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Finding Value through Vendor Alliances Irene Marnell
Sr. Director NRECA
Arlington, VA
2
About Irene Over 13+ years experience in utility operations (including network engineering) and 15+ years experience in sourcing, contracting, and vendor management. Supported sourcing and contracting in both small and Fortune 50 companies. Managed up to $4B in procurement contracting. On the Institute for Supply Management (ISM) Risk Management Board of Directors and the Board of Directors for the ISM-Northern Virginia affiliate. Certifications: ISM, the American Society of Transportation and Logistics (ASTL), and the National Contract Management Association (NCMA). Degree in Education from Marshall University Masters in Supply Chain Management and Logistics from Penn State.
Irene Marnell Sr. Director NRECA
Vendor Alliances? Why Do I Care?
Better costs
Alignment
Quick Answers
Delegation of Work
Shared risks
Shared rewards
Shared Rewards
• Each partner shares appropriately in the rewards
• Partners work together to create mutual wins
• Cooperative is rewarded by having the materials & supplies to complete projects on time, better ROI, access to materials, better discounts, joint marketing, perception of united strength, etc.
Shared Resources
• Often refers to
Network resources (i.e. computer data, information that can be easily accessed
• Can also apply to facilities and inventory • Can also apply to knowledge • Partners commit an appropriate proportion
of the resources • Careful when sharing personnel!
Shared Resources
Innovation
Role of Suppliers in Product or Service Design
• Research and development: – Provides information on availability and new developments in the
market – Improves speed of release, cost effectiveness and total quality
for a new initiative
• Substitution: suppliers often can recommend alternative or newer solutions that provide same functionality
• Product innovation: due to their relationship with supply management, suppliers may recommend new products/services that enable organization to make inventive or resourceful changes
Early Supplier Involvement (ESI)
– A practice that brings together one or more selected suppliers with a buyer’s product or service design team early in the product development process
– Objective: utilize the supplier’s expertise and experience in developing a product specification that is designed for effective and efficient product roll-out
ESI can be particularly beneficial in the following areas
– Manufacturing process – Capital acquisitions budget – Product or service development/implementation – Cost – Quality – Availability – Technology – Design – Product co-development – Cycle time
Better Processes
Better Processes Collaboration
Examining joint processes can: • Remove non-value add activities
• Identify gaps
• Identify opportunities
to share resources
• Eliminate waste
Faster Delivery
Disaster Recovery
Disaster Recovery Planning
Plan for Business Continuity
– Contingent shipping methods – Contingency plan for labor interruption – Plans for safeguarding equipment, computer systems,
other assets – Action plans for escape paths – Having well-developed supplier relationships – Training for disasters that are likely to occur in given
area – Generic disaster drills – Maintaining safety stock level
Inventory Management
Inventory Management • Supplier held inventory,
• Automatic restocking by supplier, or
• Shared inventory.
• Reduces your footprint requirements
• Can prevents stock outs
• Can prevent over-stocking (and associated waste)
Supplier-Managed Inventory (SMI)
• Supplier-managed inventory (SMI): inventory management system that holds a supplier responsible for ensuring that stock is maintained at appropriate levels in the purchaser’s facility and for replenishing items when these levels drop. Sometimes referred to as vendor-managed inventory (VMI)
Marketplace for Disposal
According to ISM, the most cost-effect method of disposal of excess inventory is to return the excess back to a supplier
• Called buy-back • Supplier may charge restocking fee
How Do You Which Suppliers?
Bottleneck Items • Strategic inventory • Focused management • Move to strategic • Collaborate
Strategic Items • Collaboration/partnership • Best Practice • Exploit mutual
dependencies
Non-Critical Items • Standard
products/commodities • Monitor order volumes • Spot market
Leverage Items • Established Vendor Rating
Criteria • Competitive Bidding
Supp
ly R
isk
Impact on Profit low high
low
high
Which Suppliers Do I Want as Alliances?
Organizational Requirements
• Management responsibility • Quality system • Contract review • Design control • Document and data control • Procurement • Control of customer-supplied
product • Product identification and
traceability • Process control • Inspection and testing
• Control of inspection, measuring and test equipment
• Inspection and test status • Control of nonconforming product • Corrective and preventive action • Handling, storage, packaging,
preservation and delivery • Control of quality records • Internal quality audits • Training • Servicing • Statistical techniques
Areas examined before entering an alliance with suppliers may include:
Is My Company Ready?
• Evaluation of Internal Processes • Identify Gaps/Opportunities • Resources Available to Manage the
Relationship? • Clear understanding of What Your
Company Wants from the Relationship • Legal Implications (Joint Ventures, Co-
employment, etc.)
Key Attributes
• Adding value to products • Improving market access • Strengthening operations • Adding technological strength • Enhancing strategic growth • Enhancing organizational skills • Building financial strength
When Should My Company Form an Alliance?
Vendor Alliances
• A merging of efforts or interest • A formal agreement between two or more • Association, coalition, combination, partnership
for mutual benefit • Shared risk • Shared resources • Shared vision • Shared rewards • Shared values
• An alliance strategy needs to reflect the business goals of your cooperative.
