Supplier Management

1. Supplier Management Leslie Madigan Binghamton, New York November 2- 3, 2007 ISM NY/NJ Forum

2. ISM NY/NJ Forum

3. Surveys Reveal that Risk of Supplier Failure is one of the top reasons Keeping CEOs Awake At Night ISM NY/NJ Forum

4. Early on, limitations were compensated with healthy inventories and dedicated factories Multiple (local) suppliers made or stocked what you needed Demand and growth has caused a rapid industrial scale-up Suppliers consolidate through buyouts; some local supply houses close, other suppliers drop low margin products LCC (low cost countries) compete for your business Companies respond by lowering inventories !! Supply Challenges Keep Evolving Rapidly ISM NY/NJ Forum

5. Where’s my stuff ? ISM NY/NJ Forum

6. Acceptable supplier performance is a critical success factor regardless of intended manufacturing complexity Cell bank preparation and storage Cell culture (expansion) Conversion time Protein production Purification Formulation, filling, packaging ISM NY/NJ Forum

7. Do they know what you make? Do they know who your customers are? Do they know your Mission Statement? Do they know the Values which affect your decision-making? Do they know the Direction you are going, and the Challenges you have? Do they know HOW they are performing for you? How Can Suppliers Help? ISM NY/NJ Forum

8. Suppliers Can Provide solutions that make a difference to you and your customers - Improve reliability of supply - Provide excellent service - Help reduce reliance on capital assets - Improve cash flow - Provide cutting edge technical trends (changes) - Alternate sources / mfg sites (risk assessment) Effective Supplier Management as a Solution: ISM NY/NJ Forum

9. Supplier Handbook Performance Measurement (Report Card) Purchasing Contracts Weekly / Monthly / Quarterly Meetings Audit planning; execution; reporting Change Management Risk Assessment and Mitigation Global Tools Supplier Management Tools of the Trade ISM NY/NJ Forum

10. Tell them about Company Company history; What you make; Who your customers are How you do business; Guidelines and Regulatory agencies you follow Contacts / Org chart Purchasing & Sourcing Specifics - Requirements (specs; shipping; etc); T’s & C’s - New supplier approval (Sampling); Quality maintenance reviews - Performance Measurement Supplier Acknowledgement – requires they sign to acknowledge understanding Scope – to all supplies Availability – Hard Copy and on Web Productivity Enhancement Suggestions - eliminate waste and non-value added costs in supply chain for mutual benefit. Supplier Handbook Communication - - Perfect conversation starter ISM NY/NJ Forum

11. Business segment; who you sell to Site locations *** Expectations *** Corporate Social Responsibility Statements *** ISO Certification Procurement Requirements Purchasing Authorization Terms and Conditions Financial Information Payment Terms Invoicing Supplier Quality Management / Supplier development Supplier Performance Rating System Delivery Information etc Contacts Supplier Handbook Elements Supplier Handbook (Cont.) ISM NY/NJ Forum

12. Rating Criteria Scope - All suppliers or a select group of suppliers? - Centralized or multiple sites (Your company and Supplier) Frequency – Quarterly (monthly) Trending – Scorecards encompass past data – last 3 to 4 marking periods Reward suppliers based on data Serve as foundation for continuous improvement Assist with future sourcing decisions Supplier Performance Rating System Gathering performance data on suppliers is a value added activity for both parties. The data will provide talking points for numerous procurement related issues. ISM NY/NJ Forum Communication – Another Perfect Conversation Starter!

13. Scope - Rate the suppliers who contribute the MOST: Product Pain Suggested Criteria: 1. Spend 2. Critical Nature of Supply 3. Past Quality Problems 4. Material for new product 5. Material for existing product 6. Availability of Supply (Risk) Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

14. Rating Criteria Delivery - The DELIVERY metric is calculated on items delivered within +/-1 days of expected due date for normal orders. For Items which were expedited as rush orders for overnight or 2nd day delivery must deliver before or on expected date, or else they will be measured as a late delivery. Quality - The QUALITY metric is calculated on basis of the amount of non-conforming materials verses the total amount of material delivered within the rating period. (per line item) Service - The SERVICE metric is determined on 3 criteria : response to inquiries; order confirmation including accurate and timely product availability information; and meeting expected documentation requirements for each order (CoA; Irradiation; etc). Supplier Performance Rating System (Cont) ISM NY/NJ Forum

