 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
4 Quadrants ... 4 families of Sourcing Strategy
Leverage
Strategic
• Many equivalent suppliers
• Critical to product “position”
• Cost is a key consideration
• Few qualified suppliers
• Significant Purchase € $
• Important supplier relationship
Commodity
Bottleneck
• Multiple supply choices
• Sole supplier/ low trust
• Many transactions
• Performance failures
• Low unit cost
• Catastrophe / Crisis
Discussion Topic
Risk / Market Complexity
What is “optimum” number of suppliers in Quadrant? 22 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Optimum Number of Suppliers Varies Leverage
Strategic
•3 to 5 qualified
• 1 is “common”
• All are “inter-changeable”
• 1 potential backup
• Low “Switching Cost”
Commodity • Many Available
Bottleneck • Hopefully 0
•2 or 3 qualified
• 1 Primary
Risk / Market Complexity
Discussion Topic
Manage your portfolio of qualified Suppliers 23 ISM CV Governors Club April 8
Global Sourcing Solutions
Example: Are these sourcing groups of equal importance to a Toothpaste Manufacturer
• • • • • • •
Blister Packaging Abrasive Systems Flavor MRO / Plant Supplies Glycerin Corrugated Tubes
Should each “sourcing group” utilize the identical supply management process? 24 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Exercise: Place these Sourcing Groups into the appropriate quadrant Leverage
Strategic • Abrasive Systems • Flavors • MRO/Plant Supply
Commodity
Bottleneck
• Glycerin • Corrugated • Tubes
Table
Risk / Market Complexity
Topic
Is there Agreement on Strategic Items? 25 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
I managed Toothpaste with this Category “map” Leverage
Strategic
Abrasives Tubes
Flavor Systems
Commodity
Bottleneck
Corrugated Glycerin MRO Plant Supplies
Tubes / Marketing Driven Innovation
Risk / Market Complexity
The model provides a guideline for strategy 26 ISM CV Governors Club April 8
Global Sourcing Solutions
Display Sourcing Groups Importance & Risk $ 80MM 27% of total cost Leverage
Strategic
Flavor (Mint Oils)
Abrasives
Profit impact
Tubes
Bottleneck
Glycerin
Stand-Up Tubes
Non-critical
Corrugated
MRO
27
Supply risk ISM CV Governors Club April 8
Global Sourcing Solutions
Recap “Sourcing Groups” – leverage similar cost drivers / relationships Place into “appropriate” Quadrant
Quadrant guides
# of suppliers Relationship Negotiation Metrics
Next: Apply to “Strategic Sourcing” and “Negotiations”
28 ISM CV Governors Club April 8
Global Sourcing Solutions
“Best Practice” Strategic Sourcing* Utilizes the Portfolio Model Situation Analysis
L
S
C
B
SWOT OBJECTIVE
Buyer Advantaged Volume Concentration Standardize, Reduce Supply Base) Best Price Evaluation
(Price Focus) Global Sourcing (Expand Supply Base)
* Adapted from A.T. Kearney Strategic Sourcing Methodology
29 ISM CV Governors Club April 8
Global Sourcing Solutions
“Best Practice” Strategic Sourcing* Utilizes the Portfolio Model Situation Analysis
L
S
C
B
SWOT OBJECTIVE
Buyer Advantaged
Supplier “Advantaged” Specification Improvement (Optimize Life Cycle, Value Analysis) Joint Process Improvement
(Reengineer/Share Gains)
Relationship Restructuring (Integrate Supply Chain) * Adapted from A.T. Kearney Strategic Sourcing Methodology
30 ISM CV Governors Club April 8
Global Sourcing Solutions
“Best Practice” Strategic Sourcing* Utilizes the Portfolio Model Situation Analysis
L
S
C
B
SWOT OBJECTIVE
Buyer Advantaged Volume Concentration Standardize, Reduce Supply Base)
Supplier “Advantaged” Specification Improvement (Optimize Life Cycle, Value Analysis)
Best Price Evaluation
Joint Process Improvement
(Price Focus)
(Reengineer/Share Gains)
Global Sourcing (Expand Supply Base)
Relationship Restructuring (Integrate Supply Chain) * Adapted from A.T. Kearney Strategic Sourcing Methodology