• Fundamental questions include, “What do we want to achieve from an alliance?” and “What, if any, type of alliance will help us best get there?”
Alliance Strategy
Keep in mind that you are not forming an alliance between two people, but rather two or more entire companies! Don’t confuse an individual (who may leave a company) with a commitment by the company!
Shared Vision
– Partners have common view of the objectives, results and outcomes of the alliance
– Common vision of the importance of the Relationship/ partnership
Shared Values
– Share a common value – Systems and complementary cultures – Relationships that provide the means, motivation and
commitment to resolve problems and issues – Working together to effectively on projects ensuring
materials & supplies are correct – Growing the relationship
Document the Motives for Alliances Include expectations and commitments for …
– Reducing risks – Reduce/Share cost – Access to knowledge & expertise – Reduce cooperative overhead – Commitment to win – win relationship & results – Provide added value – Management support
• The Supplier and its service providers must respect the confidentiality of the data.
• Specific performance measures must be agreed upon.
• Specific criteria regarding subcontractors should be discussed.
• Arbitration issues should be considered before entering into a contract.
• Escape clauses should be negotiated into the contract.
• Methods of ensuring that performance goals are being met should be discussed
• Ownership of inventory should be agreed upon
• Payment / credit terms
Contracts
Management Support • Critical
• Both Supplier and Cooperative
Communications
Communications • What happens if your main
contact leaves?
• Make sure all relevant staff are aware of the alliance!
• Keep lines of communications open every step of the way and meet regularly to discuss what aspects of the alliance are working for both of you and what you would like to see changed.
Form The Alliance Based on Your Needs
– Materials & supplies – Hand tools and safety equipment – Transformers, special equipment – Meters – Office supplies – Space – Resources – Inventory Management
Vendor Alliances/Partnerships
Consider your vendors being an extension of your TEAM
– An extension of your sourcing and procurement TEAM
– An extension of your warehouse TEAM – An extension of your engineering TEAM – An extension of your construction/maintenance
TEAM
• As a “Member” of your team, your vendors need to be managed and developed – Level of trust in your vendors required! – As a trusted advisor for your TEAM, the vendors
need to have intimate knowledge of your cooperative to do a better job in creating value
– If the vendors do not create value to the cooperative, they should be replaced, no different than other suppliers that does not create value in performing their job
– Be careful not to treat them as an employee subject to co-employment claims!
So How Do You Make It Work?
Establishing Collaboration
Collaboration – Share the goals of the cooperative so the vendors can align
their resources with your cooperative goals
– Learn the goals and objectives of your vendors so that you can select vendors that is more closely aligned with the cooperative
– Share your work-plan; future demand and projects will allow vendors to plan resources and reserve capacity if needed
– Vendors should bring innovation to create value, innovation typically requires an investment of resources
Establish a Supplier Relationship Management Program
• Regular reviews depending on categorization of suppliers and need (monthly, quarterly?)
• Executive sponsorship meetings • Audits – In God We Trust … All Others Bring
Data! • Visit Supplier locations to assure same
commitment • Get to know Supplier’s chain – of – command
Performance Measurement Processes
What to Measure • Financial metrics • Operational metrics
– Supplier assurance – delivery – Supplier quality metrics: field impacts, shipped
products quality level, warranty expense – Contracted labor utilization rates
• Information technology metrics • Sourcing metrics • Business control and relationship metrics
Understand the Common Mistakes!
– Low commitment from vendors
– Hidden agenda leading to distrust – Complex to manage – Reactive, not prepared & proactive – Unrealistic expectations – Overdependence – Lack of understanding of what is involved
Don’t Ignore Problems!
Disadvantages • Without appropriate common vision, conflicts can arise • May be too much reliance on one supplier – never
commit to sole source! • Requires some time to develop appropriately and
manage. • Must make sure communications are frequent and that
changes in organization structures do not affect the relationship.
• Core competencies should not be compromised • Competitive advantages should not be compromised • Cost must be clearly understood – yours and the
supplier’s
Advantages • Some advantages of standardization and
simplification that alliances support are: – Decreased total cost of ownership – Increased profitability – Decreased cycle time – Improved quality – Lower maintenance costs – More consistency – Fewer suppliers – Leverage buying – Lower inventory costs – Reduced training costs
But What About Those Pesky and Commodity Based Suppliers?
• Always be respectful • You never know when they might be needed • Relationships are important on all levels
– Many leaders had more humble beginnings – The person you ignore today may be an important contact
tomorrow • Soichiro Honda was passed over for an engineering job at Toyota and
left unemployed. • Nelson Mandela was a night-watchman • Shahid Khan worked as a dishwasher but now owns the Jacksonville
Jaguars. • Oprah Winfrey was out of the house and on her own at the age of 14 • Ray Kroc was a high school drop out and sold paper cups before
McDonalds. • Do Won Chang worked as a janitor before starting “Forever 21” • Howard Schultz, the CEO of Starbucks was a salesperson for Xerox
