‘Standardization in supplier base management’
‘Standardization in supplier base management’
‘Design of processes and tools for supplier base management in
NPI Europe Supply Management Marketing Materials’
Technical Business Administration
Specialization Process Technology
Faculty of Management and Organization
University of Groningen, The Netherlands
Date: July 2007
Place: Groningen, The Netherlands
Author: M.E. Schneider
First university supervisor: Prof. Dr. D.J.F. Kamann
Second university supervisor: Prof. Dr. J. Wijngaard
Preface
I have written this thesis to finalize my studies in Technical Business Administration at the Faculty of Management and Organization of the University of Groningen. Hereby I would like to show my appreciation to those who have supported me to finalize my thesis in a proper way.
First of all I would like to thank my first company supervisor Antonio Varano for his continuous support and constructive feedback on my thesis. Secondly I would like to thank Daniel Villela, who practically was my second company supervisor. Being my direct opposite he always took the time to answer all my questions and to help me with issues regarding my thesis. Furthermore I would like to thank the rest of the NPI Supply Management Europe Marketing Materials team for their support and the great time they have given me during my internship. I really enjoyed being part of this (intercultural) team, and I have learnt a lot during my stay in Rotterdam and the visits to Brussels!
I also would like to thank my first university supervisor Prof. Dr. Kamann for his always positive and constructive approach to both my research and thesis. Especially in the first months when things weren’t that crystallized! Furthermore I would like to thank my second university supervisor Prof. Dr. Wijngaard for his feedback during the final stages of my thesis.
Last but not least I would like to thank my family, my girlfriend Carolijn and my friends for the great time they have given me in Groningen and for their support (and patience..) during my studies.
A great period in my life has come to an end, however I am looking forward to the next!
Martijn Schneider
Management summary
This research is conducted for Unilever NPI Europe Supply Management Rotterdam, during an internship in the Marketing Materials team. The Marketing Materials team is responsible for the strategic sourcing of Marketing Materials on a European level. One aspect of a strategic sourcing process is supplier base management, which is the main concept in this research. Supplier base management for this research is defined as: ‘the way in which NPI E MM, manages its supplier base’. The focus of the research is mainly on two aspects of supplier base management, i.e. supplier selection and supplier performance assessment.
Foundation for the research are the results of a problem analysis in the supplier base management process. The main outcomes of this problem analysis are:
• Lack of standardization in the supplier base management process in the European NPI MM community.
• Absence of standard tools for supplier selection, supplier performance assessment, supplier auditing and supplier relationship management.
It can be concluded from the problem analysis that NPI E MM needs more standardized ways of working. Therefore the focus in this research is on reaching standardization in supplier base management. The research objective is formulated as follows:
‘The objective of the research is to design a standard process for supplier base management for NPI E MM that takes into account the nature of Marketing Materials buying, in order for NPI E MM to make the right sourcing decisions and to improve standardization’.
In order to be able to fulfil the research objective the following main research question is formulated:
‘What should a feasible supplier base management process for NPI E MM look like?’
The methodology to answer the research question and to reach the desired standardization is a three step approach, based on a combination between the DDI model by the Leeuw (2000) and a Business Process Reengineering approach. This approach is built up of the following three phases: diagnosis, design and implementation. The sub-questions are positioned in the different phases. Key in the process of arriving at the standardization is stakeholder involvement. Therefore besides examining available literature and other data sources, many stakeholders are involved in every step of the research.
In the diagnosis phase (sub-questions one, two and three) the current supplier base management process is examined in order to spot areas for improvement and/ or find out which parts are missing.
influence the design of a supplier base management process are given and their influences are analyzed.
The design phase (sub-questions four, five and six) covers the actual (re)design of the supplier selection and supplier performance assessment tools and the supplier base management process. First the methods for supplier selection and supplier performance assessment are chosen. Secondly suitable criteria to include in both tools are formulated. Thirdly specific weighting, scoring and ranking approaches for NPI E MM are designed. Based on this the supplier selection and the supplier performance assessment tools are composed. The final step in the design phase is the design of the supplier base management process. This design is based on the findings in the diagnosis phase as well as the designs of the tools.
In the implementation phase (sub-question seven) recommendations for implementation of the tools and process in the existing organization are done. Focus is on stakeholder compliance and the actual implementation.
In the final chapter, conclusions and recommendations are done. Conclusions are drawn from the results of the research. The research loop is closed by looking at the fulfilment of the research objective. Furthermore recommendations for future research are given.
Table of contents
Preface ... 3
Management summary... 4
Introduction ... 8
1 Organization introduction... 9
1.1 Unilever NV... 91.2 NPI Supply Management Europe ... 11
1.3 NPI Supply Management Europe scope of activities... 14
1.4 Marketing Materials Team ... 15
2 Problem definition... 17
2.1 Problem analysis... 17
2.2 General problem statement ... 20
2.3 Relevance of the research... 21
3 Research design... 22
3.1 Research objective ... 22
3.2 Main research question... 23
3.3 Research methodology... 24 3.3.1 Methodology... 24 3.4 Sub-questions ... 26 3.5 Conceptual model ... 29 3.6 Research material... 31
4 Theoretical background... 32
4.1 Standardization ... 32 4.2 Purchasing process ... 354.3 Supplier base management... 39
4.3.1 Supplier selection... 40
4.3.2 Supplier performance assessment... 42
4.3.3 Supplier relationship management... 44
Diagnosis phase... 47
5 Current supplier base management process ... 47
5.1 Supplier selection... 47
5.1.1 Preferred supplier... 50
5.2 Supplier development strategies ... 51
5.3 Supplier performance assessment ... 51
6 Product portfolio NPI Supply Management Europe Marketing Materials ... 52
6.1 Theoretical background ... 52
6.2 Hypothesis 1; the present classification in product groups can be improved and simplified... 56
6.3 Kraljic matrix NPI E MM... 57
6.4 Hypothesis two; several product groups can be classified as (high) risk and are therefore interesting for SRM ... 60
6.5 Hypothesis three; supplier base management tools should be ‘customized’ for the different product groups in Marketing Materials... 61
7 Influencing factors on the Supplier Base Management Process ... 62
7.1 Timing involved ... 62
Conclusion diagnosis phase ... 65
Design phase... 66
8 Methods and tools in supplier base management ... 66
8.1 Supplier selection methods... 66
8.2 Supplier performance assessment methods ... 68
9 Supplier selection and vendor rating... 70
9.1 Theoretical background ... 70
9.2 Supplier selection criteria... 71
9.3 Vendor rating criteria... 73
9.3.1 Supplier relationship management... 75
9.4 Scoring approach... 76
9.4.1 Main category weights on Pre-Audit Questionnaire... 76
9.4.2 Main category weights on vendor rating ... 79
9.4.3 Scoring on Pre-Audit Questionnaire ... 80
9.4.4 Scoring on vendor rating ... 81
10 Supplier base management process... 82
Implementation phase... 88
11 Implementation of tools and process in the organization ... 88
11.1 Stakeholder compliance ... 88
11.2 Implementation ... 89
12 Conclusions and recommendations ... 90
12.1 Conclusions ... 90
12.2 Recommendations for future research ... 93
References... 94
List of figures ... 97
List of formulas ... 97
List of tables ... 98
Introduction
This research is conducted as part of the graduation project for the study Technical Business Administration, specialization Process Technology, at the University of Groningen, The Netherlands. The research is conducted during a seven-month internship in Unilever Rotterdam. During the internship the researcher is based in the Unilever Supply Management Europe Company, as member of the NPI Supply Management Europe Marketing Materials team (NPI E MM). Research is conducted into the concept of supplier base management, related to the specific situation of NPI Supply Management Europe Marketing Materials.