31 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Purchasing is “most comfortable” in the Leverage Quadrant
L
• Apply „traditional” purchasing tools • e-auctions • reduce supplier base
Risk / Market Complexity
• consolidate volumes • maintain “low” switching costs
Guideline: Maintain @ 70% of Bill of Material costs in this Quadrant Cost Savings: Typical 10%-15% through strategic sourcing / e-auctions Example: 15% price savings; 12>3 suppliers; ongoing >3%/yr productivity
Lesson Learned:
Don’t ignore supplier relationship management ! 32 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Strategic Quadrant should yield competitive advantage
S
• Focus on truly strategic items • Work interactively / share metrics • Improve market share / market position
Risk / Market Complexity
• “First to Market” design & formulations • Multiple points of contact: “one voice”
Guideline: Maintain @ 10% of Bill of Material costs in this Quadrant Cost Savings: 12% in “TCO”; Market Share Growth Example: Dedicated supplier capacity, technology team, “first look”
Lesson Learned:
Requires organization-wide trust relationship 33 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Commodity Quadrant should “run on autopilot” • Negotiate the “package”
C Risk / Market Complexity
• Automate the process • Metrics to include customer satisfaction • Data for iterative improvement • Single e-procurement site / multiple items
Guideline: Target @ 15% of total costs to this quadrant Cost Savings: 15-25% in price; much more in “purchase to pay” cycle Example: All Business Forms : sole supplier, qualified SCM, index pricing
Lesson Learned:
Use your accounting system to manage cost & metrics 34 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Bottleneck Quadrant offers Creative Opportunity • Enlist supplier in solving the “bottleneck”
B Risk / Market Complexity
• Select the destination Quadrant • “Listening Skills” are imperative • Exploit “guilt” to open processes/books • “Bottlenecks happen!”
Guideline: Target 0%; Expect 5% of purchases; “don‟t shoot the messenger” Cost Savings: > 10% through fixing the process Example: “Quality Crisis” > opened up mfg. process & cost drivers
Lesson Learned:
Solve the “short term” > Manage the “long term” 35 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
BUYER often prefers “Leverage”
Leverage
Strategic
High dollar, big volume
Highly Significant to
Multiple Suppliers
product & business Competitive differentiation
Commodity Repetitive purchases Maintain the enterprise
Bottleneck One-time purchases Quality or supply problems
Risk / Market Complexity
Discussion Topic
36 ISM CV Governors Club April 8
Global Sourcing Solutions
SUPPLIER often seeks “Strategic”
Reward / Opportunity $$$
Do we seek to become “Strategic” to key Customers?
Leverage
Strategic
High dollar, big volume
Highly Significant to
Multiple Suppliers
product & business Competitive differentiation
Commodity Repetitive purchases Maintain the enterprise
Bottleneck One-time purchases Quality or supply problems
Risk / Market Complexity
Discussion Topic
37 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Field of Vision differs – we see different things
Seller
Buyer
Situation
38 ISM CV Governors Club April 8
Global Sourcing Solutions
Portfolio Model guides Marketing Strategy
Reward / Opportunity $$$
Reversing the Purchasing View – The “Eyes” of the Supplier
Leverage
Strategic
Seek to differentiate
Create “team”
“long term / lock-in”
Seek premium price
Go “around” buyer
May “Dictate” to Customer
Commodity
Bottleneck
integrate systems/SMI
“Accept” blame
Create “catalog”
Offer resources
Become the standard
Build relationships beyond Purchasing
Risk / Market Complexity
Supply Chain Management is a Team Support 39 ISM CV Governors Club April 8
Global Sourcing Solutions
Uses and Applications of Portfolio Model
I have applied the model to....
