GOVERNANCE
GOVERNANCE
64% OF SRM FOLLOWERS DO NOT HAVE GOVERNANCE IN PLACE FOR THE MAJORITY OF THEIR MOST CRITICAL AND STRATEGIC SUPPLIERS
55% OF SRM LEADERS USE SUPPLIER INNOVATION AND PROMOTION OF GROWTH TO SEGMENT SUPPLIERS
62% OF SRM FOLLOWERS DO NOT HAVE EFFECTIVE RISK MANAGEMENT IN PLACE FOR THE MAJORITY THEIR KEY SUPPLIERS
Summary
Eight out of ten organisations say they have segmented their supplier base Fig. 13. Have you segmented your supplier base to determine the supplier management approach to be adopted with each?
Governance is essential to good SRM. It not only brings effective oversight and control to often complex and strategic supplier relationships, but it also enables strategic alignment and relationship development.
In our 2017 report, governance was a cause for concern. Those concerns have not been alleviated. For example, just 26% of companies have effective
80% Yes 15% No 5% Don’t know
risk management in place for 76%-100% of key suppliers, a
Imagine if everyone who contributes to SRM leaves the organisation suddenly. Would the programme survive? Projects and change programmes should not be solely reliant on the people involved, although of course talent is an important factor. Good governance will provide vital continuity and determine the ongoing success of SRM as the programme is buffeted by changes in personnel and unforeseen circumstances. It will set out which suppliers you work with, which roles and responsibilities need to be discharged and who contributes to the programme. It provides the structure that determines how the organisation makes decisions about supplier relationships; it does not say what the right answer will be. And governance sets in place appropriate methods to segment suppliers, measure their performance and assess risks in dealing with them.
figure which fell from 37% a year earlier. Even so, three-quarters of leaders report having robust governance in place for more than 75% of the key suppliers. Of the SRM follower group, 64% do not have governance in place for the majority of their key suppliers. While most organisations segment vendors according to spend and criticality to the business, It’s SRM leaders that are most likely to use innovation and potential for supporting growth to segment suppliers. The remainder are missing an opportunity.
Overall business criticality and spend are themost popular segmentation criteria Fig. 14. Which of the following criteria do you typically use to segment your suppliers?
SNAPSHOT ANALYSIS
How organisations segment suppliers can determine later dealings with them. Companies should put into the segmentation what they hope to get out of suppliers. Only SRM leaders are in the majority when it comes to judging suppliers on innovation capabilities. If companies judge suppliers only on the level of spend or criticality to the business, then they will struggle to identify innovative suppliers-who may not represent high levels of spend or appear critical-in the right way. Such companies risk missing out on innovation and the supplier taking its best ideas to the competition.
Segmentation is popular but not always fit for SRM
Effective governance starts with a logical and objective segmentation of suppliers. The process should determine how the organisation treats the relationship with each supplier and the governance model that will help. A little more than 80% of organisations report that they segment their suppliers as part of their supplier management process. But our 2017 research showed nine out of 10 companies say the business was not involved in the segmentation, limiting the effectiveness of the process. That is unlikely to have changed in the last year. While the companies reporting that they have segmented their suppliers is at a relatively high level, it is not always used to support SRM. If organisations segment suppliers for other reasons, the result will not always be appropriate for SRM. For example, if they segment suppliers only to manage the contract and performance, they won’t get the most out of supplier relationships. This year 100% of SRM leaders say they have segmented suppliers, but again, findings from our earlier research suggest only around half of these have engaged with stakeholders outside procurement to complete the exercise.
Business criticality of products / services
92%
Level of spend
87%
Potential for growth and value creation
47%
Market characteristics - number of suppliers / competitiveness
46%
Supplier appetite and capability to work collaboratively
36%
Reputational risk inc. sustainability
36%
64% of SRM followers do not have governance in place for the majority of the most important suppliers.
Suppliers innovation capability
35%
Only leaders likely to use innovation and growth potential to segment suppliers
Regulatory requirements
32%
Segmentation for the purposes of SRM needs to reflect a broader set of criteria than organisations might have previously adopted. We see in the results of our survey a reflex to segment vendors on the amount the organisation spends with them, their criticality to the business or the risk that loss of a supplier service represents. But among SRM leaders, we see a clear inclination to use supplier innovation capability (55%), the potential for supporting growth (55%) and an appetite to work collaboratively (50%) as important segmentation criteria.
Your importance as a customer
31%
Supplier technological capability
30%
46
STATE OF FLUX
2018 GLOBAL SRM RESEARCH REPORT
47
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