1 4 Purchasing Imperatives for Navigating Troubled Waters


Welcome to The Webinar

Attendees will be in listen only mode

All questions and comments can be

initiated thru the Questions feature

in your Control Box


Mike Betz

Managing Partner

Advanced Purchasing Dynamics

Manufacturing and Supply Chain for +25 Years

General Electric, Infor, FACTON


Jeoff Burris

Managing Partner


Purchasing, Supply Chain and Business Unit

Leadership

Ford, Metaldyne, Magna and



Jeff Zugay

APD Supply Chain Management Team


Purchasing Leader for +25 Years

Ford Motor Company

6

Industry impacts - The Post Covid Era

Developing a Plan for Managing the Urgent and Important Proactive Risk Mitigation

Supply Chain Stabilization

Strategic Plan Achievement

Future-Proofing the Supply Chain

Agenda

7

APD’s Core Focus

Consulting and Technology company specialized in Purchasing and Supply Chain

Vast network of experts which is easily scaled

Accumulation of Industry data

Focused on Tier 1 Automotive

Cost Engineering Expertise

16 Years

Cost Collaboration

8

These are Unprecedented and Uncertain Times

Auto companies wrestling a complex plan to restart the industry

“The different tiers of suppliers that feed into each other and into the car companies create a chain that could collapse due to one weak link.”

“The right word for this is unprecedented and uncertain," Kotagiri told the Free Press. "You can’t really plan for a specific situation.“

-- Magna International's President Swamy Kotagiri

“Restarting the auto industry is far more complicated than flipping a switch.”

April 17, 2020

9

APD Supply Chain Management Team

APD Founder

Crisis Management Expert

Jeoff Burris Ken JonesKaren Homovec Jim Dixon

Paul PrestelJeff Zugay Kath Vigars Rachelle Lines

Kelly Ronayne Former Director of North

America Supply Risk

Management at Ford

Vehicle interior purchasing

expert

Global team management

Expertise in casting,

forgings, and stampings

In-depth Launch experience

Indirect/Direct purchasing

expert

Supply chain Professor

Extensive pre-launch and

launch experience

Crisis Management Expert

Executive Procurement

Leader

Former CPO

Former global resins

manager

Supplier Development Expert

Industry thought leaders

Successful track record of

guiding major

manufacturers through

industry downturns

Powerful teams behind

them

Prepared to help where

needed

Summary

Former Director of North

America Supply Risk

Management at Ford

10

Pre-Covid-19 Supply Chain Trend

Pre-USMCA there was already a movement

USMCA accelerated this especially for latest OE entrants

to NA assembly

“Make where you sell;

Buy where you make”

We expect this trend to continue and late

adopters will face limited choices

11

OESA Member Survey

Percent of current material costs for U.S. production (by dollar value) that is purchased outside of the United States.

49%

60%

12

Poll Question #1

Which of the following supply chain issues do you expect to encounter in the next 24 months (check all that apply)

Quality

Capacity

Financial Distress

Missed APQP Dates for New Programs

Plant Closures

13

The Automotive Crisis of 2008 -09

Quality Issues

Financial Problems

Layoffs

Unresponsive

Plant Closures

Bankruptcy

Consolidation

Supplier Resourcing

Sub-tier supplier problems

Missed Shipments

Early Warning Signs

Crisis Management

The “New” Norm

Tool Movements

Tool Shops Out of Business

14

Implications

OE Response

Increased financial strain due

to whipsawing volumes

Lower profit old designs in

production longer

More pressure on suppliers

for cost reductions

Production Ramp up production to refill inventory ASAP

Search for true customer demand: volume/mix

Ramp down production

Push out programs

Cut internal costs

Cut product costs Material Cost Reductions

VA/VE and content removal

Bankruptcies??

Restructuring

15

ImplicationsDescribe the general twelve-month outlook for your business. Over the past three months, has your opinion become…?

If weak:

Defensive financial posturing

Reduced investments

Reduced headcount

If strong:

Growth/Acquisition strategy

Conquest Sales

Cost management

Supplier Outlook

16

Over the following periods, have you witnessed an increase in distress within your supply base?