Group Discussion
• Determining Correct # of Suppliers • Managing (Optimal) Supplier Relationships
• Selecting Suppliers with whom to “Partner” • Choosing Best Negotiation Strategies & Objectives • Allocation of human resources
• Creating MBO‟s (Objectives) • Mapping Supplier Positions / Relationships
Consider the following Examples... 40 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Supplier Relationships will vary by cell
Value / Opportunity
Leverage
Strategic
Sourcing Teams Manage Costs of Supply Packaging Materials
Commodity
Bottleneck
Risk / Market Complexity
Apply leverage – multiple sources 41 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Supplier Relationships will vary by cell
Value / Opportunity
Leverage
Strategic
Sourcing Teams Manage Costs of Supply
Commodity
Bottleneck
Automate Transactions Office Supplies Risk / Market Complexity
Simplify transaction processes 42 ISM CV Governors Club April 8
Global Sourcing Solutions
Value / Opportunity
Our Supplier Relationships will vary by cell
Leverage
Strategic
Sourcing Teams Manage Costs of Supply
Alliance Team Develop Competitive Advantage Unique Component
Commodity
Bottleneck
Automate Transactions
Risk / Market Complexity
Exploit Supplier Technology & Relationship 43 ISM CV Governors Club April 8
Global Sourcing Solutions
Value / Opportunity
Our Supplier Relationships will vary by cell
Leverage
Strategic
Sourcing Teams Manage Costs of Supply
Alliance Team Develop Competitive Advantage Unique Component
Commodity
Bottleneck
Automate Transactions
“Tiger Team” / Fix and move on “Crisis”
Risk / Market Complexity
Engage Supplier in Solving the Problem Plan future Quadrant Positioning 44 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
Commodity
Bottleneck
Risk / Market Complexity
Good position for the Buyer – Price is Key 45 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
Commodity
Bottleneck
• Competitive bids / e-auction • Price indices • Automate transactions • Supplier Managed Inventory
Risk / Market Complexity
Reduce transaction process costs 46 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
• “Total cost” modeling of supply chain • Competitive assessment • Shared rewards • Joint development / R&D
Commodity
Bottleneck
• Competitive bids / e-auction • Price indices • Automate transactions • Supplier Managed Inventory
Risk / Market Complexity
Focus on Competitive Advantage / SRM 47 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
• “Total cost” modeling of supply chain • Competitive assessment • Shared rewards • Joint development / R&D
Commodity
Bottleneck
• Competitive bids / e-auction • Price indices • Automate transactions • Supplier Managed Inventory
• Analyze specifications; reverse engineer • Life-cycle costing • Active supplier involvement • “Outside” expertise
Risk / Market Complexity
Solve with future in mind – Think Ahead 48 ISM CV Governors Club April 8
Global Sourcing Solutions
Value / Opportunity
Investment of staffing, time & resources Leverage
Strategic
50-60%
20-30%
Commodity
Bottleneck
Strategic Portfolio Management
Adapting Strategy, Action and Metrics to our Situation nutshell
Deliverable:
3 more good ideas to apply Monday morning 1 ISM CV Governors Club April 8
Global Sourcing Solutions
Today‟s Agenda 9:00
“Supply Chain Management”
9:50
short break
10:00
“Quality Leadership”
10:55
short break
11:05
“Portfolio Management”
12:00
short break
12:15
Lunch
1:00
“Ten Things I Wish I Knew…”
1:30
Adjourn
Lowell Hoffman Mike Adams‟
Lowell Hoffman
Lowell Hoffman
2 ISM CV Governors Club April 8
Global Sourcing Solutions
The World according to Dilbert*…
“People enter the Marketing profession when they realize that they have grown up without any particular skills!”
*With full credit and appreciation to Scott Adams 3 ISM CV Governors Club April 8
Global Sourcing Solutions
The Product Manager speaks…
“I say that we should listen to our Customers and give them what they want”
We should remain customer-focused 4 ISM CV Governors Club April 8
Global Sourcing Solutions
Market Research Responds….
“ What they want is better products .. for free !”
For they have listened to the Customer! 5 ISM CV Governors Club April 8
Global Sourcing Solutions
The Product Manager responds…
“OK, Then let’s just sell them what we’ve got and call it a Strategy !”
