BestChoice SRM: A Simple and Practical Supplier Relationship Management System for e-procurement June 12, 2007 Dongjoo Lee, Seungseok Kang, San-keun Lee,

BestChoice SRM: A Simple and Practical Supplier BestChoice SRM: A Simple and Practical Supplier Relationship Management System for e-Relationship Management System for e-procurementprocurement

June 12, 2007

Dongjoo Lee, Seungseok Kang, San-keun Lee, Young-gon Kim,

Sang-goo Lee

Seoul National University, Korea

Copyright 2007 by CEBT

ContentsContents

e-Procurement and SRM

SRM Process

Implementation

Template-based Segmentation

System Architecture

Application

Conclusion

DEECS 2007 - 2Center for E-Business Technology


e-Procurement and SRMe-Procurement and SRM

Procurement

Huge portion of the production cost

E-procurement

Advance of the internet , Various software

Various data are accumulated

Quantitative evaluation of supplier became easier

Supplier selection and relationship management

Selecting the best supplier for a product and service is a traditional research area

– MAUT, AHP, …

Managing strategic relation between a company and suppliers

Segmentation



SRM SystemSRM System

There are already various SRM systems

By SAS, SAP, and i2 …

Integration problem with existing processes or systems

Brings the burden to change existing processes or systems

How to solve integration problem?

Do not change existing processes and systems!!

Just add or change necessary parts!!

Core functionalities of SRM!!

Evaluation of the target

Analysis of the evaluation

Segmentation of the target



General Procurement ProcessGeneral Procurement Process

Generally similar products are grouped into a sourcing group (SG)

Suppliers are mapped to different SGs according to the item they supply

Sourcing managers handle the total sourcing process and manage suppliers


Need for ItemCatalog

Search &Registration

SearchCandidateSuppliers

SendRFQ

ReceiveQuotes

EvaluateSuppliers

Contract


Fundamental Principle in SRMFundamental Principle in SRM

Suppliers must be managed differently according to their strategic position determined by

what they supply

how well they do it

Example of auto industry


Strategic – a high value input that may be useful in differentiating the buying firms

Non-strategic – necessary but not strategic

transmission engine air conditioner

belt tire battery


The real problemsThe real problems

What are the really strategic products and suppliers?

Segmentation

– Strategic positioning of suppliers

Why are the products and suppliers strategic?

Evaluation and visual analyses

– BestChoice


Competitive Strategic

Normal Bottleneck

HighLow

High

Low


SRM ProcessSRM Process

Strategic planning

Planning, establishing policies on how to segment, evaluate, and manage suppliers

Segmentation

Determine which items and suppliers are strategic

– Evaluate and analysis its results

May change as a company’s strategy changes

Managing suppliers

Assign management policies

Monitor supplier performance



SRM Process with BestChoice SRMSRM Process with BestChoice SRM


StrategicPlanningStrategicPlanning

SegmentationSegmentation

ManagingSuppliersManagingSuppliers


Evaluation PolicyEvaluation Policy

From BestChoice

Measure strategic importance of SGs

Calculate utility of suppliers

Convert abstract value to numerical value using MAUT, AHP

Data preparation

DW, Survey


Copyright 2007 by CEBT DEECS 2007 - 11Center for E-Business Technology

CalculationCalculation

Multi Attribute Utility Theory (MAUT)

The value of alternatives consist of measures over the criteria contributing to worth; all converted to a common scale of utility


SG SegmentationSG Segmentation

Depends on a company’s strategy

Performed in two-dimensional space

Allow various segmentation strategies by changing the evaluation policy

Example

Risk of Supply (RoS) : Easiness of Item Replacement (EoIR) + Easiness of Supplier Replacement (EoSR)

Importance of SG (IoSG) : Total purchasing amount


Competitive Strategic

Normal Bottleneck

HighLow

Risk of Supply

High

Low

Impo

rtan

ce o

f SG


Supplier SegmentationSupplier Segmentation

Suppliers are segmented

by evaluation score indicating how well they supply

depending on the SG of item they supply


HighLow

RoS

+

IoS

G

High

Low

SG1

SG2

SGn

.

.

.

ABCD

Evaluation Score of Supplier

Line ALine B Line C


Template-based SegmentationTemplate-based Segmentation

Segmentation Template (ST)

Description of how to segment SGs and suppliers

Flexible segmentation



Segmentation ProcessSegmentation Process


Step 1. RegisterSegmentation Project

Step 2. ChooseSegmentation Template

Step 3. SelectSegmentation Targets

Step 4. Integrate Raw DataFrom DW &

Transactional DB

Step 5. SegmentSourcing Groups

Step 6. SegmentSuppliers

Step 7. ApplySegmentation Results

to SGs & Suppliers

Preparation

Registration

Execution

Application


System ArchitectureSystem Architecture


DWSRMDB

MasterDB

OLAPSystem

e-ProcurementSystem

SRM System

Sourcing GroupManager

SupplierManager

MonitoringTool

SegmentationProjectManager

SegmentationTemplateManager

EvaluationManager

Master DataSynchronizer

Transporter

DW

Interface

Master D

ata Interface

RM

I


ApplicationApplication

Implemented as a web application following the J2EE architecture.

Installed at eNtoB, one of the major commercial e-Procurement agencies in Korea.



Application - Application - SG SegmentationSG Segmentation



Application - Application - Supplier segmentationSupplier segmentation



Application - Application - Analysis of evaluationAnalysis of evaluation



Conclusion & Future workConclusion & Future work

Conclusion

Suggest segmentation strategy and process which is independent from the company’s systems or processes

Suggest dynamic segmentation based on the segmentation template

Implemented and installed the system at commercial e-procurement agency

BestChoice SRM is a practical approach to solving the integration problem with existing systems of a company

Future work

Validation & verification

– A survey of sourcing managers indicated that the system is useful in evaluating and segmenting SGs and suppliers

– Quantitative results for BestChoice SRM performance


Documents

BestChoice SRM: A Simple and Practical Supplier Relationship Management System for e-procurement June 12, 2007 Dongjoo Lee, Seungseok Kang, San-keun Lee,