About 80% said yes

Supply Chain Outlook

Implications

More risk of supplier financial

and operational issues

Need to identify suppliers

capable of take over business

Capacity available at “good

suppliers” – will not last

Opportunity to gain cost

transparency with suppliers

More need for cost reductions

from supply chain

17

Poll Question #2

In the next 24 months, do you anticipate additional workload for your purchasing team? (select one)

None

0-33%

33-66%

66-100%

More

Urgent Important

Balance is required to

deliver

19

Supplier financial distress

Liquidity and cash

Delivery issues

Quality issues

New program launches

Tooling progress

Resourcing

PPE/critical indirect materials acquisition

Achieve purchasing objectives

Support for the company strategic direction

Cost reduction

Near shoring

Supplier consolidation

New program costing

Quality, cost and delivery initiatives

Future proofing the supply chain

Purchasing Organizations Must Manage the

Urgent and Important For the Next 4-5 Years

Urgent Important

20

Supplier financial distress

Liquidity and cash

Delivery issues

Quality issues

New program launches

Tooling progress

Resourcing

PPE/critical indirect materials acquisition

Achieve purchasing objectives

Support for the company strategic direction

Cost reduction

Near shoring

Supplier consolidation

New program costing

Quality, cost and delivery initiatives

Future proofing the supply chain

Purchasing Organizations Must Manage the

Urgent and Important For the Next 4-5 Years

Urgent Important

Increased Focus on the Important

Company will rely more heavily on purchasing to achieve objectives

Becomes opportunity to work differently with your suppliers

21

The Leaders we talk to see it this Way

Victims Survivors Leaders

Purchasing staffs laid off

Advising supply chain via releases

Handling issues “as they occur”

Risk to themselves

Risk to their supply base

Risk to their customers

Supply chain design: Haphazardly shaped by

events

Planning for issues

Communicating with their supply chain

Surveying the supply chain about risks

Adding resources to address issues

Employing extra

resources

Will put out fires quickly

Unlikely to achieve

strategic objectives

Viewing this as an Opportunity to reshape supply chain

Improved Cost Structure

Work with suppliers in a different manner

Stronger – Win New and Conquest Business

Better Customer Relationships

Become the “Go to” Company

Smaller, future-proofed supply chain

22

1) Proactive Risk Mitigation– using key indicators to identify potential issues

2) Supply Chain Stabilization – providing preventative and corrective actions

3) Strategic Plan Achievement– supporting evolving needs of the company

4) Future-Proofing the Supply Chain – resulting in stronger, more aligned suppliers

Purchasing Imperatives4

Urgent

Important

23

Identify Risk Areas– financial, quality, delivery…

– key commodities & suppliers

Identify Key Risk Predictors– using key indicators to identify potential issues

Obtain Real Time Status of Key Predictors

– providing preventative and corrective actions

Assess Current Suppliers/Processes

– identifying

• critical suppliers

• potential and actual issues

Take Proactive and Corrective Actions

– using experienced resources

– verifying effectiveness

Develop and implement a proactive and sustainable Risk

Mitigation Plan.

Purchasing Imperative #1

Proactive Risk Mitigation

24

Identify Risk Areas, Key Risk Predictors, and Assess Status

Identify all supplier types critical to success:

Direct materials

Tool shops

Logistics providers

Packaging providers

Mission critical indirect materials - PPE/Spare Parts/Tooling/Energy

Complete a supplier risk/health assessment that includes risks due to:

Supplier performance (liquidity/financial strength, delivery, quality)

Commodity complexity/difficulty/limited supply options

Supplier risk management of their supply chain

Internal using plants ability/performance in managing risks

Known post-Covid-19 issues identified

Lessons-Learned on failure modes

Establish early Warning Detection System for Watch List/at risk suppliers for

quality, delivery and financial issues:

Suppliers with pre-Covid-19 issues are most likely to create issues now

Take a closer look at suppliers who were at risk but only being

monitored; their conditions may have deteriorated

Develop a sustainable ongoing process to monitor Red and Yellow

suppliers

Review and strengthen pre-Covid-19 supplier quality, delivery and financial

risk management processes - prevent escape points of lessons-learned

failure modes.

Complete scenario planning, stress test plans and develop action plans

25

How will we proactively identify issues?

Address pre-Covid at risk suppliers

Look for warning signals/ liquidity risk– economic requests, short ships, quality

More frequent financial reviews.

Take Proactive and Corrective ActionsExample: Supplier Financial Distress

26

How will we proactively identify issues?

Address pre-Covid at risk suppliers

Look for warning signals/ liquidity risk– economic requests, short ships, quality

More frequent financial reviews.

What tools can we use to address issues?

Contingency Planning

Improve payment terms

Bailment agreements

Bank builds

Tool moves/resourcing

Acquisition

Identify and Fix Op. Inefficiency

Take Proactive and Corrective ActionsExample: Supplier Financial Distress

27

Have a Crisis Team – focused on issues

– skilled resources

Conduct Risk

Assessments

– Ongoing

– Suppliers, commodities, programs

Take Proactive and Corrective Actions

– using key indicators


Communicate– to suppliers

– within your company

Know When to

Cut and Run– all suppliers can not be saved

The economic impact of Covid-19 will weaken manufacturing

supply chains for years.


