Bill Stankeiwcz Copy Scope 2010 Parker Company
- 1. Strategic BCC Sourcing – setting the stage April 21, 2010
- 2. OBJECTIVES • History of Global Sourcing • Strategic Drivers – External and Internal • External Drivers in Today’s world • Internal drivers - VOC • Supply Chain Framework and Strategic BCC Sourcing Process • Supply Chain Objectives • Supply Chain Framework • Evolving Strategic Sourcing • BCC Sourcing Process – DMAIC Strategy • BCC Sourcing Tools and Trackers • BCC Sourcing Tactical tools • BCC Supplier Selection Matrix • Performance and Score carding • BCC Tracking mechanisms • Total Landed Cost • BCC Landed Cost • BCC Logistical Support • Risks vs Benefits • Managing Benefits vs Risks • Risk management Tools • Country specific core competencies and sensitivity • Today’s BCC Sourcing People Profile 2
- 3. History of Global Sourcing 3
- 4. A LOOK BACK IN HISTORY 4
- 5. Strategy Drivers – External and Internal 5
- 6. EXTERNAL STRATEGY DRIVERS IN TODAY‟S WORLD • LONGER AND MORE COMPLEX SUPPLY CHAIN GLOBALIZATION • SHORTER PRODUCT LIFE CYCLES • BLURRING OF TRADITIONAL ORGANIZATIONAL BOUNDARIES • “BRIC” FACTOR –NEW MARKETS AND SOURCES OF SUPPLY TECHNOLOGY AND INFORMATION SYSTEMS • CONNECTION IN A FLAT WORLD EMPOWERED CONSUMER • REQUIREMENT FOR BEST PRICE, BEST QUALITY AND BEST SERVICE SUPPLY CHAIN • WAL-MART EFFECT INTEGRATION AND • CUSTOMIZATION, VALUE ADDED SERVICES AND COLLABORATION IN SUPPLY POWER SHIFTS CHAIN • COMPETITIVE ADVANTAGE BASED ON SUPPLY CHAIN EFFICIENCY • ECONOMIC DEREGULATION OR REREGULATION GOVERNMENT POLICY • ENVIRONMENT AND SAFETY AND REGULATIONS • SECURITY • TRADE POLICY, TAX POLICIES AND USER CHARGES 6
- 7. INTERNAL STRATEGY DRIVERS - VOICE OF THE CUSTOMER Voice of the Customer Metric Actual comments from internal customers– 35% 31% 30% 25% • Quicker lead time on requests 25% 20% • Why won’t they ditch us when times 20% are good or if they get a higher margin 15% business 11% 10% 10% • Would they charge higher prices for lower volume or would they have a 5% 3% minimum volume threshold 0% • We would love to get finished Price Quality Delivery Capacity Customer Other Service assemblies as opposed to component material only • With them being a world away and with the time difference and language issues, how would they ensure customer service coverage • China is known to have quality issues – would our quality deteriorate Areas of focus: • Can they help us manage our Price inventory better Quality Capacity Delivery / Customer Service 7
- 8. Supply Chain Framework and Strategic BCC Sourcing Process 8
- 9. KEY SUPPLY CHAIN MANAGEMENT OBJECTIVES Improving the linkage: Strategy - KPI’s - Performance • Focus Areas Supply Base • Providing Business Value (Cost, Supplier Scorecard Quality, Delivery, Inventory) • BCC Sourcing optimization on ati Co • NPD integration and support n ov st / In • Rationalizing the supply base NP D Commodity • Organizational development Operations / Supply • Key Metrics Business Strategy very • Deflation savings (PPV/PPI) ory ent Deli • x% of spend from Best Cost In v Countries • Reduce supply base by x% • Inventory reduction by $xxm Quality • Launch supplier performance program 9
- 10. ANALYSIS OF STRATEGIC BCC SOURCING PROCESS ANALYZE SPEND: IDENTIFY REQUIREMENTS: What are we buying Quality requirements How many suppliers do we use Product Specs Can we harmonize and consolidate Performance expectations Analyze Identify Analyze Develop Manage Award and IMPLEMENT Spend requirements market Strategy Negotiations contract ANALYZE MARKET: Porter’s 5-forces analysis Conditions of specific market DEVELOP AWARD / IMPLEMENT: STRATEGY/NEGOTIATE: Establish key performance criteria Direct Negotiations Create comparison master Rebates Establish specific LTA / terms VA-VE Establish roll-out plan Reverse auction Traditional RFQ 10
- 11. DETAILED BCC BUSINESS PROCESS Disciplined Approach, Operational Excellence, Business Results 11
- 12. BCC Sourcing Tools and Trackers 12
