ARTICLE ARTICLE
STATE OF FLUX
2014 GLOBAL SRM RESEARCH REPORT
64
Procurement and supply chain has made great progress over recent years. It’s been on a journey which has taken it from the buying office and expediting function to, in many cases, a strategic function with a seat at the top table. The development of category management and strategic sourcing has yielded incredible benefits by way of year-on-year savings, which has set expectations in the business that this will continue. For many companies there is still
scope to drive significant savings through more effective and strategic sourcing, but in companies where this approach is more mature, most of the ‘low hanging fruit’ has been harvested. Couple this with a landscape that has changed: once you thought of competition as a customer-facing concern, but now we are in an environment where you are in competition for the attention and loyalty of your suppliers.
Savings achieved through strategic sourcing alone are finite.
HOW COMPETITION HAS CHANGED
Good category management and strategic sourcing has involved the rationalisation of the supplier base, thereby creating larger deals with fewer suppliers. Then along came outsourcing, which started with back office functions and now includes many middle, and in some cases, front office functions. The quest for savings may have at times overridden risk, resulting in more single source deals having been put in place. The culmination of these factors has resulted in more risk in the customer-supplier relationship. With so much hinging on these relationships, it is surprising there has been little investment in SRM. As the build on Porter’s five forces model ( figure A ) demonstrates, a fundamental change has taken place in the competitive dynamic in the market, which presents both opportunity and risk for customer and supplier alike. These developments have created differing views in how customers and suppliers view each other strategically. This is illustrated in figure B with two models commonly used in the strategic sourcing process.
The model on the left provides the customer view of the supplier and the model on the right is the supplier’s view of the customer. A well executed sourcing process will overlay these two models to assess the risk associated with how the two parties view each other. Some companies take the view that the opportunities to deliver savings outweigh the risk of being misaligned. The question is how can this risk be managed and if possible mitigated. If you are aligned and both see each other as strategic it's a good start, but does this automatically mean you are a customer of choice? Are you their only strategic customer? Most probably not, in which case there is a new type of competitive environment where you are in competition to secure the services of the best suppliers. This can have a real impact on the business. Imagine a market-changing innovation being given to your biggest competitor, which enables them to destroy your market share; or the loss of customer loyalty resulting from a supply shortage, whichmay have been avoided if you had preferred access to the component that was in short supply. The competition is tough. It’s likely that your sales competitors will be using many of the same suppliers, as will companies from totally different sectors, with the potential to offer suppliers many different benefits in exchange for making them a customer of choice.
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