In chapter one a general introduction of Unilever and NPI Europe in specific will be given. This chapter shows the environment in which the research takes place. The (research) problem definition is described in chapter two. This problem definition is the basis for the research. In chapter three the research design is explained; the research objective, research questions and the conceptual model are formulated. Before starting the actual research, some theoretical background on the main concepts in the research will be given in chapter four. Several important concepts are introduced and explained. Next the current supplier base management practices within Marketing Materials will be outlined in chapter five. The tools used by the team are analyzed as well as the process itself. In
chapter six the product portfolio is analyzed and implications for supplier base management will be
outlined. Besides the product portfolio other factors that can influence the supplier base management process will be explained in chapter seven. Chapter eight covers available methods and tools in both supplier selection and supplier performance assessment, as well as which one(s) to choose for Marketing Materials. In chapter nine some theoretical background about criteria used in supplier base management will be given. The criteria to include in both supplier selection and supplier performance assessment for NPI E MM are chosen. Furthermore scoring approaches will be designed. Based on the findings in this chapter the actual tools are designed. The design of the supplier base management process for NPI E MM is outlined in chapter ten. The process is described both in words and by using a flow chart. Chapter eleven covers the implementation of the process and tools. In
chapter twelve conclusions and recommendations are given.
Several abbreviations are used throughout this report. An overview of these abbreviations can be found in Appendix 1.
1 Organization introduction
In this chapter an overview of the organization will be given. Furthermore the role of NPI Supply Management Europe and the Marketing Materials team in specific inside Unilever will be explained.
1.1 Unilever NV
Unilever started in 1930 as a joint venture between Margarine Unie (NL) and Lever Brothers (UK). Unilever's founding companies produced products made of oils and fats, principally soap and margarine. During the first decades Unilever’s operations start to fragment around the globe. Investments in R&D are increased and operations in the food market are expanded, many years of growth follow. In the eighties and nineties, Unilever focuses on core products and brands, the portfolio of brands is cut by around two third.
In the 21st century Unilever starts with the launch of the ‘Path to growth’, a five year strategic plan. In 2004 Unilever introduces its present Vitality mission (www.unilever.com):
‘Unilever’s mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene and personal care with brands that help people look good, feel good and get more out of life.’
Today Unilever is a top ten company in the field of international Fast Moving Consumers Goods. Unilever employs around 200 000 people in more than 110 countries worldwide, and supports the jobs of many thousands of distributors, contractors and suppliers. In 2005 Unilever’ turnover was around 40 billion euros, of which more than 12 billion euros came from Unilever’s twelve 1 billion euro brands. Unilever’s turnover in the European region is around 16 billion euros. Unilever is one of the world’s most culturally diverse companies, with top leadership from 32 nations. Unilever is very successful in D&E markets (developing and emerging markets).
Since in 2005 the ‘One-Unilever operating framework’ is introduced, the company has the following structure;
Figure 1: Organization chart Unilever NV
Currently there are three pillars in the management organization; regions, categories and functions. Unilever divides its business in two categories: Foods and Home –and Personal Care. Under foods there are different sub categories like Savoury and Dressings, Ice Cream, Spreads, Weight Management and Tea with brands like Becel, Knorr, Ola and Lipton. Omo and Cif are examples of Home Care brands as are Dove, Axe and Lux for Personal Care.
This organization chart is the result of a change programme (One Unilever) from a largely decentralized and therefore geographically distinct management approach, to one where more globally led processes across geographies are necessary to respond quickly and effectively to changing consumer and customer trends, changing markets and competitive pressures.
1.2 NPI Supply Management Europe
NPI Supply Management Europe is part of the NPI Supply Management Company. NPI stands for Non-Production Items. Meaning all goods bought in goods & services except for raw materials, packaging & finished goods. The vision of NPI Supply Management is: ‘Unilever achieves best value for all NPI expenditure through Supply Management’.
The position of NPI Supply Management Europe (from now on called; NPI E) inside Unilever is displayed in the organization chart above. NPI E can be placed in the organization chart in the Europe column, but not specifically assigned to one of the divisions/functions, because NPI E is sourcing products and services for both HPC and Foods. Each region and country has its own NPI department; this research is conducted in the NPI department responsible for the European region. A list of countries included in this European region can be found in Appendix 2. NPI E covers multiple areas of attention, so called Communities of Practice. Below you can find the organization chart of NPI Supply Management Europe.
VP Supply Manager
Marketing
Services MarketingMaterials Employee, Site
& Professional
Finance (incl. grants, subsidies & legal) Engineering &
Technical
Figure 2: Organization chart NPI Supply Management Europe
NPI E is divided into five different teams. Each team has its own team leader. These team leaders all report to the VP Supply Management. The teams consist of several supply managers, who in their
‘We lead the transformation of NPI procurement in Europe so that it is professionally managed and executed.’