And it may not be Strategic!
What we are doing now, may not be working ! 6 ISM CV Governors Club April 8
Global Sourcing Solutions
“If all you have is a hammer,
everything looks like a nail!” www.sourcing-solutions.com
7 ISM CV Governors Club April 8
Global Sourcing Solutions
A PROCESS
7 Step Process for Strategy Development SWOT
Situation Analysis
Strategies
KPIs Actions
OBJECTIVE
& A TOOL BOX Supply Chain Model
GSS Supplier Relationship Model
Sourcing
Cost
S W
Portfolio
Driver
O T
Cultural Radar Screen
KPI Metrics
Charter 5 Forces
Strategy on 1 Page
ARCI
Strategy Development Worksheet Managing Your CEO
8 ISM CV Governors Club April 8
Global Sourcing Solutions
Sourcing Groups are Purchased Materials or Services Similar chemistry, manufacturing processes Similar group of Suppliers
Similar distribution channels
Example Sourcing Groups: Corrugated Packaging Laboratory Supplies Rental Cars Fragrances Contract Packaging Services Patent Attorneys
9 ISM CV Governors Club April 8
Global Sourcing Solutions
Sourcing Groups are Purchased Materials or Services Similar chemistry, manufacturing processes Similar group of Suppliers
Similar distribution channels
Example Sourcing Groups:
Find things you can leverage
Corrugated Packaging
Plant capacity
Laboratory Supplies
Common raw materials
Rental Cars
Logistics cost savings
Fragrances
Sales/service efficiencies
Contract Packaging Services
Combining Business Unit spend
Patent Attorneys
Internal Knowledge / Technology
10 ISM CV Governors Club April 8
Global Sourcing Solutions
To help us Focus • Choose one of your Sourcing Groups (Use as a reference)
• Take a “portfolio management” view • Apply the principles • Develop “improved” strategy
I call this “Sitting on the GoalPost” ....
11 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Strategy toolbox contains a Sourcing Portfolio template
Should all Sourcing Groups utilize the same approach ? • length of contract? • number of alternate suppliers? • invoice price or „total cost‟? • “auction” or RFP & team negotiation? • supplier „partnerships‟? • “shared” information or “arms-length”
Your choices can have strategic consequence! 12 ISM CV Governors Club April 8
Global Sourcing Solutions
Value/Opportunity
Strategic Portfolio Management High Value/Low Risk
High Value/High Risk
Low Value/Low Risk
Low Value/High Risk
Risk / Market Complexity
Four families of strategic choices exist 13 ISM CV Governors Club April 8
Global Sourcing Solutions
Each of our sourcing groups will differ in:
Value • • • •
Significance (total purchase €) Importance to your product / differentiation High leverage opportunity in the marketplace Competitive advantage contribution
14 ISM CV Governors Club April 8
Global Sourcing Solutions
Each of our sourcing groups will differ in: Value
Risk » Few suppliers by choice or market circumstance » Unique specification or capability » 1-time issues or “crisis” requires urgent action » Critical to our business operations
15 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Each Quadrant has a “Name” Leverage
Strategic
Commodity
Bottleneck
Risk / Market Complexity
Our “Names” suggest optimal strategy 16 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Matrix has multiple uses for Strategic Sourcing & Supply
L
S
• 20 yrs of utilization: Kraljic portfolio matrix “Purchasing must become supply management” HBR Sept/Oct, 1983
C B Risk / Market Complexity
• Categorize our “Sourcing Groups”
• Guide our Supply Strategy Utilize this Strategic tool to:
• Focus our Supplier Relationships • Benchmark our Allocation of Resources • Create our Negotiation Objectives
Successful Strategy requires that we are doing the right things 17 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Each Quadrant has its own “personality”
Leverage • Many equivalent suppliers
Strategic •
• Cost is a key consideration • Significant Purchase € $
Commodity •
Bottleneck •
Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 18 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Your Supplier may “want to be” in the Strategic Quadrant ?
