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Vendor Management In FMCG Companies K.S.Srinivasa Murty 17th

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Vendor Management In FMCG Companies K.S.Srinivasa Murty 17th July 2004 Agenda Changing role of purchasing, its implications to purchase strategy and vendor management ... – PowerPoint PPT presentation

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Title: Vendor Management In FMCG Companies K.S.Srinivasa Murty 17th


1
Vendor Management In FMCG Companies
K.S.Srinivasa Murty 17th July 2004
2
Agenda
  • Changing role of purchasing, its implications to
    purchase strategy and vendor management practices
  • Reinventing Supplier Relationships

3
Changing 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

4
Changing Role of Purchasing Function
Now a days - Much Different and More Difficult
Role
5
Adopt 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.
6
High
Exposure to Market Risk
Low
Economic Opportunity
Low
High
7
Segmented Purchasing Strategy
  • Deep understanding of -
  • What We Buy
  • Supply Market
  • Establish -
  • Right Positioning
  • 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
8
The 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
16
Supplier Connectivity
Factories
Purchasing
Supplier Net
Suppliers
Banks
Not yet implemented
17
Leveraging 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

23
Managing 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.

24
Managing 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.
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