STATE OF FLUX
2014 GLOBAL SRM RESEARCH REPORT
BUSINESS DRIVERS & VALUE 55
Analysis
BUSINESS DRIVERS
value proposition or business case for SRM has been developed and documented by 68% of leaders, 69% of fast followers and 48% of followers. Across other respondents the proportion is just 32%.
Cost reduction (88%) and risk management (85%) remain the overriding reasons why companies invest in SRM. We would fully endorse making these the focus of the SRM value proposition and business case. However, it is clear these are not the only business drivers or objectives that can be delivered through SRM. The breakdown of industry sectors reveals that while most sectors lead with cost and risk, many companies also expect to deliver other business objectives via SRM. If creating a business case for SRM means pushing the cost reduction and risk management justification then we fully endorse that. But it's important not to forget to explore all the potential value SRM can bring, in particular the less tangible value of customer of choice benefits. While it's unlikely an SRM value proposition will lead on customer of choice, it should be promoted as a key feature as more senior managers and executives begin to recognise and value its benefits.
THE BUSINESS DRIVER AND VALUE GAP
A number of interesting conclusions can be drawn from the leader, fast follower and follower analysis, and also industry sector comparison between the importance placed on certain business drivers and the degree to which SRM is delivering against them. It is evident that most companies are focused on cost and operational business drivers, such as cost, risk, service level and quality improvement, and supply chain efficiency. The success that companies are having at delivering benefits varies considerably. For example: ö ö In the healthcare sector, cost reduction benefits are being reported by exactly the same proportion of respondents that identify it as a business driver. Contrast this with 53% of financial services companies reporting cost reduction against the 78% that believe it to be an important. ö ö 78% of financial services companies rate risk as an important or very important business driver. 72% report reduced risk as an SRM benefit. This compares to the public sector where 83% rate risk as important, compared to just 33% reporting reduced risk as a benefit. While the analysis reveals a gap between the areas considered important business drivers for SRM and the tangible benefits being delivered, it is a gap that can be closed.
CREATING VALUE IS A KEY BUSINESS DRIVER
In addition to the headline business drivers of cost, risk, service improvement and quality, creating more value from supplier relationships is increasingly recognised as an important business driver, particularly by SRM leaders. The value-related business drivers are typically harnessing more supplier innovation, accelerating speed to market and improving competitive edge. 81% of leaders are looking for innovation and 64% speed to market. 75% of all respondents expect SRM to help improve competitive edge. Customer of choice – Gaining customer of choice benefits such as preferred access to scarce materials or capacity was considered important or very important for 54% of respondents overall and 70% of leaders. Improved access and retention of the best supplier people was considered important or very important for 67% overall and 78% of leaders.
THE GAP WON’T CLOSE BY ITSELF
Introducing an SRM programme alone won’t automatically deliver business benefits. Identifying the most important business drivers is a first step to support the SRM strategy right for the organisation. It is the SRM activities that follow which will deliver positive results. For example, if cost reduction is the number one priority then supply chain mapping and value engineering are required. If supplier innovation is a priority, an innovation process needs to be designed and implemented. In an effort to demonstrate all the potential SRM can deliver, some SRM programmes have cast the net too wide and are failing to focus on the most critical business drivers. This is where the SRM value proposition must have a clear link to the business strategy and objectives, and focus on the priorities for the business.
CREATING THE SRM VALUE PROPOSITION
It is vital to ensure that SRM remains aligned to the business objectives and is clearly seen to be making a contribution. The SRM value proposition is almost the starting point for any SRM programme. It will set the strategy, influence the design and focus of activities, and be the primary vehicle for engaging stakeholders. A clear
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