BUYER MANAGED SUPPLIER SYSTEM Part II

In 2012, i wrote an article in this blog about B.M.S - acronym for Buyer Managed Supplier System.

First of all, isn't  all suppliers are managed by the buying team to ensure conformance and reach the expected performance all organization strive for? Why this is different from the convention?

My answer was, you damn right, there is no difference and you are also wrong because in B.M.S, buyer take the challenge to develop a supplier from ground Zero and against all common convention, the procurement management choose a supplier which do not fit at all.

If an audit is carry out, this type of supplier will have almost nothing in the system you expect them to be.

- ISO standard? Zero
- Quality system? Almost do not exist beside them knowing this is OK and that is Not OK bases on "feel"
- Production method? Let visit a farm in Timbuktu which have some level of standard, just maybe
- Cost? EXCELLENT! Perfect!

When the west desired cheap product in the 1980s to early 2000s, they procured many products from country like China and Far East. Unless they set their own plants there, and thus have a real system in place, let think how the procurement management function.

B.M.S is still valid till today and it take a lot of collaboration effort, partnership and micro management system in place.

I am not telling you out there that this system is useful for all spectrum of industry. Neither am i saying it is not impossible. There are RISK involve.

It can be useful for non critical industry or item. Definitely not for spaceship or part which put life at risk.

In this system, organization use cheap labor and cheap cost of product to their advantage and it involve tedious works and follow up and meetings.

If we inspect the 7 profile of supplier, this kind of supplier will be a Newbie or a poor Follower.

Buyers will have a high upper hand as the party most needed this collaboration will be the supplier as your volume and value will be high.

Supplier development will be the key strategies and focus on the performances, quality and relationship, the three key element of crucial supplier management but in that particular order.

Procurement team are hard press all the time for lower price, highest quality standard and production line have the minimal line stoppages. Achieving this from established suppliers on quality and delivery performances will not be an issue but the purpose of business it to make profit and sadly the demand for higher margin and lower purchasing cost to consumer is the only consideration.

With B.M.S, the function of R & D lies on the buying organization. The setting up of process and quality control are also decided by the buying team and this includes the delivery deadline. Supplier will be monitored closely and reporting from suppliers to the buying team will be like a production department sending report to top management.

The key principal of a B.M.S system is as following:-

a) Cheap source of product
b) Quality are determine via close monitoring, monthly to annual auditing, third party inspection
c) Close reporting of information like  rejection rate, output, material quality report on daily to weekly basis
d) Costing of products are jointly developed and in some instances, prices are predetermined by buyers

Do not confuse this with sweat shop strategy, this is unethical and cautious to the buyers to ensure the cost of production do not translate to a sweat shop phenomenon.

To ensure this do not happen, ethical standard to be jointly develop from minimum acceptable wages, working hours, rest day and employee living condition.

It is not easy to manage but it is  workable.










 

SUPPLIER MATRIX - THE 7 TYPES OF SUPPLIER PROFILE

As promise.......

These suppliers which i mentioned on my previous blog, I will want to measure their relationship from the perspective of :-

- Supplier Relationship Management
- Innovation and Development


These two categories are viewed from the perspective of a customer angle, i.e. if these are my suppliers, how should i view them in term of asset value to my organization.


 High Relationship / High Development Matrix 

The Leader type 1 - i broke down leader into two type of leader. There will be leader who build their leadership in the industry based on close collaboration with customers. For them, customers are a treated equally as important and valuable and they tend to view customers as "king maker" and paramount importance.

The Innovator type 1 - again i also view there are two types of innovator, These are the supplier who will innovate their process in partnership with their customer. They used their superior knowledge and asset in the industry they are in to develop customers products.


High Relationship / Low Development Matrix

The Newbie - as new comers, they will build up relationship for long and short term access to the market. However, since they are new, they tend to be also a follower and thus have disadvantage in development of new package for their customers

The Follower - been a follower, i tend to rate them as a little of  a "copycat" and a good example will be the many companies set up in China nowadays and in the previous decade to capture the market based on copying competitor ideas. We can see how i able to link the Newbie and the Follower in one space.