NPI E works as intermediary in the sourcing process of Non-Production Items in Europe, in practice the role of NPI E can be described as follows:
‘Within the assigned clusters to lead negotiations in Pan-European or multi-country sourcing exercises. Also to lead/ participate in global or multi-region sourcing exercises, as appropriate work with suppliers and national & local NPI teams in Europe; to implement agreed deals, and generally support them through identification and transfer of best practice with tools & processes. And to co-ordinate the collection and reporting of NPI savings from all sources in Europe’.
NPI E makes sure that Unilever uses its leverage within the marketplace, by approaching suppliers as Unilever Europe, ensuring that Unilever’s local factories and operating companies get the best possible total cost of products and services available from the suppliers (Total cost of ownership approach). Checking the supply base, financial stability of potential suppliers, company accreditation all takes much time. The detailed and constantly developing knowledge of the various supply markets on a Regional European & Global level, enables NPI E to offer support at a local level in most if not all related areas. Unilever as a whole benefits from the leverage benefits, simplified processes and streamlined supply base as this allows it to maximise its scale, providing "fuel for growth" bottom line savings. These can then be used not only to protect and / or improve its profit margin but also to invest in areas that will deliver the maximum benefit to its core business and thus assist it in generating growth. At a local country, company and user level there are also benefits, not only delivered via local cost savings and process improvements but in many cases by improvements in quality standards, collaboration and supplier relationships. As a result, Unilever will tend to have more strategic influence with a preferred supplier on a Regional European or Global level.
NPI E uses a ‘7-step Strategic Sourcing Methodology’ for all the strategic sourcing projects. The different steps of the 7-step methodology are not always sequential, not rote and constantly improving. Strategic sourcing is defined by Unilever as (Unilever Portal): ‘A disciplined, systematic process for reducing the total costs of externally purchased materials, goods and services while maintaining/improving levels of quality, service and technology’ .
Different principles are defined related to strategic sourcing;
• Define the total value of the relationship between supplier and buyer.
• Develop solutions based on a deep understanding of supplier economics and business dynamics.
• Utilize differentiated buying tactics to optimize the economic relationship.
• Embed the required changes in the organization so buyer can continuously improve.
More on the ‘7-step Strategic Sourcing Methodology’ furtheron in the report.
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1.3 NPI Supply Management Europe scope of activities
Below you can find a short explanation of the four strategic sourcing teams in NPI E. Also the supporting Finance team will be shortly described. In the next paragraph, the Marketing Materials team will be explained in more detail.
Engineering and technical;
The NPI Engineering and Technical Supply Management team works primarily to establish European selected supplier contracts for equipment,technical services, and utilities.
By using knowledge of the supplier marketplace, on a European and Global basis, the team offers support both in routine equipment installation, and new product innovation projects.
Employee site and professional;
The ESP team works primarily to negotiate, contract manage and track the performance of selected supplier agreements on a Regional European and occasionally Global level which currently includes Fleet, HR Services (Temporary Labour, Learning / Courses, Rewards), Travel & Expenses & Site Services (Reprographics, Furniture, Facilities Management, Couriers, Office Supplies & Trademarks).
Marketing supply management;
Marketing Supply Management assists the European Marketing teams to get the best from their suppliers and agencies. The team is assisting internal business users with the analysis of its supply market, formulation of supplier strategies and the negotiation and selection of suppliers who fulfil business needs and increase quality of service and time to market.
The group is split in two: Marketing Services and Marketing Materials.
The Marketing Services team is responsible for the sourcing of the following services;
• Marketing Research;
• Media;
• Creative Agencies;
Marketing Services decides with the purchaser what support would be most appropriate. The Marketing Materials team will be covered in more detail in the next paragraph.
Financial (including grants & subsidies and legal);
The Financial team is mainly set up to financially support the other teams. The team is responsible for financial/ savings reports for the teams and periodical reporting of NPI E. The Financial team also is responsible for promoting and coordinating across Unilever Europe applications for grants and
1.4 Marketing Materials Team
The Marketing Materials team (from now on called NPI E MM) is responsible for the sourcing of the following products and services; Promotional Items, Point of Sale Materials, Commercial Print Management and Below The Line Agencies.
Promotional Items are items that are sold with the Unilever products in stores. E.g. gift packages for Axe, Dove and the Becel ‘stappenteller’. Point of Sale Materials are products that are made to strengthen the brand image at the point of sale, e.g. Lipton parasols in bars, Ola windscreens at the beach. Commercial Print Management is the management of the printing companies that print all kinds of stickers, papers, posters, coupons, leaflets, etc for the Unilever brands. ‘Below The Line’ (BTL) is a marketing terminology also used in the sourcing of Marketing Materials. In order to clarify the BTL category first the difference between ‘Above The Line’ (ATL) and ‘Below The Line’ will be explained. ATL consists of all media advertisements; radio, tv, newspapers, magazines, posters, cinema, billboards, etc. BTL is everything which is used to promote/advertise brands on non-media means. E.g. direct marketing (e.g. telemarketing), direct mail, promotion on stores, catalogues, folders etc.
For more clarification, below a graphical representation of the Marketing scope in Unilever is given. This picture also shows the positioning of Marketing Materials.
Cons. Data Mgmt. Creative Services Prom.
Items Display POS Print Creat. Adv. Agency Comm. Prod. Cost Media Support Media Agency Media Cost & Planning Control Marketing Services Marketing Materials Advertising Mkt. Res. Media Marketing Class Family Cluster Non Media Impl./ Exec. Cons. Data Mgmt. Creative Services Prom.
Items Display POS Print Creat. Adv. Agency Comm. Prod. Cost Media Support Media Agency Media Cost & Planning Control Marketing Services Marketing Materials Advertising Mkt. Res. Media Marketing Class Family Cluster Non Media Impl./ Exec. Cons. Data Mgmt. Creative Services Prom.
Items Display POS Print Creat. Adv. Agency Comm. Prod. Cost Media Support Media Agency Media Cost & Planning Control Marketing Services Marketing Materials Advertising Mkt. Res. Media Marketing Class Family Cluster Non Media Impl./ Exec.
NPI E supports the business to implement brand building on a European scale. The European strategic sourcing process can be activated in different ways. A marketer or local NPI buyer comes to NPI E MM with a request or idea for sourcing or NPI E MM spots an opportunity itself. In general these sourcing requests are on a cross country, European base. E.g. a category or brand manager contacts NPI E MM with the request for certain products to be sourced for several countries.