Leverage • Many equivalent suppliers
Strategic • Critical to product “position”
• Cost is a key consideration • Few qualified suppliers • Important supplier • Significant Purchase € $ relationship
Commodity •
Bottleneck •
Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 19 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Commodity Management has its merits !
Leverage
Strategic
• Many equivalent suppliers
• Critical to product “position”
• Cost is a key consideration
• Few qualified suppliers
• Significant Purchase € $
• Important supplier relationship
Commodity • Multiple supply choices
Bottleneck •
• Many transactions
• Low unit cost
Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 20 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Bottlenecks Happen !
Leverage
Strategic
• Many equivalent suppliers
• Critical to product “position”
• Cost is a key consideration
• Few qualified suppliers
• Significant Purchase € $
• Important supplier relationship
Commodity
Bottleneck
• Multiple supply choices
• Sole supplier/ low trust
• Many transactions
• Performance failures
• Low unit cost
• Catastrophe / Crisis/ Tight Supply Markets Risk / Market Complexity
Discussion Topic
Which Sourcing Groups in this Quadrant? 21 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
4 Quadrants ... 4 families of Sourcing Strategy
Leverage
Strategic
• Many equivalent suppliers
• Critical to product “position”
• Cost is a key consideration
• Few qualified suppliers
• Significant Purchase € $
• Important supplier relationship
Commodity
Bottleneck
• Multiple supply choices
• Sole supplier/ low trust
• Many transactions
• Performance failures
• Low unit cost
• Catastrophe / Crisis
Discussion Topic
Risk / Market Complexity
What is “optimum” number of suppliers in Quadrant? 22 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Optimum Number of Suppliers Varies Leverage
Strategic
•3 to 5 qualified
• 1 is “common”
• All are “inter-changeable”
• 1 potential backup
• Low “Switching Cost”
Commodity • Many Available
Bottleneck • Hopefully 0
•2 or 3 qualified
• 1 Primary
Risk / Market Complexity
Discussion Topic
Manage your portfolio of qualified Suppliers 23 ISM CV Governors Club April 8
Global Sourcing Solutions
Example: Are these sourcing groups of equal importance to a Toothpaste Manufacturer
• • • • • • •
Blister Packaging Abrasive Systems Flavor MRO / Plant Supplies Glycerin Corrugated Tubes
Should each “sourcing group” utilize the identical supply management process? 24 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Exercise: Place these Sourcing Groups into the appropriate quadrant Leverage
Strategic • Abrasive Systems • Flavors • MRO/Plant Supply
Commodity
Bottleneck
• Glycerin • Corrugated • Tubes
Table
Risk / Market Complexity
Topic
Is there Agreement on Strategic Items? 25 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
I managed Toothpaste with this Category “map” Leverage
Strategic
Abrasives Tubes
Flavor Systems
Commodity
Bottleneck
Corrugated Glycerin MRO Plant Supplies
Tubes / Marketing Driven Innovation
Risk / Market Complexity
The model provides a guideline for strategy 26 ISM CV Governors Club April 8
Global Sourcing Solutions
Display Sourcing Groups Importance & Risk $ 80MM 27% of total cost Leverage
Strategic
Flavor (Mint Oils)
Abrasives
Profit impact
Tubes
Bottleneck
Glycerin
Stand-Up Tubes
Non-critical
Corrugated
MRO
27
Supply risk ISM CV Governors Club April 8
Global Sourcing Solutions
Recap “Sourcing Groups” – leverage similar cost drivers / relationships Place into “appropriate” Quadrant
Quadrant guides
# of suppliers Relationship Negotiation Metrics
Next: Apply to “Strategic Sourcing” and “Negotiations”
28 ISM CV Governors Club April 8
Global Sourcing Solutions
“Best Practice” Strategic Sourcing* Utilizes the Portfolio Model Situation Analysis
L
S
C
B
SWOT OBJECTIVE
Buyer Advantaged Volume Concentration Standardize, Reduce Supply Base) Best Price Evaluation