Low Relationship / High Development Matrix

The Leader type 2 - they controlled the market by almost a monopoly and care little for customer needs. The only thing you will appreciate such suppliers is that they will provide the material or technology you needs and instead of they go to you, you as the customer will go to them because they are the leader and controlled their industry segment.

The Innovator type 2 - a typical technological company which innovate non stop and people will go after their product like a nothing like it before. They send information and knowledge to the public as a public relationship cum advertising program. Non existence eye to eye contact per Se.

Low Relationship / Low Development Matrix

The Protected -  since they are like the term i branded them, little motivation to build relationship, They may have the technological background but they will only develop what they need to market and not based on what their customer really need.

The Complacent - a typical organization who have little planning on their part. Satisfied with the number of account they have and often do not invest in program for improvement or expansion of capacity. They will be content to do the current products and will only wake up if feel threatened bur very often too late.

The Competitor - as the name sounded well, no need to elaborate. Why your competitor will collaborate with you? (to know why we have competitor in your supplier list, refer to yesterday blog)


Which type is your preference?

Actually suppliers can move in all direction depending on the maturity of the relationship. A newbie can be a leader tomorrow and so does a leader can be a follower.

SUPPLIERS - TYPE OF SUPPLIERS YOU NORMALLY FIND AROUND THE WORLD

Here i am back again active to my "old forgotten" blog. The season of sharing comes back to my thought again.

The other day i was busy preparing a new presentation for my upcoming program and it struck me right to my nose and slap me in the cheek the thought on my current curiosity. Suppliers!

How they behave and how they react to situational challenges and changes reflect on our own organization behavior when come to treating our own customers.

For one i do notices that there are currently (the list may grow, up to you guys out there to think for me now!) 7 types of profiling i can create.

a) The leader - a supplier which we all want to keep and we want to emulate ourselves, a type which take all challenges and issues in the strides and move along and solve it and make their customer happy. Example of such supplier on a global scale will be companies like Microsoft. They lead from the front and all issues from the global view are tackled straight on and they control the market share of their industry.The set the standard for other to follow.

b) The Innovator -  these type of supplier are in the Apple or Samsung category which always invent the new wheels to keep up with competition. They are less caring to their customers compare to the leader. By keeping up with new innovation, they keep consumer on their heels and made them greedy for more and more. The evil of capitalism is the greed for new and better product and keep the hunger for more and the angel are these companies who generate more profit. However, these two companies are the extreme, but i will be glad to take in any supplier who are in this stage. Innovator not necessarily control the market they are in but what i need is suppliers who willing to think and reinvent for customers.

c) The Follower -  these are supplier which will follow the competitor lead and even follow your needs as a customer, i will anytime keep them if they perform of course as a supplier. Follower philosophy are more conservative in thought then the other group of suppliers. It may be a safe bet they will strive for customers need.

d) The Newbie - as the name sound, these are new player in the industry and their only aim is not profit but penetration. A terrific example will be in the smart phone industry where cheap Chinese phone is competing with Apple and Samsung for the market share. They will be glad to bid their time to be less profitable or even marginally on the negative side just to get on board. I will generally very cautious to slightly optimistic to such suppliers. They will and may offer good pricing but quality and performance is another issue altogether. Their appetite will be very big but their tummy is only that small. 

e) The Protected -  The reason is they are there not due to their talent but a cell grown out of bureaucracy and politic. Such companies normally in the market due to government intervention to protect self interest. Another reason of their existence due to their been in the right place at the right time and serve the needs and unfortunately only them have a control over the industry, Example are a plenty. National oil companies, nationalized power companies, nationalized airline and shipping companies. As a corporate leader, if a majority or a big bulk  of your expenses are with them, god bless you. They do not behave like a supplier, more like giving you instruction what to do and assure themselves you will pay them first.

f) The Competitor -  these are suppliers which seem to be "lost into your track" and becomes your supplier. They actually are also either directly or indirectly your competitor. One wonder what the hell you are doing to engage such suppliers? Reason can be from what you do not have and you need from them. Remember the relationship between Apple and Samsung? They are in a supplier  - customer relationship before till now i think as Samsung are the world largest producer of chip needed for smart phone!

g) The Complacent - this is the worst of the lot frankly or equaled to the Protected. They got your account and they feel secure until the next review and they do not even to ask you anything or service you except assuming they will have your orders. They will sink and when they realize it will be too late. I know as i experienced such supplier head on before.