NPI E MM will then manage the sourcing process. Requests for a specific country are normally forwarded to the local, country NPI buyer. Sometimes for very large quantities however NPI E MM will do the sourcing for a specific country if requested. The sourcing request can either be a product that needs to be developed, or a common spot purchase. E.g. a customized promotional item to be developed or the sourcing of a large amount of ‘standard’ products. When development is needed NPI E MM will coordinate the development process by managing the different parties involved, i.e. the category and suppliers in scope. NPI E MM has a supporting and facilitating role in the European sourcing process. The actual purchase however needs to be done by the budget holder.
Marketing Materials can be identified as a ‘grey’ area. Some products can easily be sourced regionally, for others this is very difficult or even impossible. The reason for this will be explained in the next chapter. It can clearly be seen as a great challenge to get all the different countries on board and accordingly achieve leverage savings!
For the Promotional items and Point-of-Sale materials several ‘Brand Catalogues’ are created that should stimulate OpCos to participate in regional projects. These catalogues are accessible in Platform X1, the European buying tool/platform for Promotional and Point of Sale items. Platform X acts as an e-catalogue/buying tool displaying all Brand catalogue items along with supplier, delivery and price information. Buyers are therefore able to view, request quotations and place orders online. This process also enables countries to align their buying to ensure volume discounts from aggregated buying.
The estimated total Unilever spends on Marketing Materials in Europe is around XXX2 million Euro a year. Around nine percent of this total spend is controlled/ in scope, by NPI E MM. In the ideal situation from a NPI E MM point of view this percentage is higher, because of the corresponding leverage savings. The fact that not all Marketing Materials spend is under NPI E MM control does not have to be a problem, but nine percent is quite small. Therefore actions should be taken continuously to increase the amount of spend controlled by NPI E MM. To achieve this goal, compliance with regional projects in the European community needs to be increased.
2 Problem definition
In this chapter the focus is on the current strategic sourcing process of NPI E MM. In the problem analysis areas of interest for the research are identified, and problems present in the strategic sourcing process are formulated. Furthermore a general problem statement will be derived from these problems. This general problem statement is the foundation for the research.
2.1 Problem analysis
By comparing the outcome of open interviews with different stakeholders in the NPI E MM strategic sourcing process, the personal findings of the researcher and by examining literature, the following problem areas are identified.
The strategic sourcing process for Marketing Materials is a complex process. First of all the needs and wishes of the different European countries and their local buyers and Marketing people can differ quite a lot. This is because of cultural differences, Marketing preferences and the fact that ‘One Unilever’ is not fully implemented throughout Europe yet. Therefore there still are many different Operating Companies (OpCos, i.e. countries) each with their ‘own’ local suppliers with whom they do business on a regular base against good/ specific terms, conditions and prices. These local Unilever people therefore do not always feel the need to participate in regional sourcing initiatives. Secondly, besides the cultural and regional difficulty, some projects are joint development between Marketing, Local OpCo, Suppliers and NPI. Others are just on the spot buying by one of the stakeholders. This complicates the sourcing process even more.
In the European region hundreds of suppliers are used for MM sourcing in the various countries. In the current situation NPI E MM has an extended list of all the local and regional suppliers. This list was created with the introduction of an E-buying platform in 2005; all the countries provided NPI E MM with a list of their suppliers. This list also includes some of the suppliers that NPI E MM conducts business with, however information on these suppliers is not always available/ up to date, because it is hard to collect in the European community. NPI E MM however only deals with suppliers capable of operating
NPI E MM furthermore wishes to move from an extended supplier base to a supplier base consisting of several preferred suppliers per product group. In order to be able to identify preferred suppliers, the supplier base needs to be periodically assessed. This assessment process should include both supplier selection and supplier performance assessment. In the current situation there is a tool used for supplier selection (explained below), supplier performance assessment on the other hand is not included in the present supplier assessment. Therefore a supplier performance assessment tool should be designed for NPI E MM.
There is a tool available to Pre-Audit new suppliers for Marketing Materials, but this tool proves to be too extended and in-efficient. The tool is a questionnaire in MS Word that the supplier has to fill in. The questionnaire is divided into different sections with questions on specific topics, like quality and delivery. Each section as well as each individual question has its own weight. All the questions in the questionnaire have their own (often different) scoring possibilities and in some cases a specific weight related to the score. By multiplying the scores with all the weights, the total score of a supplier on the questionnaire can be obtained. In the present situation no clear interpretation and comparison of supplier scores on the questionnaire is possible. Furthermore, according to feedback from the European community, the questionnaire and the scoring method used prove to be too extended and complicated. Also it is not possible to come to a clear ranking of the various suppliers based on the scoring methodology. Therefore a new Pre-Auditing tool with a new way of scoring and ranking need to be designed.
On some very rare occasions, new or existing Marketing Materials suppliers are audited by Unilever. However in the present situation there is no (standard) process available for NPI E MM to, besides evaluating supplier performance, properly audit a new or existing supplier. So next to the (Pre-Auditing) supplier selection tool and a supplier performance assessment tool, a (standard) way of supplier auditing need to be created. The decision has been made to keep the auditing tool itself out of scope of this research. However the positioning of the auditing process in the supplier base management process, will be taken into consideration.
NPI E MM conducts business on a frequent base and a large scale with some of the suppliers in the supplier base. At the moment there is no process in place for managing the relationships with these suppliers in a standardized way. Since some of the suppliers are cooperating business partners for a long time and/ or are delivering high risk products, it is interesting to put in place a Supplier Relationship Management tool to manage contact and to establish good/ better relationships with some of these suppliers. So there is the need for a (standard) SRM tool for NPI E MM. Again, the design of the SRM tool itself is out of scope of the research. The positioning of SRM in the supplier base management process is included.
Furthermore the supplier base management process of NPI E MM is conducted mainly by using the personal experiences of the different people in the organization. At the moment there is no standard supplier base management process put on paper for NPI E MM. In order to clarify things for all the stakeholders in the process and to provide a guideline for the strategic sourcing process, a standard supplier base management process description for Marketing Materials is needed.
All the products sourced by NPI E MM should be according to the strict quality needs defined by Unilever. At the moment one formal standard quality system is being formalized. In consultation with the MM team the decision is made that the quality approval process is out of the research scope.
A discussion with different stakeholders in the European MM community made clear that there is a lack of standardization across Europe and that more steering from the headquarters (NPI E MM) is required. This standardization and steering should be achieved by setting standards and by providing the community with best in class processes and tools.