(Price Focus) Global Sourcing (Expand Supply Base)
* Adapted from A.T. Kearney Strategic Sourcing Methodology
29 ISM CV Governors Club April 8
Global Sourcing Solutions
“Best Practice” Strategic Sourcing* Utilizes the Portfolio Model Situation Analysis
L
S
C
B
SWOT OBJECTIVE
Buyer Advantaged
Supplier “Advantaged” Specification Improvement (Optimize Life Cycle, Value Analysis) Joint Process Improvement
(Reengineer/Share Gains)
Relationship Restructuring (Integrate Supply Chain) * Adapted from A.T. Kearney Strategic Sourcing Methodology
30 ISM CV Governors Club April 8
Global Sourcing Solutions
“Best Practice” Strategic Sourcing* Utilizes the Portfolio Model Situation Analysis
L
S
C
B
SWOT OBJECTIVE
Buyer Advantaged Volume Concentration Standardize, Reduce Supply Base)
Supplier “Advantaged” Specification Improvement (Optimize Life Cycle, Value Analysis)
Best Price Evaluation
Joint Process Improvement
(Price Focus)
(Reengineer/Share Gains)
Global Sourcing (Expand Supply Base)
Relationship Restructuring (Integrate Supply Chain) * Adapted from A.T. Kearney Strategic Sourcing Methodology
31 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Purchasing is “most comfortable” in the Leverage Quadrant
L
• Apply „traditional” purchasing tools • e-auctions • reduce supplier base
Risk / Market Complexity
• consolidate volumes • maintain “low” switching costs
Guideline: Maintain @ 70% of Bill of Material costs in this Quadrant Cost Savings: Typical 10%-15% through strategic sourcing / e-auctions Example: 15% price savings; 12>3 suppliers; ongoing >3%/yr productivity
Lesson Learned:
Don’t ignore supplier relationship management ! 32 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Strategic Quadrant should yield competitive advantage
S
• Focus on truly strategic items • Work interactively / share metrics • Improve market share / market position
Risk / Market Complexity
• “First to Market” design & formulations • Multiple points of contact: “one voice”
Guideline: Maintain @ 10% of Bill of Material costs in this Quadrant Cost Savings: 12% in “TCO”; Market Share Growth Example: Dedicated supplier capacity, technology team, “first look”
Lesson Learned:
Requires organization-wide trust relationship 33 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Commodity Quadrant should “run on autopilot” • Negotiate the “package”
C Risk / Market Complexity
• Automate the process • Metrics to include customer satisfaction • Data for iterative improvement • Single e-procurement site / multiple items
Guideline: Target @ 15% of total costs to this quadrant Cost Savings: 15-25% in price; much more in “purchase to pay” cycle Example: All Business Forms : sole supplier, qualified SCM, index pricing
Lesson Learned:
Use your accounting system to manage cost & metrics 34 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity
Bottleneck Quadrant offers Creative Opportunity • Enlist supplier in solving the “bottleneck”
B Risk / Market Complexity
• Select the destination Quadrant • “Listening Skills” are imperative • Exploit “guilt” to open processes/books • “Bottlenecks happen!”
Guideline: Target 0%; Expect 5% of purchases; “don‟t shoot the messenger” Cost Savings: > 10% through fixing the process Example: “Quality Crisis” > opened up mfg. process & cost drivers
Lesson Learned:
Solve the “short term” > Manage the “long term” 35 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
BUYER often prefers “Leverage”
Leverage
Strategic
High dollar, big volume
Highly Significant to
Multiple Suppliers
product & business Competitive differentiation
Commodity Repetitive purchases Maintain the enterprise
Bottleneck One-time purchases Quality or supply problems
Risk / Market Complexity
Discussion Topic
36 ISM CV Governors Club April 8
Global Sourcing Solutions
SUPPLIER often seeks “Strategic”
Reward / Opportunity $$$
Do we seek to become “Strategic” to key Customers?