On my next blog tomorrow, i will share the supplier matrix.

Regards

Role of Human Resources Planning in Optimization of Organization Supply Chain System

Supply chain can be interpreted as " a series of co ordinates effort and managing the inter-linkages of the various processes in the organization in order to executing the complete cycle of receiving an order up the the delivery of the order in the most cost effective manner".

This meant that the processes such a processing a new order received from a customer, to ensuring sufficient material are placed with suppliers to producing the order and deliver to the logistics for delivering to the customers.

It sound logical and simple enough to understand this concept as even before the term supply chain was coined up in the 1980s, this has been the way businesses are run throughout the whole world. However with the increase of competition among organizations and directly even between countries, the drive to ensure that the supply chain system serve the organization to drive it to further excellent.

This been said, the driving force to ensure organizations achieved it goal of increasing business and receive the rewards of increasing sales and profitability is the people.

When we discuss "people", we actually discussing about (a) right level of people to handle the tasks (b) right type of candidates to fill the job (c) right type of skills

I will called this the 3R.

There is no strategy which will work to ensure that you will win in a battle field when you may have all the weaponry in your amour but no soldiers or CORRECT TYPE OF SOLDIERS to operate the system.

RIGHT LEVEL OF PEOPLE

What this mean is that, if an organization is to function well, the organization has to be supported by its most important asset, i.e. the employees. Organization which take a hard look at the process of hiring and retaining it "non appreciative" asset will improve on it ability to attract the correct number of employees and this will keep ensure them to succeed in the longer run.

In many part of the world, we can see that organizations will "chop and slice" the number of employees once sales are negatively affected and profit drop. Sadly the choice is too simple to made when a company start to lose it shares and having a high cost of manpower.

However, this in itself reflecting the human resources planning in the first instance. How organization planned their resources and how a company view the potential of the businesses play an important aspect. Poor forecasting and poor execution of the strategic plan will eventually affect the manpower to sales ratio and taking middle ground view between some conservative and liberal view will be preferred.

Increasing employees efficiency instead of hiring will and should be the first option before any recruitment take place only for the risk of terminating these employees later.

However on the extreme side, there are organizations which failed to forecast well and took an extremely conservative view.

Many organizations are willing to pay overtime cost and additional delays to customers instead of ensuring the orders and total operation are run smoothly with the right number of staffing.

Overtime cost to the cost of production should not be more then 5% of total additional wages paid and in the long run anything more then this will mean the cost of the organization could be a :"runaway affect". I.e. escalating cost run up.

This meant that in the end of the day, the cost of overtime will be a "killer" to the organization and eat into profit and run up cost.

Right level of people is the total number of employees needed versus the sales forecasted and with people, it embodied the supply chain concept more effectively, i.e. the battle can be fought at a correct level.


RIGHT TYPE OF CANDIDATE (EMPLOYEES)

This has to be a serious consideration as well.

Type of employees hired, most importantly is not to make up the correct level of numbers and head count.

When Human Resources Department are pressurized to get the number up, the most common mistakes is to hired employees which will made up the numbers and ignoring the candidate profile.

For a company to successful, the right type of people hired will be extremely important. The key is the ATTITUDES AND APTITUDES OF THE PEOPLE YOU HAVE.

Positive attitudes will bring oiled the company manpower engine smoothly just like a new car and aptitudes will come handy with the correct attitudes.

Without having a right resources, an organization will always and normally run into road blocks. Human being are sometimes like an animal in the jungle. I.e. been territorial based and territorial based attitudes although is necessary to function correctly each employees own scope, but this can also bring disaster if there need to be a functional or system changes in the organization in order to improve things.

RIGHT TYPE OF SKILLS


Employing the right experience and skill level is important but not as important at having the right type of employees.

