Supply Base Rationalization

1. Supply Base Rationalization Bob Liu, C.P.M. Managing Director, CSCS International Founder, www.scm-blog.com

2. Agenda • From Purchasing to Supply Management • Supply Base Rationalization • Pitfalls

3. From Purchasing to Supply Management

4. Purchasing was the last place to stay Purchasing was the last place to stay before a person was let to go. • Prof.John Pearson, W.P. Carey School of Business, Arizona State University

5. As Suppliers Become Important, so does Purchasing More CEOs expect purchasing to add value More companies outsource design and manufacturing 来源：AT Kearney, The New Procurement Mandate, 2001 Outsourcing increases the reliance on suppliers and the importance of purchasing

6. Reactive, Fragmented and Internal Focused PO Transactions Price and OTD focused Administrative, not business partners Supplier oriented From Purchasing to Supply Management Supply Management Purchasing • Proactive, Centralized and Market Driven • Supplier relationship • Total cost of ownership • Strategic resource, business partner • Demand management oriented

7. It’s Also a Culture Change “Hunter” Model Purchasing Supplier management Supply continuity KPI Short term relationship Some supplier involvement into NPI Supply Management Long term relationship Supplier development Relationships, not only orders JV, alliance, ESI “Shepherd” Model Strategic Sourcing 来源：Ron Nussle, Jr., President, ICR Group

8. Case Study: EPC Becomes PEpC at Fluor Engineering Procurement Construction 来源：Larry Jackson, VP, Strategic Sourcing at Fluor Corporation, 38th ECC Conference

9. ISM Introduced New Certification Program Certified Purchasing and Supply Management Certified Purchasing Manager 2008 CPSM is focuses on Supply Management

10. Supply Base Rationalization

11. Supply Base Requires “Population Control”

12. ～1970s Competitive bidding Many sources ～1990s Supply Base Reduction ～2000s Rationalization Supply Base Rationalization – A Journey in North America Average Cost Savings 9%！ Great savings achieved through supply base rationalization

13. Why So Many Suppliers? Not the Fault of Financial Crises The rocks have always been there. They pop up when tide goes away

14. Why So Many Suppliers – Deere’s Gloves Before After 6 suppliers 424kinds of gloves Same glove, different suppliers, different prices 1 supplier 24 kinds of gloves 50% reduction in price Decentralized Purchasing is the Root Cause Dave Nelson Former CPO at John Deere

15. Why So Many Suppliers – Motorola’s Batteries Before After 60cell phone models >100 types of batteries 5 batteries New cell phone design can only pick one of 5 “市面上的每种（摩托罗拉）手机都有一种不同的电池。电池的复杂度简直是不可思议。 光库存一项就要了我们的命。”–特蕾莎.梅提（Teresa Metty）,前摩托罗拉首席采购官 Design proliferation increases complexity

16. Be a Problem Solver, not a Policy Maker VS Supply base rationalization requires problem solving

17. Supplier Evaluation Criteria Cost competitiveness Operations efficiency Infrastructure soundness People, Technology and Process are fundamental to supplier performance

18. Supplier Categorization at BP 来源：Christina De Luca，BP Plc，VP， R&M Procurement, ELP Forum 2006. Supplier categorization is critical supply management

19. Five Steps to Rationalize Supply Base Source：Ron Nussle, Jr. ICR Group Supplier Improvement Supplier’s Importance Increases Long Term Agreements No of Suppliers

20. Integrate Suppliers into Product Flow, Info Flow and Cash Flow Supplier Supplier Customer Customer Product Flow Product Flow Information Flow Information Flow Cash Flow Cash Flow Supply chain is about product flow, info flow and cash flow. Suppliers play a critical role in these flows

21. “Seamless” Supply Chain Without suppliers’ support, seamless supply chain is impossible 图片来源：http://blogs.mkhalid.com

22. Pitfalls in Supply Base Rationalization

23. Reasons to Add New Suppliers New product New technology New market Monopoly Existing suppliers exit the sector Existing suppliers can’t catch up Supply Base Rationalization is not a One Way Street 图片来源：http://niltimbadia.blogspot.com/ Supply base rationalization is a Two Way street

24. Performance Management Sustains Results from Rationalization • Supply base rationalization achieves one time effort • Performance management ensures ongoing results Supply base rationalized Performance Performance sustains Performance Deteriorates Performance Management Introduced Christina De Luca, Chief Procurement Officer, Refining and Marketing, BP plc Time

25. Be Proactive in Supply Base Rationalization • Good doctors cure a deadly sick patient • Excellent doctors cure before the illness is out of control • Outstanding doctors cure even before the illness is perceived 来源：时代光华马丽 Take preventive actions, just like any outstanding doctors do

26. The Desire to Exit Suppliers Get rid of the bad boy They deserve it Show my strength Immediate results The Costs of Exiting Suppliers Hurt by suppliers in desperate No time for supplier selection for NPI New problems become chronicle, a vicious circle Don’t be Addictive to Exiting Suppliers “今日不雨，明日不雨，必有死蚌” 对该淘汰的供应商，今年不给新生意，明年不给新生意，防止新生意流失，随着旧产品的下市、现有项目的完成，该淘汰的就自然淘汰，该整合的就自然整合。No Ensuring new businesses go to preferred suppliers is a better approach to rationalizing supplier base

27. Rationalization is a Long Process Supplier rationalization is similar to changing tires for a racing car. A great supply base is just like a Ferrari: It’s not designed and built overnight. It takes years to perfect every detail

28. All supply base rationalization starts like this 来源：Ron Nussle, Jr. ICRGroup

29. Thank You Bob Liu, C.P.M. Managing Director, CSCS International Founder, www.scm-blog.com bob.liu@ChinaSCservices.com