Supply Chain Management 101

1. Supply Chain Management 101 Ron Heere 11/15/11 Morning Or Everything You’ve Ever Wanted to Know About “Procurement” including the Kitchen Sink

2. Introduction Morning Session

3. Me . . . • Ronald A. Heere (Sr) . . . . Ron • 38+ years in AE/EPC/CM/V Industry • United Engineers / Catalytic / Stearns Roger / Raytheon / Badger / Ebasco / Litwin / Jacobs / Carter Burgess • Energy / Metals / Biotechnical – Pharmaceutical • Corporate • 2+ Years in Medical Devices Mfg Industry • Becton, Dickinson and Company (BD) • Strategic Sourcing Manager • $ 15+B TIC Plants Worldwide • Power (Fossil / Nuclear / Steam), Pharmaceutical • $ 12+B Overhead / Operations Contracts • MBAs • Organizational Behavior • Business Law • Board of Directors, Purchasing Mgmt Assoc of Phila 3

4. Introductions, & A Little Bit About Everyone 1. Personal Info: 2. When this course is over, what do you hope you’ve learned ? • On a Scale of 1 to 10, How would you rate yourself as a “Contracts” person: • 1 = Novice10 = Walks on Water Name Title Couple of expectations 4

5. Housekeeping . . . . • Interactive . . . . Stop me at any time • Please turn off your cell phones • 3 hour course • Bio-breaks Whenever you need them . . . Just get up and go • Participate . . . . • I will Bribe You !! 5

6. Baselining . . . When I say This . . I Mean . . . • Law = English Based vs. Napoleonic Based Why the Differentiation ???? • Services = Materials / Goods / Consulting / Maintenance / Labor • Supplier = Vendor, Seller, Contractor, Subcontractor • Purchase Order = Applies to Materials / Goods / Consulting / Maintenance / Labor • Contracts = Applies to Construction Labor or Master Agreements for Services. Why the Differentiation ???? 3

7. Answers . . . . Law Labor vs. Goods English • Common Law • Recognizes the “Intent” between the parties in forming the Contract • Recognized by the UCC (Uniform Commercial Code) • Valid = 49 States + DC • Not Valid = Louisiana, Puerto Rico & Outside the US Napoleonic (French) • Interpreted based upon written content of Agreement • Does not recognize “Intent” of the parties • Valid in Louisiana & Puerto Rico Contracts for Goods governed by the UCC (Uniform Commercial Code) Don’t have to negotiate Intent between the parties . . . UCC already does that unless the parties want to change it Pure Labor contracts not governed by the UCC Furnish & Install Contracts . . . Vary from state to state . . Grey Area of the UCC 7

8. QUESTION: ???How Do I Get Sales, Marketing, Production, QA, Management, etc. to Notice Procurement ??

9. Answer # 1: Quick Answer . . . Deliver The Money

10. Answer # 2: Quick Answer . . . Mess Up . . . - Up

11. Real Answer . . • Produce a Service / Support Function which they can rely on for its’ professionalism while delivering consistent and value-added outcomes. • Oh yeah . . . And Do it better then they can

12. OK . . . We Done ??? Darn . . .Didn’t think you’d buy that . .. But it was worth a try

13. So, In Forming a Contract, Where do I Start ???? 13

14. START: What’s My Objective ?? What Problem Are You Trying to Solve?? Contracting Styles Work Differently Based upon What’s Important to You • Budget Constraints • Scheduling Problems • Performance Problems • Quality Issues • Safety Issues • Disadvantaged Business Participation • Space / Storage Limitations • Cash Flow • Risk Mitigation • Supplier • Product Flow Guarantees • Service Life-Cycle Mgmt • Innovation • Obsolescence • Varied Team Goals/Objectives • Better Vendor Relationship Management 14

15. So Contracting Styles Differ Based upon the Circumstances One Size Does NOT Fit All 15

16. Team Formation Morning Session

17. Why Little Ole Me ??? 17

18. But, Why Me ?? • Q: I know the Positive’s for Taking Charge, Why Do I really have to do Everything ?? • A: Because One Way or Another, to do it Right, You As Supply Chain Management, Need to Do It Also • If it all Falls Apart, It’s Coming Back to You Anyway . . . Right ??? 18

19. OK, It’s Me . . . What Skills Do I Need? Common Sense 19

20. But, Before You Get Started . . . 20

21. Planning Yields Results • Formalized procedure & plan consistently executed yields reliable results • ISM’s # 1 Key for SM Success: Ability to Plan • Flexible to cover varying engagement models • “Tweak for Success” • Progressively rebuild • Avoid massive “process re-engineering” 21