Considering the problem analysis above, two main problem areas can be defined:
• Lack of standardization in the supplier base management process in the European NPI MM community.
• Absence of standard tools for supplier selection, supplier performance assessment, supplier auditing and supplier relationship management.
These are problem areas on two different levels. The lack of standard tools is on a lower, more day to day level than the lack of an overall standard process. The tools should be seen as a part of the total process. Therefore the choice has been made to formulate two different statements.
According to ‘www.futurepurchasing.com’ these are problems that are present in many organizations; ‘often there is a lack of spend visibility, high levels of non-compliance, no agreed common tools, multiple processes, little standardization, limited stakeholder engagement, inadequate business-wide
2.2 General problem statement
The general problem statement is as follows;
‘There is a lack of standardization in supplier base management in NPI E MM’.
Therefore the decision has been made to focus the research on achieving standardization in supplier base management. I.e. define a standard process and standard tools for supplier base management for NPI Supply Management Europe Marketing Materials.
2.3 Relevance of the research
As described in the introduction it is the mission of NPI E to coordinate and facilitate the strategic sourcing process in the European community. The performance of NPI E MM depends on different factors, amongst others; leverage savings achieved, information sharing and communication in the community, local compliance with regional sourcing projects. In order to achieve higher spend coverage, the compliance rate in the European Sourcing Community should be increased. Standardization through the availability of standard tools and processes will contribute to an increase in this compliance rate. Standardization can also improve communication and information sharing in the European community, which in turn will positively influence the compliance rate. A higher compliance rate in turn will generate higher leverage savings and spend coverage. Besides the fact that standardization can help to improve the performance of NPI E MM, it also fits in the One Unilever strategy/ framework to standardize ways of working across divisions, regions and countries. So research into the possibilities of standardization in supplier base management adds value for the NPI E MM team and Unilever as a whole. In short standardization will improve visibility and clarity in the strategic sourcing process of Marketing Materials.
Furthermore literature mostly describes either supplier selection (Landkroon, 2002; Arkader & Lindner 2001; Iandoli, Shore, Venkatachalam, Zollo, 2003; De Boer, Labro, Morlacchi, 2001) or supplier evaluation (Doedens, 2003; Jorissen, 1994). Only several articles deal with both supplier selection and supplier performance assessment (Kannan, Tan, 2002; D’amours, Jabiri, Poulin, Montreuil, 2001). Although also these authors do not present supplier selection and supplier performance assessment together in a complete process, as a closed loop. Therefore this research aims for creating a closed loop between supplier selection and supplier performance assessment, and consequently creating a proper supplier base management process for NPI E MM. Besides that, standardization of Marketing Materials sourcing (as part of brand building) in an international environment has not been a topic for research so far.
3 Research design
In this chapter the research objective and the research questions are formulated. The research methodology will be explained, just as the conceptual model. Furthermore the gathering of the research material will be clarified.
3.1 Research objective
The research objective can be derived from the problem analysis outlined in the previous chapter. It becomes clear in the problem analysis NPI E MM needs more standardized ways of working. In this research the focus will be on supplier base management standardization, as part of the total procurement process of NPI E MM. The goal is to come up with a specific supplier base management process for Marketing Materials sourcing on an international base.
In consultation with the NPI E MM team and following from the problem definition, the following research objective is formulated;
‘The objective of the research is to design a standard process for supplier base management for NPI E MM that takes into account the nature of Marketing Materials buying, in order for NPI E MM to make the right sourcing decisions and to improve standardization’.
According to Verschuren and Doorewaard (2005), a research objective always needs to be effective. A research objective is effective when it is useful, realizable within stated timeframe, clear and informative. The above stated research objective is effective because it satisfies all four requirements; the research is useful because standardization will contribute to better performance. The research objective is realizable within stated timeframe, i.e. the necessary information and other resources are available to the researcher and the results of the research will be available within stated deadlines. The research objective is clear because it precisely indicates what the research’ contribution is to the identified problems. The research objective is informative because it provides an overall idea of the knowledge the research project will generate in order to contribute towards a solution. According to De Leeuw (2003) a correct research objective must be relevant for the situation, convenient and researchable. The objective above also satisfies the requirements for a correct research objective stated by De Leeuw (2003). Important when designing the process is to keep in mind that a process always needs to be feasible, suitable and acceptable. Very important in this case as well is that the process and tools need to be time efficient and easy to use, otherwise they won’t be used by the different stakeholders!
3.2 Main research question
The main research question can be derived from the research objective. Answering the main research question will automatically fulfil the research objective.
‘What should a feasible supplier base management process for NPI E MM look like?’
Feasible is defined as: taking into account the nature of Marketing Materials buying, easy to use, satisfying the needs for success of standardization, helping the NPI E MM team to make the right sourcing decisions.
In the next paragraph the methodology used to reach the desired standardization is outlined. The layout of the report and the order of the sub-questions are based on this methodology.
3.3 Research methodology
Verschuren and Doorewaard (2005) identify a main distinction between theory-oriented and practice-oriented research. Theory-practice-oriented research contributes towards the development of theories in a specific field of study. Practice-oriented research contributes to the solution of a problem within an organization. Since in this research the main focus is on solving an existing company problem, this research can be classified as a practice-oriented research. Furthermore, several practice-oriented research types can be identified according to Verschuren and Doorewaard (2005); problem finding, diagnosis, design, intervention and evaluation oriented research. This research is focussed on designing processes and tools for standardization in supplier base management, therefore this research is a design-oriented research.
In order to successfully carry out this type of research project, the following conditions have to be met (Verschuren and Doorewaard, 2005): the problem needs to be properly identified and defined, and the problem to be solved must be diagnosed. The identification and definition of the problem(s) at stake is done in the problem analysis phase of this research. The problem will be diagnosed in the chapters preceding the actual redesign.
3.3.1 Methodology
A commonly used research model for designing a practice-oriented research is the DDI (Diagnosis, Design, and Implementation) model by De Leeuw (2000). The different phases in the research model can be classified as follows; The diagnosis phase is a translation of the problem situation into a management problem. The focus is explicitly on the allocation of the exact causes of the problem. The design phase is about transforming the allocated problem from the diagnosis phase into a solution. In the implementation phase the solution created in the design phase will be implemented.
