Title: Vendor Management In FMCG Companies K.S.Srinivasa Murty 17th
1Vendor Management In FMCG Companies
K.S.Srinivasa Murty 17th July 2004
2Agenda
- Changing role of purchasing, its implications to
purchase strategy and vendor management practices
- Reinventing Supplier Relationships
3Changing Role of Purchasing Function
- Period Business Environment
Role of Procurement - 1970s Under Developed Markets
Focus on availability Severe import
restrictions best Price - 1980s Developing Markets Focus
on quality Easing of import
restrictions Improvement
Economic Growth Inventory
Management - 1990s Liberalization Focus on SC
Efficiencies Increased Competition (JIT,VMI),
ISO 9000, reduction of
Total system cost - 2000s Global Competition Focus on
elimination of Defects (Six Sigma) - Bottomline Growth Driver
4Changing Role of Purchasing Function
Now a days - Much Different and More Difficult
Role
5Adopt A Segmented Purchasing Strategy(SPS)
SPS Provides a framework to redirect purchasing
resources in a strategic way so as to maximizes
economic gains while minimizing risk.
6High
Exposure to Market Risk
Low
Economic Opportunity
Low
High
7Segmented Purchasing Strategy
- Deep understanding of -
- What We Buy
- Supply Market
- Establish -
- Right Positioning
High
Strategic Alliance Critical items
Critical/Unique Bottleneck items
LAB
PerfumesEnzymes
Technology/ Market Constraints (Market Risk)
Leverage Scale Commodities
Decentralize Nuisance items
Soda ashpackaging
SaltMinerals
High
Impact on Business Economic Opportunity
Example Fabric wash products business
8The specific vendor management approach depends
on whether the vendor supplies critical items or
bottleneck items or commodities. It is important
to develop strategic partnerships with vendors of
critical items and bottleneck items.
9- The Strategic Vendor Management Aims At Win-Win
through .
10- Consolidation
- Leverage on scale for materials by rationalizing
suppliers and concentration of volumes with a
few, capable suppliers. ( Conformance to CSR -
Corporate Social Responsibility) - Build Strategic Alliances with key Vendors -
Long term view.
11- Consolidation
- Leverage Strategic alliances to facilitate
successful rollout of innovation process and
contain costs - Transparent profit sharing with suppliers.
Transparency through common understanding of the
cost drivers through agreed cost models and
providing a fair return to the vendor. - Win- Win - share knowledge, grow together, with
fair returns.
12- Consolidation / Strategic partnership An
illustrative example of Perfume purchase at HLL - Globally 4 vendors selected.
- These vendors are assigned to different business
categories - 2 vendors to each category. - The Guardian and the challenger.
- Both the vendors allocated to a business category
work closely with the business group, they
understand the products/ customer likes
dislikes ( do own market research), invest in
research and relevant technology.
13- Coordination
- Synchronize the full range of supply chain
activities of the supplier and the customer.
Integrate their operations where ever feasible,
while eliminating duplication and waste in areas
such as order processing, materials planning,
inventory management, distribution and
transportation. - This is the point at which companies using
Strategic Vendor Management do supplier quality
certifications, so that receiving can be
streamlined and inbound inspection eliminated.
They also shorten their delivery lead times as
much as possible to reduce costs and enhance
flexibility.
14- HLLS Vendor Network Management approach
- Regionalized supplier base
- quick response to changes in plans
- close interactions with units
- Vendor Managed Inventory (VMI) system between
unit and supplier ( for packaging materials only
) - Involvement of suppliers at launch / Product
packaging development stage
15- VMI Systems have helped reduce delivery lead
times and improved flexibility. - One supplier allocated to one unit
- Unit shares plans, stocks and weekly production
with supplier - Supplier plans replenishment based on the
available information
Benefits Achieved in some of the packaging
materials Reduction in lead times by 2
weeks reduction in stock levels by 2 weeks
16Supplier Connectivity
Factories
Purchasing
Supplier Net
Suppliers
Banks
Not yet implemented
17Leveraging Information and Communication
Technologies
- Effective use of reverse auctions for standard
( not custom made) materials. - Supplier net for transparent communication
between factories, buyers and suppliers. (
Implementation in progress) - Use of internet for Collaborative product
development and to send the suppliers purchase
orders / indents, transport documents,QC reports
etc.
18- Cooperation
- Enhanced cooperation particularly in product
development, manufacturing and logistics.
Customers and suppliers work as an integrated
team to leverage their combined knowledge. - For example, together they can redesign the
component parts of a product in order to reduce
production and assembly costs, or closely
coordinate new product introductions to minimize
start up costs and to assure a fast learning
curve.
19- Pursue where appropriate with focussed suppliers,
upgrading manufacturing and QC facilities. - While setting up new vendor capacities, where
relevant, participate in machinery / technology
selection, leveraging in -house / parent company
knowledge.
20- Work closely with suppliers and pursue Value
Analysis / engineering. - Kaizen productivity improvement techniques for
cycle time reduction and in process inventory
reduction.
21- Work with suppliers suppliers where appropriate
to ensure right quality and cost - Capitalize scale economies by working with
feedstock suppliers (paper,polymers etc) to your
suppliers, to get competitive costs - Maximize the fiscal benefits
22- Conduct periodic vendor rating. Some of the key
criteria are - on-time deliveries, quality (
Level of rejects), SCORE contribution level,
improvement in order processing lead time (
responsiveness) and contribution to innovation
projects etc. - Conduct regular supplier audits, linked to
specific concern areas / vendor rating reports. - Motivate , recognize high performance of vendors
- Star Suppliers
23Managing Synergy in Multi - Profit Center / Multi
Locational Companies, through ..
- Harmonization of specifications across regions
bringing common materials across different
businesses under a single buying system - Global / Regional buying - aggregation of
regional / global volume wherever possible. - Strategic vendors are identified keeping in view
their ability to become global or regional
vendors.
24Managing Synergy in Multi - Profit Center / Multi
Locational Companies, through ..
- Establishing Lead buyer for each category of
materials to fully exploit synergies across
business categories / regions. - Single face with suppliers
- Aggregation of volumes to get cost benefits
- Using common cost systems
- Quick rollouts of best practices across regions/
businesses.
25- Suppliers are value levers - focus on using
- supply markets for both innovation and cost
- reduction.