- 13. GETTING DOWN TO THE TACTICAL CHECK SHEET FOR OUTSOURCING PRODUCTS Date: Part Number: Description: Drawing & Rev. RESPONSIBLE COMPLETE DESCRIPTION INITIALS ITEM 1 Cur r e nt Dr aw ing Pr ovide d. SC/Engg 2 All applicable de viations , DRR's and m odifie d m anufactur ing ins tr uctions include d. SC/Engg 3 All applicable m anufactur ing m e thods include d. SC/Engg 4 Othe r vis ual or not s pe cifie d infor m ation attache d (im plie d k now le dge ). SC/Engg 5 Ide ntify any s pe cial char acte r is tics or gauging. SC/Engg/QA 6 Supply m ar k e d-up par t that is pe r m ane ntly ide ntifie d: "Not for Dim e ns ional Re fe r e nce ". SC/Engg 7 Spe cial m achining k now le dge is s ue s ide ntifie d. SC/Engg 8 Pas t quality is s ue s /le s s ons le ar ne d. Engg, Q/A 9 Validation M atr ix Engg, Q/A 9 Lis t of all tooling/gauging pr ovide d. SC/Engg 10 Confir m gauge calibr ation. Engg, Q/A 11 Cle ar ly ide ntifie d e xpe ctations . SC 12 Sam ple s r e quir e d for our te s ting: _________ (qty). SC, Q/A 13 M anufactur ing change r e que s t. SC 14 Sam ple appr oval: par t, fixtur e , cavity or tool. SC, Q/A, Engg 15 Docum e nt contr ol. SC 16 Ram p up s che dule . SC 17 Spe cial te s ting r e quir e d: SC,Q/A, Engg 18 Re por ts /docum e ntation r e quir e d for s ubm is s ion: SC,Q/A, Engg 19 Othe r : ALL Sign Off: Parker US Cylinder Division Quality _____________________ Supplier Quality Parker US Cylinder Division Supply Chain _________________ Supplier Purchasing Parker US Cylinder Division Engineering _________________ Supplier Engineering 13
- 14. THE MORE INFO – THE BETTER Vendor / Purchase Order Information Vendor Details Ship To Details Company Name Contact Name IQS Supplier # Address Zip code Phone Fax Email People -Copy on PO Part Number Unit Price Order Qty. EAU Dwg. Number MS- Spec Alt. MS Spec Sup Matl Shipping Information Expeditors International is shipper required by Parker Hannifin, Contact Lisa Trevino with purchase order information Special Notes Special Processes Needed Coatings Required Standards Outside Parker to Meet Packaging Requirements Warehousing Requirements 14
- 15. SUPPLIER COMPARISON MATRIX BCC Supplier Assessment DATE REVIEWED 31-Mar-10 Scoring rules SUPPLIER Incumbent Dom 1 BCC 1 BCC 2 SCORING (1,3,7,9) 9 7 3 1 IMPORTANCE PIECE PART Over 20% 10-20% 5-10% Little or no 7 -1 7 9 7 reduction reduction reduction reduction PRICING Net 45 with pre- Net 30 with pre- PAYMENT TERMS 3 7 3 1 7 payment payment Net 45 Net 30 discount discount Basic Excellent support CUSTOMER proactive Active support Limited 5 1 7 3 9 support - available available. support SERVICE Not provides PCI consistent Committed YoY Committed for OTHER COST Potential 7 3 7 3 9 in addition to finite period discussed None SAVINGS piece price only Complete Web ENGINEERING / Some tool for part Limited STANDARDIZATION 5 1 7 3 9 selection and standardization support None SUPPORT support standardization 120 - 134 > 135 DELIVERY 9 7 3 7 9 < 90 days 90 - 119 days days Days INVENTORY > 25 Inventory 11 - 19 10 or less 7 1 7 3 9 turns 20 - 25 turns turns turns REDUCTION IMPLEMENTATION 90-120 > 120 3 9 3 7 3 0 days 60-90 days days days TIME SCORE >>> 142 262 222 376 15
- 16. S.C.O.P.E. - SUPPLIER PERFORMANCE MEASUREMENT AND SCORECARDING In v e n t or y 20% Pr oce ss/ Re sp on siv e n e ss 5% • GREEN – Preferred Suppliers 25% In v e n t or y Mg m t Ty p e Ov e r all Re sp on siv e n e ss 100% - Leverage Day s of Sup p ly 100% Sup p lie r Scor e car d 75% - Provide opportunity Over all sco r e t o b e d et er m in ed b y • YELLOW – Good Suppliers 10% w eig h t ed aver ag e o f . all t h ese cr it er ia YoY Cost 40% 15% - Move to green Le ad Tim e 10% Pay m e n t SCAR • RED – Needs Improvement Quan t it y 25% 80% PPV Pe r ce n t 60% On Tim e 60% - Move to yellow or exit De liv e r y Tot al Cost Qualit y 25% 25% 25% • Driving supply base accountability • Robust mechanism to measure Supply base performance • Integration into supplier NPD decisions • Increased supply leverage • Supply base rationalization • Linking performance to “reward opportunity” or “development /corrective action” 16
- 17. ROBUST TRACKING MECHANISMS Excellence in Total Supply Chain Management through Spend Profile Supplier Spend Database Cost Reduction project Tracker SPEND PROFILE 17
- 18. SUPPLIER SPEND DATABASE Driving Supply Base Accountability/Development, Correct Sourcing Decisions & Your Leverage OBJECTIVE: Formalized supplier positioning and risk ratings can be used in Growth/Exit strategies Facilitates accurate supplier strategy deployment Buyers can reference this for all sourcing/selection decisions Can be utilized by quote cells for accurate estimating decisions 18