This research focuses mainly on the diagnosis and design phase. Furthermore recommendations for implementation of the designed process and tools are done. Implementation itself however is out of scope.
In order to further structure this research and to come to an actual design for the supplier base management process, a Business Process Improvement method will be combined with the DDI model. The focus of BPI is on improving an existing process in an organization. In this case it applies to the supplier base management process within NPI E MM. Business Process Reengineering is one way of Business Process Improvement. In this research BPR is one method used to reach standardization. Below you can find a definition of BPR, the different steps in a BPR approach and the way in which it is applicable to this research.
According to (Hammer, 1990; Hammer and Champy, 1993; Peppard and Rowland, 1995) ‘Business Process Reengineering concerns the fundamental rethinking and radical redesign of a business process to obtain dramatic and sustained improvement in quality, cost, service, lead time, flexibility and innovation’. According to Elzinga et al. (1995), ‘BPR is a structured approach to analysing and continually improving fundamental activities such as manufacturing, marketing, communications and other major elements of a company’s operation’. In all available BPR methodologies in general the same steps are taken; identify the need for redesign, mobilise people to create the redesign, map existing processes and ways of working, spot areas for improvement, create improvements, implement improvement and evaluate improvements (Klein, 1994).
The link between the two frameworks is as follows: In the diagnosis phase, the ‘need for redesign’, ‘mobilization of people for redesign’, ‘mapping of existing processes and ways of working’ and ‘spot of areas for improvement’ are covered. The ‘need for redesign’ and ‘the mobilisation of people for redesign’ can be seen as steps that were taken prior to this research. Of course the mobilization of people for redesign is something that needs to be done throughout and after the research period as well. In the design phase of the DDI model, the improvements/ changes are created. The implementation step of BPR and the final phase of the DDI are covered in the chapter on implementation.
The various methods and techniques that are used throughout the report will be introduced in the respective chapters. Special attention will be on the concept of standardization, and in particular to the positioning of standardization in the above stated redesign framework. After all, reaching a newly designed process and drastically (re)-designed tools through standardization is the main objective of this research.
3.4 Sub-questions Diagnosis phase
In the diagnosis phase of the research the ‘mapping of existing processes and ways of working’ and ‘spot of areas for improvement’ steps of BPR are covered. The sub-questions in the diagnosis phase are as follows;
1. What does the supplier base management process for NPI Supply Management Europe Marketing Materials look like at the moment?
In this chapter a description is given of the processes and tools currently used in supplier base management in Marketing Materials buying. Furthermore the areas of attention and missing parts will be highlighted here.
2. What does the product portfolio of NPI Supply Management Europe Marketing Materials look like?
The composition of the product portfolio can have implications on the way the supplier base management process should be organized. This is covered in this chapter.
3. Which influencing factors on the supplier base management process can be identified?
In this chapter factors that can influence the way the supplier base management process should be organized and their specific influences are described.
Design phase
In this phase the supplier base management tools and process are designed based on the outcome of the diagnosis phase.
4. Which methods and tools should be used in the supplier base management process for NPI Supply Management Europe Marketing Materials?
Common methods and tools in supplier selection and supplier performance assessment are outlined here. Furthermore the most appropriate method(s) for the supplier base management process in NPI E MM are chosen.
5. Which criteria should be included in the supplier base management process?
In this chapter suitable supplier selection and supplier performance assessment criteria for NPI Supply Management Europe Marketing Materials are chosen. Furthermore the scoring approach will be designed based on the method and criteria that have been chosen.
6. What does the supplier base management process look like for NPI Supply Management Europe Marketing Materials?
In this chapter the newly designed tools are combined into one new supplier base management process for Marketing Materials.
Implementation phase
7. What can be recommended for implementation of the supplier base management process?
Areas of attention when implementing the supplier base management process in the organization are described here.
Below you can find the research overview, which provides a clear view on the different research steps. Diagnosis Research Setup Introduction Problem definition Design Methods and tools in supplier base
management
Supplier selection and vendor rating
Implementation
Conclusions and recommendations Current supplier base management process
Theoretical background
Product portfolio NPI E MM
Influencing factors on supplier base management process
Supplier base management process Organization
introduction
Research design
Implementation of tools and processes in the organization
3.5 Conceptual model
The conceptual model shows how the considered variables are interrelated. The arrows indicate a (causal) relationship.
Influencing factors Supplier Base Management
Process
Strategic Sourcing Process NPI E MM
Compliance and other results of standardization Criteria Process Supplier selection Supplier Performance Assessment Methods Criteria
Product Portfolio NPI E MM
Implementation Scoring &
Ranking Scoring & Ranking Supplier Base Management Standardization approach by using BPR Methods
Explanation of the conceptual model
The conceptual model shows the scope and different steps of the research.The blue (dotted) line indicates the scope of the research. The grey area represents the general methodology used in this research. By applying a BPR approach to the supplier base management process the desired standardization can be achieved. The different arrows indicate the relationships between the concepts. As can be seen, the SBMP is part of the (7-step) Strategic Sourcing process. The way the SBMP should be organized is influenced by several ‘influencing factors’ and the product portfolio of NPI E MM. The SBMP consists of two main components; supplier selection and supplier performance assessment. By reaching standardization in these components (and their components), (overall) process standardization can be achieved. Therefore the methods, criteria and scoring & ranking approaches used in supplier selection and supplier performance assessment are included. The (re) design of these components define the process. When the process design is clear, implementation will follow. However in this research only recommendations and implications for implementation are done. Therefore it is partly in scope. The impact on the organization of these results is out of scope.
3.6 Research material
Research material will be gathered with the use of two methods; desk research and field research. Desk research is the gathering of information using secondary, quantitative data. For this research this data covers literature in the different topics covered (books and scientific articles), previous research reports, and printed media from libraries, company databases or online. Both internal Unilever and external information sources are used.
Field research is a form of market research that involves collecting primary, mainly qualitative data. The field research that will deduct answers to the research questions will mainly consist of both structured and open face-to-face interviews, structured requests for information via e-mail and brainstorm sessions. These brainstorm sessions are used to generate ideas. The definition of brainstorming is ‘a means to acquire in a short time a great number of ideas from a group’ (Rawlinson, 1981). The data in the field research is obtained from stakeholders in the Strategic Sourcing Process of NPI E MM and from people who have expertise on the variables mentioned in the conceptual model. Stakeholders in the strategic sourcing process that will be consulted in this research are; NPI E MM team, other people inside NPI E, Marketing Materials European Community i.e. all the local NPI MM buyers in the European countries, suppliers of MM in the supplier base of NPI E MM. If needed, next to the previous mentioned stakeholders other people inside and outside Unilever will be consulted as well. The participants / issues / questions / subjects covered in the various field research methods can be found in Appendix 3.
