Working toward 'win-win:' mill/supplier alliances.

This article will use the experiences of several mills in supplier alliances to illustrate a process that has and can work in all situations. In this era of bottom-line driven decisions, paper companies have reduced costs by pressing suppliers to cut their prices, and thus their profit margins. To be competitive, suppliers cut prices, reduced service, and cut back on research and development.

As a result, suppliers were put into a "cut price at all costs" environment, and paper companies saw short term bottom line gains that came with a loss of supplier service, support, and new process/product development. This article outlines a process that has proven successful in forming, implementing, and continuously improving alliances in a manner that lowers costs for both parties, increases the supplier service provided, and focuses increased development on identified needs.

ALLIANCE DEFINITION

An alliance between a supplier and a paper producer is a "win-win" situation built on trust and directed at solving common goals and objectives. The alliance reduces costs for both parties, increases the security of the supplier against competitive attacks, decreases the number of suppliers the producer must deal with, promotes service for defined needs, and promotes technical innovation and development.

To these ends, an alliance is a long-term contract between the supplier and the paper producer. The goal is to reduce the number of suppliers to a minimum. There is one lead supplier who may or may not go into partnership(s) with one or more of the other suppliers to provide required services. Due to the reduced number of suppliers, the lead supplier should be capable of supplying a wide variety of products, provide support and technical service for the entire product line, and be capable of long-term technical innovation and development. Alliances are proactive, meaning that both parties mutually implement problem solving/trouble shooting techniques that lead to continuous improvement.

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Alliances typically have the following attributes. They:

* are unique

* involve independent parties working together

* involve the sharing of common purposes

* require total commitment and constant care

* require a free exchange of information

* require joint planning and participation

* are win-win versus adversarial 

* focus on being proactive

* recognize increased profits as a gain share reward for all participants

* require more maintenance than bottom-line driven approaches.

ALLIANCE REQUIREMENTS

There are several areas where the supplier and producer must be in agreement as the process moves forward. If not, this process may not succeed. These areas can be summarized as follows:

* Both parties support the agreed-on selection and implementation criteria 

* Both parties are compatible on environmental, health, and safety issues

* The supplier can meet the producer's short- and long-term needs

* Both parties agree to share certain internal company data on product and process capabilities

* There can be agreement on sharing selected internal financial data

* Both parties agree to communicate openly and freely

* The supplier agrees to position a mill rep on the producer's site to coordinate the supplier's alliance activities

* The producer agrees to provide the manpower and resources to support the alliance as a priority

* The producer agrees to share cost savings with the supplier.

THE ALLIANCE PROCESS

The process for choosing preferred suppliers and establishing the structure to implement the alliance should be carefully planned. The steps below are specific to known situations with proven track records, but a specific mill may need to adjust the steps and sequence depending on local needs.

The producer develops its selection criteria and announces the team that will make the selection. Potential suppliers are invited into the selection process and submit written proposals. The suppliers are narrowed based on the selection criteria. Remaining suppliers are invited to make oral presentations.

The written and oral presentations are then used to narrow the field once again. The producer selection team visits the suppliers' production, research, and technical service facilities. Then, based on the written proposal, the oral presentations, and the site visits, the mill makes a decision on the preferred supplier.

During this process, the selection criteria are based on the concept that value to the producer is a combination of the supplier's product quality, service, technology, and costs. The producer and supplier agree on two implementation teams. The steering team--composed of a few key personnel from both parties--sets direction, provides resources, eliminates roadblocks, and fosters communication. The working team is composed of the people needed to make the alliance function effectively by meeting agreed-on product and process goals.

After the alliance contract is negotiated and agreed to by all participants, the working team develops and implements a combined supplier/producer plan to improve quality, cut costs, implement technology, and measure the results. The team also reviews and measures the successes and weaknesses of both the alliance process and the mill's goals/objectives on a routine basis. The goal is to continuously improve both. Cost savings are shared with the supplier based on the agreed to contract terms.

Suggested contents for the written proposal and oral presentations include:

* product capabilities

* product quality

* technical service capability

* research/analytical capabilities

* service capabilities

* projected costs

* environmental

* health & safety position statement

* plans for continuous improvement

* primary person responsible

* communications interfaces

* equipment provided

* inventory control proposal

* delivery proposal

* support organization

* liability coverage

* covered technologies

* confidentiality.