Hiring employees with the correct skills and experience bring advantage to the organization especially in the top level decision and strategic type of position. You may able to move faster a head but a organization which can think differently and outside the box and hire personnel in different industry may also be highly rewarded as well.

By been different and not stick to stereotype, Human Resources recruitment policy can bring better
rewards. Other experience from other industry may and will able to complement the industry you are in.

Human resource role in ensuring long term key success to an organization supply chain improvement and stability need to be reviewed constantly and with it, any system to be in placed will only then worked properly like an oiled engine tune to run a long, long marathon......

BUYER MANAGED SUPPLIERS SYSTEM

I just came back from a two weeks working visit to a small company in Ci xi, Ningbo, China. Me and my colleague practically struggled more then 12 hours per day during the course of the visit to ensure a new product are manufactured to the specification and scope of our organization.

During the course of the working visit, we observed many first hand working behavior of the locals and No, i am not going to discuss the new product status and the local managements view here. What I am going to talk about is supplier selection!

As many buyers will attest to it that cost of material will be utmost importance to the final product cost of the final product to be sold by the company in the market. Unfortunately in most part of the world, the cost of the product is bench-marked against the quality of the product. Thus, the higher level of effort put by the producer onto the production quality and overall standard, the higher the cost of the final parts.

The cost areas can be in the area of:-

a) Material used and cost of the raw materials itself
b) Cost of production, example production cycle time versus the wages paid
c) Fixed assets overhead cost of depreciation
d) Quality department overhead
e) Overall factory general expenses and management overhead cost

We all have heard of VMI system where the vendor will managed the inventory system for their customers. I will like to introduce BMS system where the procurement division will managed the suppliers.

 The company we decided to engage for this new product development can be considered a very small family unit operation and none of the system you will expect them to have is non existent. So many will asked why the hell we choose them to develop a completely new and strange product for the global market?

Well, the reason is simple, COST.

However in this scenario, the easy part is they will have a much lower overhead compare to established company with the international system and overheads cost distributed. The hard part is how to managed an organization which is efficient in cost but the risk aspect on quality is high.

Many will argue that this is no brainier at all as when qualifying a supplier, we need to review the overall aspect on cost, quality, consistency in system management, delivery on time record and other social and environmental aspects. Why this now?

There are a number of reasons we did this:-

a) the overhead cost is lower and thus product cost
b) we able to tune them to our need as they are a small set up and the business proposed to them will be grabbed with two hands by the owner
c) managed the process flow system and asked for implementation
d) control the cost of production by setting up process output monitoring
e) ensure they meet all local legislation on environment and social responsibility
f) when come to price negotiation, we as buyer will have upper hand as we knew their costing in details
g) material specification and suppliers are selected on their behalf based on quality and cost

By managing in this manner, buying power in term of delivery, pricing and quality performances will be controlled and view from the buying office.

There are many small family units companies around the world, especially in Asia are awaiting to be explored in such manner and if your organization have the volume and purchased value, looking into a "junior" partner to help your company growth will be an excellent strategy.

However, when managing such strategy there a long term disadvantages such as:-

a) the supplier expanded their business due to higher turn over and they will able to secure other accounts to support their business, thus, need to be wary and close monitoring.
b) over reliance of single source buying if the product is successful and create a demand pattern out of expectation.
c) risk management aspect

To counter these disadvantages, a 2nd choice supply base will be needed to be secured and even if this will be slightly more costly, this benefit will bring long term stability to the supply base. Your 2nd choice partner will be a organization with larger set up and system in place and cost can be higher then your developed "junior partner".

Developing a second choice will avoid your organization been taken "ransom" and also ensure that comparison are available.

However to take note, developing in such manner, an important aspect will be the production facilities evaluation will be an important factor as well.

In BMS system, the role of the procurement and quality function will be key to success and undertaking these system in your company also require much ground work to be done. Your company is practically running the supplier operation including reviewing cost of raw material and components, checking and confirming production plan scheduling, quality measurement report which the supplier will handle and emailed to your quality department for confirmation and reviewing.