In the table below you can find the data collection methods per sub-question;
Sub-question Methodology Data source(s) Chapter
1 Desk and Field research Internal Unilever data sources, interviews 5 2 Desk and Field research Literature, internal Unilever data sources,
interviews, brainstorming
6
4 Theoretical background
It is important to create clarity and consistency in the terms and concepts used in the report. Different terminology is used in literature to describe more or less the same concepts. In this chapter an overview will be given of the different theoretical concepts applicable to this research. In case there are more names for the same concept, one will be chosen and used throughout the remainder of the report.
In the first paragraph the concept of standardization (with respect to processes) will be clarified. The second paragraph will elaborate on the concept of purchasing process and the way it will be used in this research. Supplier base management and its components are covered in the third paragraph. By defining the theoretical concepts used in the report, the focus of the research will become clear-cut.
4.1 Standardization
Literature provides multiple definitions of standardization. The resemblance between the different definitions will be used for the research.
'Standardization is the activity of establishing and recording a limited set of solutions to actual or potential matching problems, directed at benefits for the party or parties involved, balancing their needs and intending and expecting that these solutions will be repeatedly or continuously used, during a certain period, by a substantial number of the parties for whom they are meant’ (De Vries, 1999). According to Jang and Lee (1998) 'Standardization is defined as the degree to which work rules, policies and operating procedures are formalized and followed’. With standardization the production or service process becomes routine with well defined tasks. ‘Standardization is the activity of establishing, with regard to actual or potential problems, provisions for common and repeated use, aimed at the achievement of the optimum degree of order in a given context’ (ISO/IEC Guide 2; ISO/IEC, 1991). According to Simons & De Vries (2002) ‘Company standardization is a particularization of standardization to the company level. Company standardization is standardization within a company, including it’s positioning towards external standardization.’ This positioning towards external standardization is out of scope for this research.
Central in all definitions of standardization above is the establishment of provisions for common and repeated use in order to ensure routine in processes and tasks. Besides that the solutions provided should be used by the different stakeholders involved over a period of time. This is exactly what the outcome of this research will be; this research will deliver standard processes and tools for supplier base management in order to ensure standard ways of working. The solutions provided should be easy to use in order to ensure compliance among the stakeholders.
There are many benefits to standardization. One of the most important benefits and a benefit definitely applicable to the processes inside NPI E MM is the ability to provide consistent operations. Consistency increases efficiency. It also makes process control easier. Another benefit of consistency is to create a positive perception of service or product quality (Fitzsimmons & Fitzsimmons (1994). A positive perception can provide a basis for higher compliance in the European sourcing community.
Crucial in the development of standards is the way the actual users of the standards participate in this process. Nakamura (1993) states that involving the users in the standards development process has a positive influence on their actual usage. Through user involvement the acceptance rate increases. Therefore during the research period many stakeholders in the European community will be consulted in order to come to suitable and acceptable solutions.
In order to reduce variations in the same tasks performed by different people, the best way of carrying out the process must be acquired and documented in detail. Process documentation is a graphical representation of a process. A process document must show clearly the relations between the activities, personnel, information, and the objectives in a given workflow (Colquhoun et al., 1996). Process documents are important tools to standardize a process. The process document must be in such detail that the amount of interpretation differences is minimalized. This document must be followed strictly. Important hereby is to bear in mind that ‘we know more that we can tell’ (Polanyi’s, 1966). This theory states that people develop their own way of doing things and are not able to easily communicate it. This is called tacitness of people. Therefore in the research again involvement of different stakeholders in the strategic sourcing process will be sought, in order to achieve a high acceptance rate and to gain useful knowledge on the different topics.
Company standardization is successful when (Slob and De Vries, 2002): 1 The standard is there;
2 The standard is known and available; 3 The standard is used;
‘Process: A sequence of activities, delivering a product or service to an internal or external customer. The process starts with after the occurrence of an event, for example a request for a product and ends with the delivery of the product to the customer’ (Gerrits, 1993). Davenport and Short (1990) define a process as a set of logically related tasks performed to achieve a defined business outcome. ‘Business process: a process delivering the products to customers of the organization. Business processes will in most cases be cross functional, i.e., pass through more organization units. Business processes can be materials processing as well as information processing’ (Gerrits, 1993).
In this case the business process in scope is the supplier base management process for NPI E MM. As customers of the organization can be defined the actual buyers of the products, i.e. the people who initiate the strategic sourcing process that NPI E MM conducts, and the suppliers involved.
Ungan (2006) created the following framework to reach standardization; 1. Identify the process; is the process suitable for standardization?
2. Identify the process master(s); who have the knowledge of the process and knows the best way of carrying out a task? (See the paragraph on research material for the process master(s) used in this research).
3. Build a team; Nesbitt (1993) states that two basic techniques are used for collecting process documentation information; interviewing and team or group method. Since in this case the process is not very complicated and involves relatively few participants, the interviewing method is preferred and will be used during the research (see research material).
4. Define the process and break it down into steps; the objective and boundaries of the process
are determined in this step.
5. Acquire the knowledge for each step; gather both explicit and tacit knowledge from different
sources (process master(s)).
6. Codify and verify; the acquired knowledge must be written down in the form of process documentation.
7. Combine and place in a standard form; combine everything to create a single process document. This is the main objective of this research.
As can be seen it perfectly fits within the methodology and research design outlined in the previous chapter. This justifies the way the research is conducted.
4.2 Purchasing process
Literature provides several widely used models that describe the purchasing process in a company. Two well known are the model by Van Weele (2000) and the model by Kamann (2005). Before going into an explanation of these models, a definition of purchasing needs to be formulated in order to clarify what we are talking about. In literature the following terms are used interchangeably; purchasing, procurement, supply management. Some definitions of purchasing are displayed here:
‘everything that is invoiced’ (Berenschot, 2005), Van Weele (2000) uses the following definition of
purchasing: ‘obtaining from external sources all goods, services, capabilities and knowledge which are
necessary for running, maintaining and managing the company’s primary and support activities at the most favourable conditions’. Kamann defines purchasing as follows: ‘purchasing aims to contribute in an effective and efficient way to the company strategy in meeting the client’s demands’.
