March 8, 200121 November 2000Supply Strategy Profitability Review Supply Strategy Objectives Provide a structured approach to supply management Prioritize

March 8, 200121 November 2000 Supply Strategy Profitability Review

Supply Strategy Objectives

• Provide a structured approach to supply management• Prioritize and segment suppliers based on importance

– Risk– Annual Spend

• Establish and document a standardized methodology to improve both company and supplier understanding

• Communicate strategic supply objectives• Implement standard performance measures• Facilitate on-going improvement activities

– Business relationship– Process improvement– Cost reduction


The 5S of Supply Management

• SORT – Select suppliers for addition to or subtraction from the supply base.

• SET-IN-ORDER – Segment supply base into appropriate categories based on risk and spend.

• SHINE – Survey processes and systems as well as measure overall performance.

• STANDARDIZE – Define responsibilities and audit supply management processes.

• SUSTAIN – Review the performance of overall supply management process.


Supply Management[SORT]

• Select suppliers to satisfy new or existing requirements– Define requirements– Review existing supply base capabilities– Search for supplier with capabilities– Qualify new supplier

• Remove unnecessary or under performing suppliers– Identify poor performance (delivery, quality, price, etc.)– Identify low business level and / or infrequent purchase activity– Define existing supplier capabilities and eliminate

redundancies


Supply Management[SET-IN-ORDER]

• Establish A place for everything …– Partnership (High Risk/High Spend)– Contractual (Low Risk/High Spend)– Surveillance (High Risk/Low Spend)– Transactional (Low Risk/Low Spend)

• Segment the supply base into the 4 quadrants – Everything in its place … – Risk analysis (inherent and short-term)– Spend (annual business volume)– Identification of opportunities for changing quadrants


Supply Management[SHINE]

• Survey– Site surveys– Supplier self assessments– Remote surveys– Third party certifications

• Performance Measurement– Establish a “base line”– Implement performance measures– Conduct periodic performance assessments


Supply Management[STANDARDIZE]

• Formalize procedures, schedules, and practices– SORT– SET-IN-ORDER– SHINE

• Review 3S implementation periodically• Train supply management personnel, partnership

teams, and suppliers in 3S implementation• Implement MRP for purchasing and train purchasing

personnel in its use


Supply Management [SUSTAIN]

• Periodic review of supply management process performance– Supply base segmentation– Supplier performance measurements– Critical project update– Supply management process effectiveness

• Annual SUPPLIER DAY for key suppliers– Rewards and recognition– Business review– Strategic planning inputs– Performance review and feedback


Implementing 5S Supply Base Maintenance

Worldwide Supply Strategy



• Select suppliers to satisfy new or existing requirements– Define requirements– Review existing supply base capabilities– Search for supplier with capabilities– Qualify new supplier

• Remove unnecessary or under performing suppliers– Identify poor performance (delivery, quality, price, etc.)– Identify low business level and / or infrequent purchase activity– Define existing supplier capabilities and eliminate

redundancies



• Wastes Avoided by SORT

– Waste of clerical activity: too many suppliers

– Waste of disruptions: excessive sales calls

– Waste of poor quality / delayed shipments: high risk suppliers receive inadequate communication / follow-up



• Value contribution by SORT

– Reduced administrative costs (reduced # of suppliers)

– Improved quality (choosing best suppliers)

– Improved on-time delivery (choosing more reliable suppliers)



• Establish A place for everything …– Define segmentation criteria (e.g., spend and risk)– Establish guidelines for segment improvements

• Segment the supply base into the 4 quadrants – Everything in its place … – Assign EVERY supplier to an appropriate segment– Establish supplier-specific improvement plans as appropriate

for the assigned segment– Ensure cooperation of affected parties– Implement improvement plans