15. Rating Criteria (continued) Cost – The Cost metric includes 2 factors: 1. Relative direct cost in comparison to other manufactures; and 2. Relative cost trend in comparison to an industry index. Total Index Value - The TOTAL INDEX VALUE is the average of the rating criteria used (Delivery, Quality, Cost and Service). Corrective & Preventative Action (CAPA) is required if total score falls below 90% of expectations. Number of receipts –The NUMBER of RECEIPTS are number of line items delivered to all company sites providing metric for specific rating period. For all criteria an accurate number contributes to accurate and consistent trends Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

16. Rating Criteria Delivery, Quality, Service Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

17. Service Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

18. Rating Criteria Delivery, Quality, Service Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

19. Scope : Centralized or multiple sites (Your company) Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

20. example ISM NY/NJ Forum

21. Review Supply Base Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

22. Review Supply Base Trend Supplier Performance Rating System (Cont.) ISM NY/NJ Forum

23. Action Based on Total Index Value Supplier Performance Rating System (Cont.) • Establish Threshold for Action • Root Cause (WHY WHY WHY) • Corrective Action • Preventive Action • Trends ISM NY/NJ Forum

24. Supplier Handbook Performance Measurement (Report Card) 3. Purchasing contracts Weekly / Monthly / Quarterly Meetings 5. Audit planning; execution; reporting 6. Change Management 7. Risk Assessment and Mitigation Global Tools Tools of the Trade Supplier Management ISM NY/NJ Forum

25. Change Management What about changes? ISM NY/NJ Forum

26. Change Management (Cont.) Supplier Changes: Good? Bad? • Regulated? • Submissions? • Customer notification? ISM NY/NJ Forum

27. Hidden changes can affect product quality and expectations Returns / recalls can be devastating Investigations can be costly Changes can be costly if not properly managed and controlled 10% of changes are supplier related Change Management (Cont.) Unnecessary changes are distracting, can be costly ISM NY/NJ Forum

28. Enhance yield Market Edge through quality Safety Maintain compliance Ensure product supply Reduce cost of goods “Necessary” Changes Ideally Support Our Mission Change Management (Cont.) Done well, change can help accelerate the pipeline ISM NY/NJ Forum

29. When suppliers understand… Characteristics of the materials you make Your processes How their materials are used in your process Process Understanding Change Management (Cont.) Change implementation becomes… • Lower risk • Less work • Less time • Lower cost ISM NY/NJ Forum

30. Change Management What does your QA require? What does your Customer require? What do you want? Build it into your procedures for the next guy.. Simple statement: Supply Chain Change: The supplier agree to notify (customer) prior to implemention of change. ISM NY/NJ Forum

31. Change Management Change can be defined as: • Change to Form – Fit - Function • Change within supply chain affecting a change of the direct manufacturer. • Manufacturing site change • Manufacturing Process change • Change to suppliers raw materials • Specification changes • Availability changes ISM NY/NJ Forum

32. Up front documented notification w/in agreed upon minimum time fence In your contract On your spec In your audit Get it in writing; let supplier know that changes must be controlled and approved Change Management (Cont.) How do we control changes ? Done well, change can add value; help accelerate the pipeline ISM NY/NJ Forum

33. Change Management RISK Assessment and Mitigation ISM NY/NJ Forum

34. Understand Your Suppliers Risk Profile in order to Better Set Inventory Targets Risk Assessment and Risk Mitigation • Capacity Flexibility • Demand Flexibility Required • Single or Sole Sourced Material • Only One Plant within Supplier • Quality Level and Maintainability • Delivery Dependability • Supply Continuity Plans Integrate Risk Management into Your Planning Processes ISM NY/NJ Forum

35. Risk Risk Response Identification Control It is Important to Have a Data Driven Approach to Assess & Mitigate Raw Material Risks Risk Assessment and Risk Mitigation (Cont.) Risk Risk Risk Risk Response Response Assessment Assessment Risk Risk Development Development Risk Risk Response Response Identification Identification Control Control • Identify Risk Attributes • A risk attribute determines how likely a particular material will not be available to manufacturing • Identify Impact Attributes • An impact attribute determines the extent of impact on manufacturing if a particular raw material is in short supply • Address emerging risk • Repeat the process… • Identify mitigation techniques based on risk & impact profile • Develop resource cost estimates and timeline for implementation of mitigation plans • Staff and kick-off risk mitigation project teams • Establish milestones and metrics • Score likelihood of occurrence of risk for each raw material • Score Impact on manufacturing if risk happens • Prioritize materials & suppliers using risk-impact composite score • Group like materials into risk mitigation projects ISM NY/NJ Forum