22. Team Building So Let’s Get Started . . . 22

23. Team Building • Includes • “Cross Functional” departments • All Affected People & Processes • “Stakeholders” - Persons or departments directly affected by the Vendor’s performance. Usually the “budget holder” • Functional (Engineering, Production, Marketing) • Persons (Director, Manager, Mail Room Clerk) • Members need to be supported by their senior management 23

24. Functionality/Departments to Consider • Accounting • Invoice Processing • Payment Processing • General Ledger Posting • Capital Reporting • Auditing • Receiving • HR • IT • Electronic Order Processing • Electronic Invoicing • Electronic Data Interchange • Sales / Marketing • Business Partners • Special Interest Groups • Promotions / Announcements • Stakeholders • Production • Facilities • IT • Print Management • Management • Operations • Business • Budget Holder • Supply Management • All Disciplines 24

25. Why Accounting ? • Invoicing • Data elements • Special coding requirements • Formatting • Paper • Electronic • Routing • Who / what / when / where / how • Copy to Supply Manager • Frequency • Mapping to manage processing volume • End of Quarter / Financial Year • Discounts for Quick Pay • Special Considerations • “Paid When Paid” • ProCard / GhostCard • Submittal Requirements • Receiving Slip • Duplicate Invoices • Documentation copies for full or partial shipments • Taxing Considerations • Inventory • IT (HW / SW) • VAT • Internet Ordering • Documentation Copies from Supply Management • PO • T&C’s • Bills of Material • etc 25

26. Wait a Minute . . . • Question: I Thought This Was About Team Forming. I know I need “Steve, Jim and Danielle” on my team? Why are we talking about Individual Departments??? • Answer: A Vendor will excel if they know how to perform and what / whose expectations they need to meet. Remember, that’s your job to convey, document and administer. And you need the Department’s buy-in, not just “Steve, Jim and Danielle” OK, Back to the Details . . . 26

27. Why . . . . Receiving HR • Days • Hours • Security Clearance • Insurance • Special handling requirements • Loading dock • Elevators (padding / freight) • Off Hour Operation • Documentation required • Partial Shipments • Employee Status (contract) • Insurance • Indemnification • Intellectual Property • Special Testing • Security • Drug • Etc • Safety / Plans of Action 27

28. Why . . . . . . IT Sales / Marketing • Access: phones / systems / internet • Security passwords • SOX (Sarbanes Oxley) auditing systems compliance • Temporary equipment • Cross Firewall processing • Systems Compliance certifications • SASS70 • Electronic Data Exchange • PO’s • Invoice Data • Payments • Capital Tracking (serial numbers, etc) • Announcements: Public / Company • Use of Company Name • Tracking / Reporting of Legal / Prime Agreement Vendor Compliance • Minority, Women Owned, Small, Disadvantaged • Primary & Secondary Flow-Down Allowances • Special Interest Groups • Supported by Management • Disbarred by Management / Legal / Other 28

29. Why . . . . . Stakeholders Supply Management • It’s what they want / need • It’s their budget • If Vendor fails to perform, they suffer directly . . They are Committed • “Chicken & The Pig” • Most aware of what constitutes “Success” • Most clearly identify the “When / Where / Who / What / Why” of the engagement Has input into selection and administration process Has historical performance records Maintains the “Lessons Learned” library Is the assigned facilitator SM gets stuck pulling this all together SM Orchestrates Success or Sufferer the Failure 29

30. Requirement: Project Team Kick-off Session Hosted By: Procurement Attendees: Marketing / Production / HR / IT / QA / Finance / Accounts Payable / Safety / Legal / Project Executive Purpose: Alignment of expectations / goals / requirements Benefits: Clear Understanding of: Project Interdependencies Who Owes Who What, Why and When Schedules Long Lead Time Items / Delivery Concerns Proper sequencing of Activities Consensus on Market Conditions affecting Success Opportunity for Procurement VOICE to be heard regarding: Ability to make schedule RFQ Sourcing Strategy & Sourcing Plan By Product: Serves as the baseline for the overall Schedule 30

31. So When Is the Team Formed ? Before the process begins formally Revisit as needed on a regular basis Meeting of team members should be both formal and informal Quarterly “Lunch and Learns” good for team building When publishing “successes”, be sure to share results and credit with the team 31

32. Let’s Get Back on Track . . .

33. Strategic Sourcing Morning Session

34. Bidding Process Selecting the Right Tool for the Job !! 34

35. So, How do I do it ??? STEP # 1: Ya Gotta Have a Plan . . .

36. Vendor Pre-Qualification First Contact !! 36

37. Building a Solid Relationship • Pre-Qualification Form Often Represents Your Company’s First Vendor Contact • Must: • Identify What They Do and Why the Vendor is Being Contacted • Use: • Form Letter or Vendor Registration Internet Portal • Customize Pre-Qualification Forms for Type of Equipment / Support / Service • Provide Clear Instructions and Contact Information for Vendor Questions / Comments / Concerns • Take Ownership to the Process 37