• Wastes Avoided by Set-in-Order– Waste of clerical activity: too many suppliers– Waste of travel: visiting the wrong suppliers– Waste of travel: lack of focus during visits– Waste of disruptions: excessive sales calls– Waste of poor quality / delayed shipments: high risk

suppliers receive inadequate communication / follow-up– Waste of money: paying too much – Waste of money: participating in bidding for items that will not

be moved



• Wastes Avoided by Set-in-Order

– Waste of travel: visiting the wrong suppliers

– Waste of travel: lack of focus during visits

– Waste of poor quality / delayed shipments: high risk suppliers receive inadequate communication / follow-up



• Value contribution by SET-IN-ORDER

– Reduced costs: reduced # of suppliers, more appropriate actions with high spend suppliers

– Improved quality: implementing improvement plans

– Improved OTD: implementing improvement plans

– Reduced lead time: implementing improvement plans

– Enhanced design assistance: partnership focus


Segmentation Matrix

Surveillance(High Risk – Low Spend)

Partnership(High Risk – High Spend)

Transactional(Low Risk – Low Spend)

Contractual(Low Risk – High Spend)

High

Low High

Ris

k

Annual Spend


Segmentation Matrix

• Allows targeted control (risk control, cost control, inventory control)

• Enables targeted improvement (partnerships, LTAs, surveillance, etc.)

• Makes the best use of limited supply management resources (strategic, supply engineering, etc.)

• One size does not fit all


Segmentation Matrix


10% of Suppliers


10% of Suppliers


70% of Suppliers


10% of Suppliers

High

Low High

Ris

k

Annual Spend


Segmentation Matrix



Reduce risk thru redesign, manage risk thru partnerships



High

Low High

Ris

k

Annual Spend


Partnership

Criteria• High Risk/High Spend suppliers• Strategic, long-term relationship• Common business philosophy

Activities• Routine visits/annual surveys (ISO – annual

periodicals, re-cert every 3 years)• Active continuous improvement initiatives• SWOT analysis and FMEA


Supplier Partnerships

• Strategic supply agreement objectives– Specify partnership activities on both sides– Communicate volume expectations– Clarify quality requirements– Document design control, change notification specifics, and

other details of the business relationship– On-going process improvement/cost reduction commitments– Identify key contacts in both organizations

• Periodic supplier surveys, including routine visits to/from both companies

• Participation in forecasting and strategic planning activities related to relevant products


Segmentation Matrix





High

Low High

Ris

k

Annual Spend


Segmentation Matrix





High

Low High

Ris

k

Annual Spend

Consolidate

Consolidate & Reduce RiskReduce Risk


Surveillance

Criteria• High Risk/Low Spend suppliers• Monitoring relationship• Business/technical risk assessment

Activities• Routine surveys• FMEA (risk assessment/prioritization of risks)


Segmentation Matrix





High

Low High

Ris

k

Annual Spend


Contractual

Criteria• Low Risk/High Spend suppliers• “Arms length” relationship• Selection based on price

Activities• Group leverage• Free Markets On Line reverse auctions• Long Term Agreements


Segmentation Matrix


10% of Suppliers


10% of Suppliers


70% of Suppliers


10% of Suppliers

High

Low High

Ris

k

Annual Spend


Classifying inventory (or suppliers) according to some measure of importance (usually annual spend) and allocating control efforts accordingly.

AA - very important

BB - moderately important

CC - least important Annual Spend

AA

BB

CC

High

Low

Few ManyNumber of Suppliers

ABC Classification System


ABC Analysis

A Suppliers20% of the suppliers

80% of the annual spend

B Suppliers30% of the suppliers


C Suppliers50% of the suppliers



Segment Pareto: Spend

20% of $$$

80% of Suppliers(B and C Class

Suppliers)

80% of $$$20% of Suppliers

(A Class Suppliers)

Low HighAnnual Spend


Segment Pareto: Risk

80% of RiskOnly 20% of Suppliers

20% of Risk

80% of Suppliers

High

Low

Ris

k


Segmentation Matrix


10% of Suppliers


10% of Suppliers


70% of Suppliers


10% of Suppliers

High

Low High

Ris

k

Annual Spend

Consolidate


Transactional

Criteria• Low Risk/Low Spend suppliers• Approximately 70% of suppliers• Convenience relationship• Transaction cost vs. price