36. Total Projects Primary Packaging: X projects Media: X projects GMP Chemicals: X projects Resins & Filters: X projects Services: X projects Material Risk Material Risk Risk Risk Impact Impact Develop a Rigorous Process to Identify the High Priority Raw Material Risks Risk Assessment and Risk Mitigation (Cont.) HIGH PRIORITY RISKS RISK ASSESSMENT RISK IDENTIFICATION X Suppliers (XX%) XXX Specifications (XX%) Supplier Risk # of suppliers High Priority Material specific risk # of materials Score materials on risk attributes such as quality history, demand increase. Impact attributes Score materials on impact attributes such as “where used” and available alternatives The initial focus for risk mitigation will be the high risk and high impact materials in the red shaded area Develop risk mitigation strategy based on risk profile Identify distinct projects for implementation ISM NY/NJ Forum

37. Risk Profile for Each Project Will Determine the Mitigation Actions & Resource Requirements Risk Assessment and Risk Mitigation (Cont.) RISK CATEGORY Step 1: determine risk profile for specs in initiative For example: single sourced and low inventory levels For example: build inventory up to period of qualifying second source ISM NY/NJ Forum

38. Risk Profile for Each Project Will Determine the Mitigation Actions & Resource Requirements Risk Assessment and Risk Mitigation (Cont.) Step 2: identify potential risk mitigation strategies applicable to specific risk profile For example: build inventory up to period of qualifying second source • Examples of risk mitigation actions: • Align internal requirements and rationalize specifications • Increase inventory levels • Implement a formal Supplier Relationship Management program • Qualify a second supplier ISM NY/NJ Forum

39. Risk Assessment and Risk Mitigation (Cont.) Risk Profile for Each Project Will Determine the Mitigation Actions & Resource Requirements For example: build 5 months of inventory for $2M Step 3: estimate resources required for each mitigation strategy ISM NY/NJ Forum

40. Establish Governance Structure to Guide the Implementation of the Risk Mitigation Projects Risk Assessment and Risk Mitigation (Cont.) • Steering Committee • Meet once a month • Approve key milestones • Resolve issues • Dashboard update on initiatives Program Steering Committee • Executive Sponsor • Accountable for the success of the project • Resolve issues Executive Sponsor Executive Sponsor Core Team Core Team • Raw Material Risk Mgmt. Core Team • Strategic Sourcing • Functional reps • Manufacturing • Supply Chain • Quality • Engineering • Project Mgmt Office Quality Eng. Eng. Quality • Project Core Team • Cross-functional implementation team • Dedicated Project Manager • Meet weekly Strategic Sourcing Supply Chain Supply Chain Sourcing • Meet once in two weeks • Coordination across projects • Tracking & reporting ISM NY/NJ Forum

41. Establish a logic for assessment and stay focused Executive sponsorship is critical Risks can be quantified, but requires lots of data Focus on few high priority areas for risk mitigation Risk mitigation is cross-functional & requires broad support Continue to monitor risk on regular basis & track progress Being single/sole sourced is only an attribute of risk exposure Clear Logic, Executive Support, & Patience are Critical Success Factors… Risk Assessment and Risk Mitigation (Cont.) ISM NY/NJ Forum

42. Project Teams Track Results & Establish Metrics to Monitor Success Conclusion ACTIONS RESULTS ISM NY/NJ Forum

43. Project Teams Track Results & Establish Metrics to Monitor Success Conclusion SUSTAINING METRICS • Reject rate • Non-conformance impact & assessment • Etc. Supplier & Company Performance Quality • On-time in full (OTIF) • Conformance to committed delivery date • Etc. Delivery • Impact on Company cost & resources • Days payable outstanding • Etc. Cost Risk • Identification of key concerns & status of any mitigation activities… • Etc. ISM NY/NJ Forum

44. Supplier Development Process Conclusion Selection & Approval Performance Monitoring Requirements & Change Control Development What’s my companies Baseline rating? How do our Suppliers stack up? ISM NY/NJ Forum