The closest you can compare this will be to outsourcing system but in outsourcing, the bulk of material will be provided by the principal company but in here, the supplier are genuinely producing the parts and the buying organization closely monitored it.

Supply Chain - What will be your opinion?

Down load this link to take a survey:-
Supply Chain Survey

Just like any profession, there will be the excellent, the good, the average, below average and down the hill, the bad.

Many managers and company chief executive knew and realize that an above average supply chain system is needed for organization to developed. How often we heard the moan from a sales professional about losing business not due to cost but poor execution of supply chain strategies?

As a person who have worked in this industry for years, I personally have to turn away good marketer (sales professional) who present good presentation on their organization profile and able to do attitude just because of one key reason.

DELIVERY NOT ON TIME.

Organizations world wide need to realize that expanding sales figures and increasing profit are short term gain if not supported with a supply chain pillar which will able to plan and delivered the orders on time to the customer and without any quality issue.

However, we should not think that organization will also will survive with higher cost and higher profit margin with excellent supply chain pillars. Cost will be extremely important and non negotiable in most cases unless your product fall under the Blue Ocean competition category.

But there are competitors out there who can deliver in shorter lead time, with similar quality and same cost compare to your organization and if your support is poor, you will lose out.

What do you personally think of your organization supply chain management? What you wish to have? Which you wish you not having now? What type of leadership you wish your organization have on this area?

The no right or wrong answers to all our problem and what ever we implement, the stake holders have to realize that it all boiled down to the human mind and human behavior. Unhappy employees, no matter how good a system you plan for will not work.

Please down load the survey if you not mind spending a few moments of your time while reading this article and answer the survey.

I promise to published it once it ready and share with my readers








 

BLUE OCEAN Supply chain strategy

Majority of companies world wide are in RED OCEAN businesses where competition is extremely high and quality and cost of production determine if the product are able to led the market or merely been a follower

BLUE OCEAN on the other hand, recommended strong product leadership and unique feature which make competition non existent or weak (until the competitors catch up provided there is no copy right issue)

How can a business itself  escape  from the Red Ocean field and move gradually to the Blue Ocean greener pasture while staying in the same industry?

Unfortunately these opportunity are not in abundance and more often then not, what ever the leadership taken by certain company will be meet with competition of similar magnitude in matter of weeks and months!

One sure method will be thru innovation strategy by introducing new product and copy righted it to protect the inventor and the company business and market it very smartly to ensure the product will be successful in the end. However for every new innovation which are successful, there are many more times new product which failed to brightened the sky. That could be marketing issue or product design by itself.

Now, let us view how a normal business can move further then it competitors and closer to the Blue Ocean field instead of staying in the Red Ocean field and fight your sweat and blood out for survival.

Blue Ocean strategy called for strategic anchoring of strategies which keep competitors at bay. However not a single strategy can stay too  long in current trend and constant upgrading of innovative products and services are required.

Take as an example Apple I phone system. In order to keep competitor at arm length, they have to continue to innovate the concept and ensure they stay ahead. And smart phone industry is a Red Ocean fill up with products fighting for shares and only the best stay ahead with it own Blue Ocean strategy within the Red Ocean.

How can an organization supply chain assist in implementing Blue Ocean, taking into consideration innovating new product is not the responsibility of the supply chain system in totality. That belong to the R & D division.

Let view the total structure of a company and we will able to see how this can take place.

REVIEW YOUR UPSTREAM PROCESSES 


Review your organization structure and investigate and analyses which upstream processes which you do not have and which upstream processes which your organization are involved in.

Definition of upstream processes are those processes which involve the sourcing and procuring of raw material for your industry. For example, let take a typical company manufacturing paper. The upstream process which they should be in will be forest full of trees to harvest the pulp to produce paper.

From the supply chain strategic point of view, any process which an organization which are not in control of, this will put process in the Red Ocean category. If your competitor are involved in an upstream process which you are not involved in, then you already at a vast disadvantage as resources are by nature, scare and the higher the demand, the higher the cost of material.

When you are not involved in the upstream, you are in fact extending the channel of distribution from your supplier and every extension will have a value chain which add up cost.