A set of criteria should be developed for each measurement area, points assigned, and scoring done in the most objective manner possible. The criteria and measurement processes are shared with suppliers to assist in their development of required documents.

BENEFITS

If this alliance process is implemented, measured, and continuously improved, there are many benefits to the supplier and the producer alike, including:

* lower costs for specialty chemicals 

* improved productivity

* improved on-time delivery of chemicals

* environmental/health/safety issues are a high priority,

* increased service and development

* improved communications

There are many other benefits. For example, purchasing and accounting is simplified with the reduced number of suppliers, teams are institutionalized for meeting common goals, inventories are controlled by the supplier at minimum levels, and the on-site supplier rep helps provide continuous support and service. For the supplier, long term contracts add security and extend its research/analytical resources to operations. This leads to sharing of early knowledge of new technologies to meet existing and future needs. Finally, the financial integrity of both the supplier and producer are strengthened through gain sharing and common financial incentives.

A strong measure of success can be found in the fact that alliance participants cannot afford to let one another fail, are valued assets to each other, are impossible to replace, and are in a non-adversarial, win-win atmosphere.

CASE STUDY

The following is an example of one mill that has proven the system described above to be successful. The scope established for the alliance was stated as follows: "The alliance is to provide a resource to the mill operating business units in the area of specialty chemicals, in a way that maximizes the value of specialty chemicals to the operating units, so that: mills maintain their independence in chemical selection; supplier/customer partnerships are developed; specialty chemical quality, value, and service is optimized; specialty chemical success measures are identified and implemented; machine technical support is provided as required; and suppliers view the producer as a valued customer.

"The approach will be to 1) meet with Mill Managers, Procurement Managers and Technical Directors to develop consensus. 2) meet regularly with mill personnel to identify customer needs, meet with suppliers to develop long term working partnerships, benchmark technologies in order to improve value, measure/audit/continuously improve supplier performance, be a resource to help negotiate contracts based on agreed to criteria, measure internal customer satisfaction/improve continuously, and measure supplier satisfaction/continuously improve."

The mission statement was to implement a valued alliance between the mill's specialty chemical suppliers and the mill operating units, with value defined as quality, technology, service, and cost; in a way that all participants work towards mutually agreed to goals and shared values, continuous improvement through teamwork and communication, while placing environmental, health, safety, and risk taking at a high priority; so that productivity, service, financials, and employee safety/health are measured/optimized for a win-win for all alliance partners. The process was described as follows:

* invite suppliers into the process

* establish targets for the criteria

* define responsibilities

* reduce suppliers to the minimum required for the mill's needs

* conduct site visits

* select preferred suppliers based on selection criteria

* develop long term contracts

* measure productivity and value criteria

* audit the process, and

* continually improve.

Everyone worked under the following definition: "Alliances are built on trust whereby a coordinated structure for pro-activity, special projects and mutual problem solving are the vehicles for continuous improvements to value, where value is defined as a combination of quality, cost, service, and technology, without compromise. Alliances are unique, involve independent parties, involve sharing of common purposes, require total commitment and care, require free exchange of information, require joint planning and participation, are win-win versus adversarial, focus on proactive involvement and opportunity creation, recognize that financial gains are shared between all involved parties, and require more maintenance than previous methods."

FINAL THOUGHTS

The alliance process presented here is, by definition, a win-win situation for all involved parties, with built in incentives for cost and process improvement. The benefit to the paper producer is defined in the value equation of Value=Quality+Service+Cost+Technology. Each supplier and producer business unit will have different levels of emphasis on the equation above, but ultimately value is what is important. If costs are somewhat higher for this process versus the normal industry approach, then value will still be increased because of improved service, quality, and/or technology.

ABOUT THE AUTHOR

Kasy King is principal of Papermaking Process Consulting LLC, Appleton, Wisconsin, USA. Prior to founding his consultancy, King had a long career in the paper industry, including Scott Paper Co., SD Warren, Appleton Papers, and James River. He is a member of the Solutions! Editorial Board and the TAPPI Journal Editorial Board. King can be reached at [phone], or by email at [e-mail].

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WHAT YOU WILL LEARN

* The definition of mill/supplier alliances.

* Alliance requirements.

* The alliance process.

* An alliance case study.

ADDITIONAL RESOURCES

* "A marriage for performance sake," by Kasy King, Solutions!, April 2003. To access this article, type the following Product Code into the search field on www.tappi.org: 03APRS029.