Profit-Focused Supplier Management

257 Pages·2004·1.6 MB·English

P r o f i t - F o c u s e d
S u p p l i e r
M a n a g e m e n t
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P r o f i t - F o c u s e d
S u p p l i e r
M a n a g e m e n t
How to Identify Risks and
Recognize Opportunities
¨
Pirkko Ostring
AmericanManagementAssociation
NewYork • Atlanta • Brussels • BuenosAires • Chicago • London • MexicoCity
SanFrancisco • Shanghai • Tokyo • Toronto • Washington,D.C.
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LibraryofCongressCataloging-in-PublicationData
O¨string,Pirkko,1960-
Profit-focusedsuppliermanagement:howtoidentifyrisksand
recognizeopportunities/PirkkoO¨string.
p. cm.
Includesbibliographicalreferencesandindex.
ISBN0-8144-7187-0
1. Industrialprocurement—Management. 2. Purchasing—Management. I.
Title.
HD39.5.O843 2003
658.7(cid:1)2—dc21 2003006950
(cid:2)2004PirkkoO¨string
Allrightsreserved.
PrintedintheUnitedStatesofAmerica.
Thispublicationmaynotbereproduced,storedinaretrievalsystem,ortransmittedin
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recording,orotherwise,withoutthepriorwrittenpermissionofAMACOM,adivisionof
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Printingnumber
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Contents
Preface xi
Introduction xiii
Acknowledgments xvii
PART ONE: A STRATEGY FOR ANALYZING
YOUR SUPPLIERS 1
Chapter1.
WHY ANALYZE YOUR SUPPLIERS? 3
1.1 AChangingBusinessEnvironment 3
WideRangevs.Focused 4
Outsourcing 7
1.2 SupplierBaseManagement—DailyActivities 8
SupplierLevel 9
SupplierBaseLevel 10
MeasurementSystems 13
Quality 14
KeyPoints 15
Case1:SupplierinTrouble 16
v
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vi CONTENTS
Chapter2.
CHOOSING WHICH SUPPLIERS TO ANALYZE 19
2.1 UnderstandingRisk 19
ObjectivesofRiskManagement 20
GoalsandStakeholders 20
2.2 RiskCategories 21
CreditRiskvs.SupplierRisk 21
2.3 RiskManagement 22
RiskAssessment 22
RiskControl 23
MethodsandTools 24
2.4 ClassifyYourSuppliersandCreateaStrategyforAnalysis 24
ChoosetheTypeofAnalysis 24
KeySupplierswithHighVolume 27
ALargeCompanyasaSupplier 27
ASmallCompanyasaSupplier 27
KeyPoints 28
Case2:SmallSupplier,BigVolume 29
PART TWO: COMPONENTS OF A CORPORATE ANALYSIS
OF SUPPLIERS 35
Chapter3.
CREATING A CORPORATE ANALYSIS 37
3.1 QuantitativeAnalysis 39
FinancialAnalysis 40
Forecast 40
3.2 QualitativeAnalysis 40
Environment 41
CompanyandManagement 41
3.3 ExecutiveSummary 42
Recommendations 42
RiskRating 42
KeyPoints 43
Chapter4.
INVESTIGATING WHAT IS BEHIND FINANCIAL FIGURES 44
ConsolidatedFinancialStatements 46
4.1 AuditsandAnnualReports 47
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CONTENTS vii
4.2 BalanceSheet 48
4.2.1 BalanceSheetStructure 49
ClassificationofAssets 50
CurrentAssets 50
NoncurrentAssets 51
4.2.2 LiabilitiesandShareholders’Equity 54
CurrentLiabilities 54
NoncurrentLiabilities 56
Shareholders’Equity 56
BalanceSheetDefinitions 58
KeyQuestions 60
BalanceSheet—IssuesforSpecialAttention 61
4.3 StatementsofIncome 62
StatementofIncomeDefinitions 63
KeyQuestions 69
StatementsofIncome—IssuesforSpecialAttention 72
4.4 CashFlowStatement 72
CashFlowsfromOperatingActivities 73
CashFlowsfromInvestingActivities 74
CashFlowsfromFinancingActivities 74
SourceandUseofCash 75
KeyQuestions 75
4.5 KeyRatios 76
DefinitionsandFormulas 78
KeyFindings:StepstoIncreaseRisk 92
KeyQuestions 93
KeyRatios—IssuesforSpecialAttention 95
4.6 Forecasting 96
TipsforForecasting 98
KeyQuestions 99
Forecasting—IssuesforSpecialAttention 101
4.7 DifferencesBetweenU.S.GAAPandIFRSAccounting
Standards 101
TheMajorDifferencesinAccountingStandards 102
ReasonsforDifferencesinAccountingStandards 102
APracticalGuidetoAccountingDifferences 105
Case3:VisittoaJapaneseCompanyHighlightsCultural
Differences 107
KeyPoints 111
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viii CONTENTS
Chapter5.
ANALYZING QUALITATIVE FACTORS 113
5.1 Environment 114
Country 115
Market 115
Customers 116
SuppliersandLogistics 116
Competitors 116
KeyQuestions 116
5.2 Company 118
Strategy 118
LevelsofStrategy 118
KeyQuestions 119
CompanyLifeCycle 120
KeyQuestions 122
Technology 124
KeyQuestions 126
Ownership 127
KeyQuestions 130
CorporateStructure 131
KeyQuestions 134
Organization 135
KeyQuestions 135
Management 136
KeyQuestions 137
AcquisitionsandMergers 137
KeyQuestions 138
ExecutiveSummary 138
KeyQuestions 139
BusinessFailure 139
QualitativeFactors—IssuesforSpecialAttention 140
KeyPoints 141
ConclusionsofPartOneandPartTwo 143
Case4:APubliclyOwnedLargeCompany 144
Case5:ASmallPrivatelyOwnedCompanywithaComplicated
Structure 147
Case6:AStart-UpCompany 149
Case7:ARiskSupplier 154
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CONTENTS ix
PART THREE: EXAMPLES 159
Chapter6.
USING ANALYZING TOOLS AND USEFUL TEMPLATES 161
6.1 ShortAnalysis—FinancialAnalysis 161
Summary 162
6.2 ComprehensiveAnalysis—CorporateAnalysisTemplate 163
Rating 165
CorporateAnalysis 166
FinancialAnalysis 166
Chapter7.
STUDYING EXAMPLES 168
7.1 ShortAnalysis 168
Example1:Sanmina-SCICorporation(U.S.) 168
7.2 CorporateAnalysis 169
Example2:IntelCorporation(U.S.) 173
Example3:MarconiPLC(U.K.) 181
Appendix.
FOR MORE INFORMATION 201
App.1 UsefulSourcesofInformationforAnalyzingSuppliers 201
App.2 Free-of-ChargeInformation 201
App.3 Credit-RatingAgencies 202
App.4 OnlineServices 206
App.5 Banks—BrokerageReports 207
App.6 CompanyInformation 208
A. CompanyReports 208
B. AnnualReport 208
C. SECFilings 208
D. OtherSources 209
Glossary 211
Bibliography 225
Index 231
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