Activities• Move to Contractual through consolidation• E-Business purchases• Minimize administration costs (distribution, supplier

managed inventory, etc.)• Carry higher levels of inventory


Transactional [Consolidation]

Move to Contractual through consolidation• Review all suppliers with low spend and / or low

account activity• Note redundancy in capabilities• Consolidate buying activity with Best-in-Class suppliers• Consolidate buying activity with competitive distributors


Supply Management[SHINE]

• Survey– Define customizable survey process that may be used for any

supplier in any segment– Train teams in how to survey a supplier

• Performance Measurement– Ensure measures adequately describe success, particularly

for teams– Establish a “base line”– Implement performance measures– Clearly define required performance level– Conduct periodic performance assessments


Supply Management[STANDARDIZE]

• Formalize procedures, schedules, and practices– SORT: survey procedures and schedules– SET-IN-ORDER: segmentation, partnership, SWOT,

Production Part Approval, and Failure Modes & Effects Analysis processes – also SSA and LTA documents

– SHINE: Surveys, procedures for 3rd party certification, and self-assessment

• Quarterly 3S supply group reviews• Incorporate 3S duties into personal plans• Train supply management personnel, partnership

teams, and suppliers in 3S implementation with annual reviews


Supply Management [SUSTAIN]

• Periodic review of supply management process performance (Board Level)– Supplier performance measurements– Critical project update– Supply management process effectiveness

• Annual SUPPLIER DAY for key suppliers– Rewards and recognition– Business review– Strategic planning inputs– Performance review and feedback


Supply Strategy Summary

• 5S provides a structured approach to supply management.

• All suppliers will be ranked based on importance.• The method for improving suppliers will be documented

and communicated. • Standard performance measures will be adopted, while

still allowing for customized partnership measures.• The 5S approach will facilitate on-going supply

improvement activities resulting in near-term and longer-term improvements in delivery, lead time, price, quality, and design support.


Steps in ImplementingThe 5S’s of Supply Base

Management

Brooks Instrument - 2001


5S: Next Steps Checklist

SORT Perform a quick sort of the existing supply base

Poor performers (delivery, quality, cost) Low purchase volume Redundant capabilities

Identify capabilities to add New requirements Expanded capacity



SET-IN-ORDER Agree on segmentation criteria Segment all suppliers into appropriate categories Establish supplier-specific improvement plans as

appropriate (See segmentation checklists) Ensure cooperation of process owners (purchasing,

manufacturing, engineering, supplier) Includes orientation meeting (purpose, philosophy, process,

etc.) May include ongoing team participation

Rank improvement opportunities and implement in order



SHINE Define customizable survey process Train survey teams and lead auditors Define measures (Relate to strategic objectives)

Supplier measures (general, segment-specific, supplier-specific)

Customer-supplier team measures Brooks Instrument supply-related measures (e.g., payment

performance)

Establish measurement performance baseline Establish required performance levels Schedule performance assessments



SHINE Define customizable survey process Schedule audit team training Define measures (Relate to strategic objectives)

Supplier measures (general, segment-specific, supplier-specific)

Customer-supplier team measures Brooks Instrument supply-related measures (e.g., payment

performance)

Establish measurement performance baseline Establish required performance levels Schedule performance assessments



STANDARDIZE Document survey procedures Document segmentation (emphasizing key supplier

partnerships and surveillance suppliers Document supplier management processes

MRP procedures and reviews Team guide for partnerships SWOT analysis guide Production Part Approval Process procedure Failure Modes and Effects Analysis procedures Strategic Supplier Agreement

Train supply personnel in supply management processes

Incorporate 3S duties into personal plans



SUSTAIN Schedule board level supply management review

Document for ISO management review Supplier performance measurements Critical project update Supply management process effectiveness

Plan annual supplier day for key suppliers (prior to Brooks Instrument strategic planning process)

Documents

March 8, 200121 November 2000Supply Strategy Profitability Review Supply Strategy Objectives Provide a structured approach to supply management Prioritize