- 19. COST REDUCTION PROJECT TRACKER •Drives overall material cost reduction strategy STRATEGY •Ensures proactive instead of reactive focus on PROJECTS unfavorable PPV / PPI •Ensures a formalized project based process to RESULTS drive cost savings target •Drives behavior and accountability to execute ASSESS targets - Accurate measure of PPP •Provides quantitative and qualitative view into REPEAT YTD deflation performance •Identifies root causes for missed cut-in dates •Can be utilized for annual/STRAP planning 19
- 20. PROCESS FLOW FOR STRATEGIC BCC SPEND MANAGEMENT PLANNING •Identify spend profile •Pareto 80-20 supplier spend segmentation Strong project management •Develop spend strategy by country focus to •Identify current suppliers to re-source/exit drive effective •Establish qualified supply base by categories in BCC execution EXECUTION •Execute a disciplined robust BCC business process •Establish and implement measurable tracking mechanism •Establish a defect containment process •Establish an objective supplier evaluation process •Stratify the BCC supply base based on key criteria: -Relationship/risk type -Strategy/Performance ranking •Formalize supplier rating •Establish a quantitative growth/exit process 20
- 22. KEY COMPONENTS OF LANDED COST 1 Costs of assists 2 Cost of special export packaging 3 Transportation / Port handling (inland/wharfage/loading/freight-fwd) 4 Export processing fee 5 Warehousing charges 6 Ocean / air shipment 7 Marine insurance premiums If applicable, consider product 8 Customs house broker fees postponement and/or FTZ 9 Customs duties 10 Finance charges 11 Foreign exchange and/or material hedging costs 12 Additional inventory carrying cost : : 22
- 23. COMPLEXITY OF TARIFF SCHEDULES Chapter: Chapter 18: Cocoa and Cocoa Preparations Heading: 1806: Chocolate and other food preparations containing cocoa Sub-Headings: 1806.20: Bulk chocolate preparations more than 2 kg 1806.31: Filled chocolate in blocks, slabs or bars 1806.32: Unfilled chocolate in blocks, slabs or bars 1806.90: Other chocolate Country Classifications: Australia China EU Chocolate Crumb 1806.20.0019 1806.20.00 1806.20.7000 Snickers 1806.31.0011 1806.31.00 1806.31.0090 Dove Bar 1806.32.0013 1806.32.00 1806.32.9099 Dove Miniatures 1806.90.0017 1806.90.00 1806.90.3900 23
- 25. BENEFITS OF GLOBAL SOURCING • Costs and Efficiencies • Lower labor cost • Lower land and facility cost • Lower taxes • Government subsidies • Strategic • Bringing value-add to the product line • Reducing risk in the supply base by cutting out the middleman • Penetration of growth market • Promotes healthy competition between suppliers • Conforming to industry standards and providing options to customers • Value • Improved quality • Improved delivery and reliability • Improved new product introduction • Creates part-family realignment (supply base rationalization) 25
- 26. HIDDEN COSTS OF GLOBAL SOURCING • Costs and Efficiencies • Transport, travel, corruption, processing and legal fees • Bureaucracy • Customs requirement • Strategic • Piracy / Abuse of IPR • Language, cultural and time issues • Security issues • Value Cost of running out far exceeds the cost of carrying • Quality issues • Lower responsiveness • Long lead time – higher inventory implications 26
- 27. KEY RISKS 1 Supply Chain disruptions 2 Currency fluctuations 3 Availability of raw material 4 Environmental concerns 5 Social responsibility concerns 6 Domestic job loss - EFCA 7 Regulatory and legislative changes 8 Exposure to local economic, social and political conditions 9 Cultural variations – communication issues 10 Natural disasters / Terrorism / Global pandemic 11 Strikes and demonstrations 12 Date format Always have a contingency plan : : 27
- 28. RISK EXAMPLES • Nokia and Eriksson used the same chip supplier. After a fire shutdown the supplier‟s manufacturing units, Nokia bought all capacity at an alternate source and prevented Eriksson from selling that particular phone for 1 year • Nike‟s reputation was severely affected due to alleged practices at their supplier • Approximately 10000 containers a year are lost overboard • Heavy seas can damage containers and contents • The 2004 South East Asia tsunamis resulted in several shutdowns due to lost containers and / or ships • Motorola closed a plant in Singapore due to 1 worker being infected with SARS 28