Supply Chain Stabilization

Key Elements of a Stabilization Plan

28

Have a Crisis Team and Complete Risk Reviews

Manage financial distress and quality concerns

Find alternate suppliers and anticipate tooling issues

Set up a dedicated crisis management team to proactively engage at–risk suppliers and resolve issues.

Ensure the crisis management team has the necessary skills and capacity. Identify additional resources that can be brought in if required.

Provide executive guidance and leadership to the crisis team.

Have the team proactively engage high risk suppliers to conduct risk assessments before issues occur.

Plan for the team to be in place for 12-18 months.

Provide the team with ongoing updates from customers and operations.

Assess supply chain lead times and inventory requirements under a Covid-19 microscope. How will they need to be adjusted.

Complete risk assessments and establish a playbook with lessons learned to proactively mitigate risk and protect supply and profitability.

Use a Problem-Solving process such as 8D

Develop action plans with at-risk suppliers

Execute action plans with at-risk suppliers

Develop contingency plans for at-risk supplier parts in parallel

29

Communication and Supply Chain Stabilization

Execute production ramp-upPro-actively address issues Clear consistent communication of customer and operations

production plans and issues is critical.

Establish process to rapidly disseminate changes to the

supply chain to provide them with the opportunity to react.

Establish clear, realistic demand schedules with

customers. Protect priority demand and minimize

unnecessary inventory or build smart inventory – establish

Smart Supply Chains.

Ensure method for bringing every supplier financial, quality

and delivery issue to the attention of the crisis team. The

team needs to be aware of all issues, including the minor

ones that the consuming plants handle on their own. Look

for macro/systemic concerns!

30

Enablers to Stabilize Supply Chain

Mitigate urgent issues: downtime, staggered availability, and other unforeseen problems

It is impossible to predict the frequency and magnitude of

the issues through 2020/21. Scenario plan for possible

outcomes.

Prepare for a potential Wave 2 of Covid-19 supply

disruption in the Fall/Winter.

Enablers for success include:

Fast & Transparent Internal + External Communication

Robust, Smart Supply Chain Quality Operating System

Resources – dedicated, skilled, and sufficient capacity

Make tough decisions as required

31

Understand Company Strategy Changes

– Growth?

– Profitability?

Revise Purchasing Strategy

– Align to company strategy

– Challenged by economic/supplier landscape

Align KPI’s– using key indicators


Review Tools – to suppliers

– within your company

Strategic Company Plans will Change in Response to the

Economic and Industry Conditions


Strategic Plan Achievement– supporting evolving needs of the company

Key Elements for Strategic Plan Achievement

32

Cut internal costs beyond sales decline

Close plants

Stop activities

Pare down products

Company Strategy

Retrench Cut internal costs in line

with sales decline

Maintain plants

Pare down activities

Maintain products

Maintain Grow Manage costs

Pursue acquisitions

Conquest sales opportunities

Expand products

33

Important Company Objectives

Do not lose sight: YOY negotiation, VAVE, new programs, ongoing efforts to improve quality, delivery etc…

The need for purchasing to deliver on strategic objectives like cost reduction and new product introduction will not go away. In fact, for many companies, the strategic purchasing objectives will be even more important to help the companies manage through the crisis.

Leading organizations create separate supply chain crisis management teams to deal with the urgent issues and enable the core purchasing team to continue to deliver the strategic plan.

Do not lose sight of the company's strategic objectives required to meet the business plan:

Cost reductions

VAVE efficiency initiatives

Near shoring/reducing the supply chain

Revision of contract payment terms

Re-negotiate Lump Sum costs/settlements to amortized payment plans

Commodity Strategy development and implementation

Assess resources required to complete all prioritized activities

Eliminate some prior priorities to allow for focus on those deemed critical

Review alternatives to augment staff

34

Do you have the tools to answer?

What does it cost?

What should it cost?

Is there a gap?

What is the plan to close the gap?

What is the plan to reduce the

should-be costs?