Leverage
Strategic
High dollar, big volume
Highly Significant to
Multiple Suppliers
product & business Competitive differentiation
Commodity Repetitive purchases Maintain the enterprise
Bottleneck One-time purchases Quality or supply problems
Risk / Market Complexity
Discussion Topic
37 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Field of Vision differs – we see different things
Seller
Buyer
Situation
38 ISM CV Governors Club April 8
Global Sourcing Solutions
Portfolio Model guides Marketing Strategy
Reward / Opportunity $$$
Reversing the Purchasing View – The “Eyes” of the Supplier
Leverage
Strategic
Seek to differentiate
Create “team”
“long term / lock-in”
Seek premium price
Go “around” buyer
May “Dictate” to Customer
Commodity
Bottleneck
integrate systems/SMI
“Accept” blame
Create “catalog”
Offer resources
Become the standard
Build relationships beyond Purchasing
Risk / Market Complexity
Supply Chain Management is a Team Support 39 ISM CV Governors Club April 8
Global Sourcing Solutions
Uses and Applications of Portfolio Model
I have applied the model to....
Group Discussion
• Determining Correct # of Suppliers • Managing (Optimal) Supplier Relationships
• Selecting Suppliers with whom to “Partner” • Choosing Best Negotiation Strategies & Objectives • Allocation of human resources
• Creating MBO‟s (Objectives) • Mapping Supplier Positions / Relationships
Consider the following Examples... 40 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Supplier Relationships will vary by cell
Value / Opportunity
Leverage
Strategic
Sourcing Teams Manage Costs of Supply Packaging Materials
Commodity
Bottleneck
Risk / Market Complexity
Apply leverage – multiple sources 41 ISM CV Governors Club April 8
Global Sourcing Solutions
Our Supplier Relationships will vary by cell
Value / Opportunity
Leverage
Strategic
Sourcing Teams Manage Costs of Supply
Commodity
Bottleneck
Automate Transactions Office Supplies Risk / Market Complexity
Simplify transaction processes 42 ISM CV Governors Club April 8
Global Sourcing Solutions
Value / Opportunity
Our Supplier Relationships will vary by cell
Leverage
Strategic
Sourcing Teams Manage Costs of Supply
Alliance Team Develop Competitive Advantage Unique Component
Commodity
Bottleneck
Automate Transactions
Risk / Market Complexity
Exploit Supplier Technology & Relationship 43 ISM CV Governors Club April 8
Global Sourcing Solutions
Value / Opportunity
Our Supplier Relationships will vary by cell
Leverage
Strategic
Sourcing Teams Manage Costs of Supply
Alliance Team Develop Competitive Advantage Unique Component
Commodity
Bottleneck
Automate Transactions
“Tiger Team” / Fix and move on “Crisis”
Risk / Market Complexity
Engage Supplier in Solving the Problem Plan future Quadrant Positioning 44 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
Commodity
Bottleneck
Risk / Market Complexity
Good position for the Buyer – Price is Key 45 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
Commodity
Bottleneck
• Competitive bids / e-auction • Price indices • Automate transactions • Supplier Managed Inventory
Risk / Market Complexity
Reduce transaction process costs 46 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
• “Total cost” modeling of supply chain • Competitive assessment • Shared rewards • Joint development / R&D
Commodity
Bottleneck
• Competitive bids / e-auction • Price indices • Automate transactions • Supplier Managed Inventory
Risk / Market Complexity
Focus on Competitive Advantage / SRM 47 ISM CV Governors Club April 8
Global Sourcing Solutions
Reward / Opportunity $$$
Adapt Negotiation Techniques to Sourcing Strategy
Leverage
Strategic
• Cost-Analysis Focus • Estimate “should-cost” • Price/Volume “leverage” • Managed supplier base • Low “switching cost”
• “Total cost” modeling of supply chain • Competitive assessment • Shared rewards • Joint development / R&D
Commodity
Bottleneck
• Competitive bids / e-auction • Price indices • Automate transactions • Supplier Managed Inventory
• Analyze specifications; reverse engineer • Life-cycle costing • Active supplier involvement • “Outside” expertise
Risk / Market Complexity
Solve with future in mind – Think Ahead 48 ISM CV Governors Club April 8
Global Sourcing Solutions
Value / Opportunity
Investment of staffing, time & resources Leverage
Strategic
50-60%
20-30%
Commodity
Bottleneck
