GOVERNANCE
GOVERNANCE
SRM leaders aremore likely to use innovation and growth potential to segment suppliers than any other group Fig. 15. Which of the following criteria do you typically use to segment your suppliers?
Leadersmore likely to have robust governance in place with themajority of their suppliers. Fig. 16. For what proportion of your most strategic / critical suppliers do you have a robust 1 governance model in place?
SNAPSHOT ANALYSIS
Organisations should have strong governance in place to manage relationships with all strategic and critical suppliers. When we look at SRM followers, who make up the majority of our sample, we see 64% do not have governance in place for the majority of their most important suppliers. Maybe these suppliers are managed well by good people with common sense, but if they leave, the organisation could see lower value and higher risks in relationships with critical suppliers.
Leader
Fast follower
Follower
0% 20% 40% 60% 80% 100%
Leader
Fast follower
Follower
More than three-quarters
76%
55%
14%
Between half and three-quarters
9%
23%
A
B
C
D
E
F
G
H
I
L
22%
Leaders aremost likely to have contract and performancemanagement in place
F. Supplier appetite and capability to work collaboratively G. Reputational risk inc. sustainability H. Supplier technological capability I. Your importance as a customer L. Regulatory requirements
A. Level of spend B. Business criticality of products / services C. Potential for growth and value creation D. Suppliers innovation capability E. Market characteristics - number of suppliers / competitiveness
Less than half
14%
Fig. 18. For what proportion of your most strategic/critical suppliers do you consider you have effective 3 contract and performancemanagement in place?
22%
64%
Leader
Fast follower
Follower
41%of organisations do not have contract and performancemanagement in place for half their suppliers Fig. 17. For what proportion of your most strategic/ critical suppliers do you consider you have effective 2 contract and performance management in place?
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. Over three-quarters of leaders report having robust governance in place for more than 75% of the key suppliers. This compares with only just over half of fast followers. Of the follower group, 64% have no governance in place for more than half their suppliers. Lack of contract and performance management fails to prepare followers for SRM Although contract and performance management are the foundations on which SRM should be built, respondents engaging in them remain worryingly low. Only 30% of companies report having effective contract and performance management in place for more than 75% of their key suppliers. While it is encouraging that almost 70% of SRM leaders have effective contract and performance management in place for key suppliers, this basic practice should be much more widespread.
Organisations overlook risk management in SRM governance
More than three-quarters
68%
52%
Much like contract and performance management the data describing risk management is cause for real concern. It does not only affect SRM but can damage the wider business. The figure of just 26% of companies having effective risk management in place for more than 75% of key suppliers is down on 2017 (37%). Although the figure for leaders and fast followers is higher at almost 50%, overall the trend is worrying. In the follower group, 62% report having effective risk management in place for less than half of their key suppliers. Effective oversight and control of strategic supplier relationships help both suppliers and buyers. But good governance can do so much more. In its broadest interpretation, governance can, via the forums and engagement established, help align the strategies and develop the relationships necessary to add value for both parties.
19%
Between half and three-quarters
18%
More than three-quarters
33%
30%
28%
Between half and three-quarters
Less than half
29%
14%
Less than half
15%
41%
53%
1 Robust means key roles and responsibilities are defined, regular and effective meetings are taking place and oversight is consistent with the supplier’s segmentation. 2 In this context effective means that all engagements are covered by valid contracts, approved by the appropriate authority; key contract terms and milestones are understood, monitored and acted upon; contracts contain appropriate SLAs and KPIs; and contract change is managed effectively. SLAs and KPIs are clearly defined and agreed; performance against KPIs is measured and reviewed on a regular basis; and corrective and improvement actions are agreed and executed. 3 In this context effective means that all engagements are covered by valid contracts, approved by the appropriate authority; key contract terms and milestones are understood, monitored and acted upon; contracts contain appropriate SLAs and KPIs; and contract change is managed effectively. SLAs and KPIs are clearly defined and agreed; performance against KPIs is measured and reviewed on a regular basis; and corrective and improvement actions are agreed and executed.
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STATE OF FLUX
2018 GLOBAL SRM RESEARCH REPORT
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