REVIEW YOUR DOWNSTREAM PROCESSES

Downstream processes are processes which you are involved in the manufacturing of the products your organization is producing and marketing it.

Down stream processes impacted your customer directly as this include your channel of distribution and marketing strategy beside actual production of the goods.

The key note in down stream processes are any cost which you are not efficient in managing it and no way to manage it, if a cheaper alternative are found for example outsourcing of the processes, then this will be the best method.

However, if your competitor are able to do it alone without outsourcing it, then your organization supply chain need to be overhauled and review why it is so. Outsourcing for manufacturing and distribution although add up cost which your organization wish they can save but the bottom line is how the decision made will save the day will be more important.

Large multi - national organization for example HP computer or Apple may able to have a world wide marketing offices to handle distribution of the products made by them. This may not be cost factor alone but overall protection of the product quality and brand building.

The cost of handling your own organization branding and distribution will be a good feel factor but if this is not advantageous to your organization on cost and this make your organization at a disadvantage then thoughts have to be put in on how best to handle such decision.

REVIEW YOUR OVERALL COST AND NEEDS

The basic component of any organization will be cost and cost and cost.

Nothing else matter.

Reviewing upstream and down stream activities is also about cost and when we mentioned cost here we have to review the highest standard achievable. Lean manufacturing standard, six sigma black belt methodology, agile supply chain system and world class production standard. These are common name but all serve the same function,i.e. to reduce your cost and improve efficiency.

Review where your organization stand compare to your competitor. Never provide any excuse to yourself why your organization cannot do it when your competitor can. The excuses are self defeatist strategy by itself.

Analyze why your overhead are higher then others?

Common statement i usually heard and feel are classic example, "our quality is better" which is why our cost is higher.

The real truth is frankly the quality gap can be close easily by your competitors in matter of months and year but the cost of your higher production can be a trouble maker for your organization in the near future.

Do we remember the Japanese car manufacturers decades ago when they offer cheaper car compare to western cars?

Frankly unless your product is on a very much higher echelon level, the cost factor will be a extremely important factor to consumers purchasing pattern.


REVIEW YOUR COMPETITORS STRATEGIES 


Check your competitor supply chain strategies from supplier management to cost reduction and product costing.

Running a business is like running an endless marathon where the finishing line is not visible until you decide to give up your business or you manage to swim away by miles to the Blue ocean field via innovative strategies and products.


REVIEW YOUR CUSTOMER SUPPLY CHAIN STRATEGIES AND ANTICIPATE 

Understanding and anticipating your customer demand and interest far ahead before they arrive at your door steps with demand and some of these demands may spell trouble for you.

Successful company understand their customers needs and assume the relationship like a married couple. *(refer my blog on threat at negotiations) and anticipating it will keep the "wolves" from stealing your "wife" away.

Your organization must be able to sustain customer relationship not only on current tactical needs but strategic needs as well. Tactical needs are covered by your day to day operational efficiency like delivery on time and good quality but strategic needs are very important.

I will like to compare this to a married couple physical needs (tactical) and emotional needs (strategic).

Keeping your large account and smaller account for lifetime is an achievement which cannot be compare with the actual return in profit to your company. And be a "wolves" to attack your competitor "wives" or "husband" will put your company away from the rest of the field.

Example of supply chain excellence in customer management will be VMI system to your customers and anticipate future order peak or low season and not taxing your customers vice versa. Of course new product offering will add more points to your company to swim further away but new product without checking on excellent quality and not supported by overall supply chain structure will not work.


EVALUATE YOUR PROCTOR FIVE FORCES STRATEGIES

Proctor 5 forces of competition remain relevant and all the upstream and down stream context mentioned above plus reviewing your supplier supply chain needs and competitor strategies boiled down to Proctor 5 forces strategies.

The strength and weakness of your competitors, the barrier to competitions, bargaining power of suppliers and customers, threat of cheaper substitutes and intensity of the businesses itself are all useful tools to apply when handling your organization desire to swim from the Red Ocean to the Blue Ocean field.