Since NPI E MM uses the ‘7-step strategic sourcing methodology’ for their purchasing process, the definition of strategic sourcing has to be formulated. The definition used by Unilever is as follows: ‘A
disciplined, systematic process for reducing the total costs of externally purchased materials, goods
and services while maintaining/ improving levels of quality, service and technology’. According to
Vollman et al. (1984) sourcing includes the following activities: finding sources of supply, guaranteeing
continuity in supply, ensuring alternative sources of supply, gathering knowledge of procurable resources.
In order to be able to show the positioning of supplier base management in the strategic sourcing process, the 7-step methodology is compared with the purchasing process models by Kamann (2005) and Van Weele (2000). If the 7-step methodology turns out to be complete and relevant, this model will be used to determine the position of supplier base management in the strategic sourcing / purchasing process of NPI E MM.
According to Van Weele (2000) the purchasing function covers the following activities:
• Determining the specification (in terms of required quality and quantities) of the goods and services that need to be bought.
• Selection of the most suitable supplier. This includes pre-qualification of suppliers and requests for quotation.
• Preparing and conducting negotiations with the supplier in order to establish an agreement (contract).
• Placing the order with the selected supplier.
• Monitoring and control of the order (expediting).
• Follow up and evaluation (settling claims, keeping product and supplier files up-to-date, supplier assessment; (supplier rating and supplier ranking)).
All the activities in the purchasing process are interrelated. The steps can be divided in tactical purchasing steps and the order function. Below you can find the purchasing process model by Van Weele;
Purchasing function
Tactical purchasing Order function
Figure 7: Purchasing Process Model (Van Weele, 2000)
A shortcoming of this model is the fact that it is not a closed loop. While for some orders not all the steps are necessary and decisions can be made based on information from previous orders and previously used suppliers. E.g. in the case of ‘umbrella’ contracts, some steps can be skipped in the process. Furthermore information obtained in the ‘final’ step can be used in the first steps of new projects.
Determining Selecting Contracting Ordering Supplier Follow-up & Evaluation Expedition & Evaluation Supplier Internal customer
Initial buying
Operational buying
Kamann (2005) has added three more activities; the purchasing function according to Kamann can be described with the following nine steps:
• Awareness and market scanning;
• Specification; • Supplier selection; • Tendering / contracting; • Order; • Expediting; • Registration; • Payment; • Evaluation;
As can be seen, compared to the six step model by Van Weele, market scanning, payment and expediting are added.
Figure 8: Purchasing Process Model (Kamann, 2005)
NPI E MM uses a ‘7-step approach’ to strategic sourcing. This approach contains the following seven steps (a graphical representation can be found in chapter 1):
Market scanning Specification Supplier selection Tendering/ contracting
The definition used by Unilever for strategic sourcing has similarities with the definition of Van Weele for purchasing. Van Weele mentions ‘at the most favourable conditions’, in the definition of Unilever this is described by ‘reducing total costs, while maintaining/ improving levels of quality, etc’. Furthermore the 7-steps roughly correspond to the nine-step approach of Kamann. However in the model by Van Weele, in the definition of sourcing, follow-up and evaluation of the orders are not included. In this research this step will also be in scope, because this is an essential part of a proper supplier base management process.
The resemblance between the 7-step methodology and the different models available, validates the use of the 7-step methodology to explain the position of the supplier base management process. Besides that, the 7-step methodology is widely used within Unilever and it is not desirable and practical to use another model for that reason.
4.3 Supplier base management
In the previous paragraph the decision is made to use the 7-step approach used by Unilever to determine the position of the supplier base management process. In this paragraph a definition of supplier base management will be given and the different activities in supplier base management will be explained.
Cooperating with a smaller amount of suppliers and therefore a greater dependence on these suppliers increases the need to effectively manage suppliers. Three dimensions underlie supplier management (Kannan and Tan, 2002):
1. Effective supplier selection;
2. Innovative supplier development strategies;
3. Meaningful supplier performance assessment mechanisms;
Supplier base management is defined in this research as; ‘the way in which NPI E MM manages it’s supplier base’. Included are suppliers that are currently in the supplier database, furthermore the processes and tools should be designed in such a way that the contact with ‘new’ suppliers is covered as well.
The supplier base management process can be positioned in steps 3, 4, 5, 6 and 7 in the 7-step strategic sourcing model. Steps one and two can be seen as thresholds that should be defined before / alongside starting the actual supplier base management process.
In this research the focus is on steps one and three of the supplier management definition above. Therefore the focus of the research, besides focussing on process standardization, in specific will be on reaching standardization in the following aspects of supplier base management; supplier selection and supplier performance assessment. In the next paragraphs the concepts of supplier selection and supplier performance assessment will be further explained.
Many different terms and concepts are available in the field of supplier selection and supplier performance assessment. Below terms and concepts to be used in this report are chosen.
4.3.1 Supplier selection
There are several models on supplier selection, below you will find two of these. These models are used to specify on which part of the supplier selection process this research will focus.
According to De Boer et al. (2001) there are four phases in the supplier selection process; 1. Problem definition;
2. Formulation of criteria; 3. Qualification;
4. Choice;
The supplier selection step contains a number of separate steps according to Van Weele (2000):
• Determining the method of subcontracting;
• Preliminary qualification of suppliers and drawing up the bidders list;
• Preparation of the request for quotation and analysis of the bids received;
• Selection of the supplier;
The research focuses on steps two and three of the model by De Boer et al. (2001). These steps correspond with the pre-qualification step in the supplier selection process by Van Weele. De Boer et al. (2001) defines the pre-qualification step as: ‘reducing the set of all suppliers to a smaller set of acceptable suppliers’. The first step in the pre-qualification step should be to define and determine a set of acceptable suppliers. Subsequent steps have the function to further reduce the supplier base. Pre-qualification can be seen as a sorting process in stead of a ranking process according to De Boer. ‘It comes down to simply sorting suppliers into groups of acceptable and unacceptable suppliers. This pre-qualification is done by using certain criteria, to which such a supplier should comply. In many cases companies already have a list of ‘approved’ suppliers available, which they can use in sourcing projects.’