Yes

No

35

e-RFQ

Spend analytics

Total Acquisition Cost

Total Relationship Cost

Have a well-designed tool Set for all 3

Does Cost Multivariate models

Linear models

Cost estimation models

Benchmark data

Should Cost Would Cost

Commodity Strategies

Supply base consolidation

Kaizen

VA/VE

Gap Closure

36

Should Cost Tools

Cost Knowledge & Collaboration

Gap

to

Op

tim

al P

rici

ng

Optimal Pricing

Piece Price

8-18%

Cost Breakdowns

6-13% 3-7%

Company Cost Model

Open Book Cost Model

Industry Cost Model

2-5%

Cost FocusPrice Focus Value Focus

37

Digital Transformation Strategy

– Identify key questions

– Develop digital fluency

– Build data lake

– Employ advanced analytics

Achieving Optimal– Align to company strategy

– Challenged by economic/supplier landscape

Visibility in the Supply Chain

– Identification two layers down

– Continuously updated for supplier location and key business requirements

Supply Base Strategy– Aligned with company

– Action Oriented

– Driven by Ideal Supplier Profiles

Take steps to prevent

recurrence while

managing the crisis


Future Proofing

Future Proofing

38

Industry 4.0

39

Purchasing 4.0

40

4.0 is About Moving from Data to Wisdom

41

Data is not Wisdom

Our business processes

generate lots of data

42

Digital Transformation … From Data to Wisdom

What is right or optimal?

What is the plan to get to optimal?

Optimal quality

Optimal quantity

Optimal source

Optimal time

Optimal cost

43

A Cost Management and Digital Transformation

Strategy for Buying Organizations

44

Digital Transformation Strategy

Purchasing 4.0

Estimation with confidence

Probability pricing - % chance

of obtaining pricing level:

In a given location

At a given date

From a given supplier

Fewer suppliers/aligned/

better performance

Purchasing 3.0

Multiple RFQ rounds

to multiple suppliers

Uncertainty

Poor relationships

with too many

suppliers

Suppliers not

responding to RFQ’s

45

Future-Proof Supply Chain

Have a strategy: “Make where you sell; buy where you make”

Understand cost competitiveness of regions by commodity

Ensure near and far-shore sourcing decisions are made not on

piece price but on risk-adjusted total cost of ownership and

relationship

Fewer suppliers more closely aligned:

Continuous two-level visibility

Ideal supplier profiles

Grow “Leader” suppliers

Pre-certify potential go-to suppliers in the marketplace

Implement a long-term strategy for Digital Transformation:

Know the questions that lead to wisdom

Understand where the data is and how it needs to be analyzed

Develop digital fluency in purchasing

Build to a technical roadmap

Optimize processes

Take steps to prevent

recurrence while

managing the crisis

46

Are there any areas of your plan you are likely to reconsider as a result of this discussion? (check all that apply)

Supplier risk assessment process

Identification of preventative and corrective actions

Restart and stabilization efforts

Plan for delivering strategic objectives

Strategy for future proofing our supply chain

Poll Question #3

47

There is time to transition

Victims

Survivors

Leaders

48

APD’s Supply Chain Management Team Focus

Restart and Recovery Plan

Assessment

In-depth review of current plans for

managing through supply chain restart

while achieving important purchasing

strategies and company objectives

▪ Plan for your suppliers

▪ Plan for their suppliers

▪ Identify constraints

Crisis Mentorship and

Monitoring

▪ Critical Supplier Response Team

▪ Distressed suppliers

▪ Missed shipments

Ongoing mentorship and monitoring

of critical situations:▪ Supply Chain Restart

▪ Achieving Important Purchasing

Strategies and Company Objectives

▪ Supplier plant closures

▪ Supplier wind down

▪ Supplier Bankruptcy

Augmented Expertise

APD resources applied to managing

critical issues after restart or achieving

important purchasing strategies and

company objectives

▪ Supplier risk mitigation

▪ Supplier resourcing

▪ Identify critical tooling

Full Plan Development and

Implementation

Future-Proof

Your Supply Chain

▪ Early warning system

▪ Risk mitigation concepts

▪ Science and data driven approach

APD develops and implements a

comprehensive plan to manage crisis

while achieving important purchasing

strategies and company objectives

▪ Plan for your suppliers

▪ Plan for their suppliers

▪ Identify constraints

▪ Personnel

▪ Expertise

▪ Placement

Special Projects

Whether it’s seeking to find cost

savings, near shore the supply chain,

find alternative suppliers or whatever

your needs, APD is available to help

▪ Resin spend analysis and cost reduction

▪ Metals spend analysis

▪ Near shoring

▪ Market test / finding

new suppliers

▪ Commodity strategy

▪ Warranty sharing

APD develops a Future-Proof and

Digital Transformation strategy to

ensure your supply chain is prepared

for the next major event

▪ Tool movement

▪ Sub-tier problems

▪ Indirect

▪ Purchasing micro services

▪ Evolve digital

transformation over time

▪ Everything on an app

Mentorship.pptx

Plan.pptx

Expertise.pptx

Full.pptx

Projects.pptx

Future.pptx

49

Contact Information:Mike Betz

Managing [email protected]

(248) 977-0918

THANK YOU

mailto:[email protected]

1 4 Purchasing Imperatives for Navigating Troubled Waters

Documents

Transcript of 1 4 Purchasing Imperatives for Navigating Troubled Waters