- 29. CULTURAL RISK • A golf ball manufacturing company packaged golf balls in packs of four for convenient purchase in Japan • Unfortunately, the number 4 is inauspicious (it sounds like the word "death“) in Japanese • The company had to repackage the product • Pepsodent tried to sell its toothpaste in South East Asia by emphasizing that it "whitens your teeth“ • They found out that the local natives chew betel nuts to blacken their teeth which they find attractive • Staff at an African port saw the „internationally recognized‟ symbol for “fragile” and presumed it was a box of broken glass Rather than waste space they threw the boxes in the sea • One company printed the "OK" sign on each page of its catalogue. In parts of Latin America that is considered an obscene gesture. Six months of work were lost because all catalogues had to be reprinted • Coors had its slogan, “Turn it loose," translated into Spanish, where it became "Suffer from diarrhea” • IKEA once tried to sell a workbench called FARTFULL - not a hugely popular product for obvious reasons 29
- 30. RISK MANAGEMENT TOOLS Hi CORE DEVELOPMENT Customer Preferencing Attractiveness of Account NUISANCE EXPLOITABLE Lo Lo Hi % of Sales Risk Risk Risk Supplier Positioning * Customer Preferencing = Relationship Rating x Severity Rating x Occurrence Rating = Management Score • Relationship Rating: • Risk Severity Rating: • 1=Extremely good • 1 = Very little impact if this supplier couldn't supply. Easily replaceable by • 16=Extremely strained other suppliers • 5 = Some impact if this supplier couldn't supply. Temporary line shutdowns • Risk Occurrence Rating: imminent. Will take some time to get a replacement solution with medium • Based on financial position of the level of engineering/testing support. Other suppliers are available with some supplier, labor situation at the technical modification. supplier and economic factors at • 9 = Substantial impact if this supplier couldn't supply. Extremely long lead supplier's country of production times. Highly specific component. Long validation time due to • 1 = Very little risk of supply safety/technical requirement. Could shut down line for a few weeks or longer. disruption (<20%) • 5 = Medium risk of supply disruption (20%-70%) • 30 9 = Great risk of disruption (>70%)
- 31. COUNTRY SPECIFIC CORE COMPETENCIES 31
- 32. NUANCES OF RELATIONSHIP WITH CHINESE SUPPLIERS • Great emphasis on relationships • Guanxi = relationship (critical to success) • Many hours spent in socializing • Want to understand their business partners 1st • Want to please their customers • Very polite • Meiwanti - no problem - Hesitant to say “no” • Ask & ask again • Great “can-do” attitude • Greater familiarity with American customer base • Never “lose face” • Major blow to embarrass China host • Find diplomatic ways to work around issues • Direct attacks generally don’t end well 32
- 33. NUANCES OF INDIA RELATIONSHIP WITH INDIAN SUPPLIERS • Great emphasis on relationships • Initial socialization to understand customer • Interaction is more on equal footing • Polite and low key wins respect • More emphasis on position/title than China • Communications • Much more direct in communications/opinions • “Let us see where we can be” • English used widely in business • Do not break chain in communications • Generally “top down” management style • Time could be a fluid concept – IST! 33• Greater familiarity with European customer base
- 34. BEWARE……… • Mispronunciation of names / companies • If you don’t know – ask • Asian companies consider slips disrespectful • Do not automatically use first names • Being impatient not well tolerated • Projecting the feeling of superiority not well tolerated • Make communications as clear as possible • Don’t expect automatic understanding • Don’t be abrupt/short 34
- 35. Today‟s BCC Sourcing People Profile 35
- 36. TODAY‟S GLOBAL SUPPLY CHAIN PROFESSIONAL Boundary less Thinker Network Builder • Thinking beyond the status quo • Finding and linking with complementary partners • Big picture perspective • Relationship mindset • Openness to ideas • Knowledge of own value and core competency • Willingness to look beyond oneself for capabilities and • Ability to recognize others‟ value and core competencies resources • Search for synergy Diplomat Interpreter • Developing the skills to manage networks • Helping partners see the benefits of working together • Ability to relate • Ability to influence others • Ability to communicate • Solid knowledge of business • Ability to negotiate • Broad knowledge of marketplace 36
- 37. CONTACTING THE SPEAKER DIBYAVA GHOSH [email protected] 847 331 2986 37
- 38. Thank you 38