38. Constructing Pre-Qualification Form • KISS – Keep it Simple • Include all “Data Elements” • Accept Most Vendors Will have Trouble Filling Out Your Forms • Utilize “KISS” Principal • Assign Administrative Interface to Answer Vendor Questions • Maintain and Publish a FAQs Log (Frequently Asked Questions) • Assist Vendor • Keep All Team Players on the Same Page • Provide “Generic Completed Example” • Work with Sales / Marketing for Best Feedback • They are the Professionals on “First Contact” • If Not Using Electronic Portal, Design Form to be Electronically Downloaded once Completed by Vendor • Avoid Double Handling – Creates Data Integrity Issues • Save Administrative Time – Yours 38

39. Additional Pre-Qualification Considerations • Special Handling of: • Minority / Small Disadvantaged / Women Owned Businesses • Vendor Competing on a Local, Regional, National, Global basis • Vendor Agrees to the “Minimum SLA’s” for the position? • Provide Minimums with Pre-Qualification Form • Vendor Agrees to Accept Company Standard T&C’s • Is Vendor: • Financially Viable? • Require Abbreviated Financials, Dun & Bradstreet etc. • Electronically Viable • Handle EDI (Electronic Data Interchange) Requirements • Coordinate with IT, Accounting to identify Basic Minimums 39

40. Additional Considerations, Cont • Business Type (Small, Disadvantaged, Women) • What are Company’s / Project’s Goals? • Formal or Contractual • Penalty for Non-Compliance? • Government Certification • Primary or Secondary Compliance • Ex: Staples • Administration & Reporting • What are your responsibilities • Degree of Involvement • Training, Support, Mentoring, Counseling, etc. • Check with Sales, Legal, Minority Officer for Guidance 40

41. Technical Vendor Pre-Qualification • Provide Minimum Service Level Agreements (SLAs) • Vendor must agree to comply to be put on bidder’s list • Saves Time / Cost during RFQ / RFP / RFI Process • Test Electronic Interface Capabilities • Work with IT / Accounting • Obtain Samples for Testing and Evaluation • Write Bailment Agreement Where Necessary to Formally Document Use of Samples • Request “References” - Validate Minimum SLA compliance • Assign Team Member to Formally Validate • Follow-up testing results • Return Equipment / Samples if required by Bailment Agreement 41

42. Terms & Conditions Pre-Qualification • Provide Copy of Applicable T&C’s • Should Reflect Absolute “Minimums” Required by Company • Let RFI / RFQ / RFP introduce the Detailed Boilerplate • Vendor must accept to be put on bidder’s list • Saves Time / Cost during RFQ / RFP / RFI Process • Establish Company Policies / Procedures for Vendor Compliance Exceptions • i.e. OK for FOB Destination, but not for 1 Year Warranty • Ensure All Team Members on Same Page • Team Member Assist in Pre-Qualification T&C’s Issues • Document all Results 42

43. Vendor Pre-Qualification Forms Examples 43

44. Vendor Pre-Qualification Dispositioning A Team Effort !! Does Not Necessarily Mean a “Unanimous” Decision, Unless Team Protocols So Require 44

45. Pre-Qualification Dispositioning • Initial Follow-up Should be Verbal • Formal Letter Then Sent Out • List Qualification Status (Rejected, Accepted; Full or Partial • List Restrictions of Certification if Any; • Commodities • Geographic • Dollar Value • Other • Identify Length of Certification Validity • Identify Assigned Company “Liaison” for future Contact and Interface 45

46. And Don’t Forget; • Update Your Vendor Database • Change Status from Potential to Validated • Identify “Qualifications” of Validation • Identify “Liaison” • Identify “Recertification Date” • Publish Internal Announcement • Special Memo • Weekly / Monthly / Quarterly Vendor Certification Alerts • Failure to Do Any of the Above • Garbage In, Garbage Out 46

47. Sourcing Model Overview

48. Hold On A Second . . . . • Question: Why are we reviewing Sourcing Models ?? • Answer Simple, Your Sourcing Model Selection could Impact the Success or Failure of your Supplier. Understanding which Sourcing Model Best Fits the Opportunity will Increase Potential for Success 48

49. Sourcing Model Overview 49

50. Sourcing Model Selection • Model Selected Based on Multiple Considerations • Company Policy / Procedures • Company • Commercial • Government • Publically Owned • Privately Owned • Product Knowledge • Award Amount • Technical Requirements • Schedule • Commodity 50