SUMMARY
CALL TO ACTION
Summary After ten years of research, there are encouraging signs of improvement in organisations’ approach tomanaging supplier relationships. But there is also room for improvement if they are to harness innovation and reduce the risks in their supply chains.
Call to action
Sustainability is a foundation for growth, a guard against risk and an investment in the future. But organisations cannot do it on their own. They need supply chain partners to help, and how effectively they manage those supplier relationships will determine how likely they are to succeed.
1. Think big with the value proposition
3. Ensure you have good governance in place. It will guard against risk and secure value
5. Make the case for enterprise SRM technology
Just 26% of companies have effective risk management in place for 76%-100% of key suppliers, a figure which fell from 37% a year earlier. Of the SRM follower group, 64% do not have governance in place for the majority of their key suppliers. When segmenting suppliers, only SRM leaders emphasize innovation and potential for supporting growth as criteria. Most organisations are not even looking for innovation when deciding how to manage suppliers. Firms face SRM with little knowledge of skills baseline More businesses than ever are defining the SRM roles: 58% did so in 2018; only 29% did in 2017. However, few organisations set a baseline for their SRM skills: only 15% have carried out a skills and competency assessment. But we do see more dedicated SRM roles: half of organisations have now created them. While there are encouraging signs of improvement, businesses can do more to understand their SRM skill levels.
applications easier to introduce, at lower up-front cost than ever before, increasing technology support for SRM is a huge opportunity. Most firms fail to mine suppliers for innovation Two-thirds of firms report that collaboration has improved as a result of SRM. However, 35% of organisations say their approach to supplier innovation is ad hoc and only 8% would describe it as a key component of their growth strategy. Over half of SRM leaders (55%) are actively developing supplier innovation to play a larger part in their growth strategy. Leaders are also much more likely to create joint account plans with a strategic supplier to foster growth. It is little wonder why they achieve greater returns on supplier relationship management than any other group
Increasing interest in the SRM value proposition, but leaders still get the most ROI In 2018, half of organisations secured a value proposition for SRM; 2017 the figure stood at only a third. So: good news. But there are opportunities to improve. Sustainability is not seen as a key business driver for SRM: only 6% of organisations rank it in their top three, despite the obvious impact of supply chains on the environment and society, and the pressure on businesses to improve their performance in these areas. Leaders continue to accrue the greatest financial returns from SRM: 46% of them achieved financial benefits of more than 4% after signing supplier contracts. Lack of engagement from middle management threatens to stall SRM projects Leaders get more value from SRM for a reason. They outperform the rest of the field in engaging stakeholders: 68% receive strong and active engagement from senior management and executives, six times the level of engagement SRM followers enjoy, for example. SRM followers should be concerned that 32% of them get a neutral response from business and operational colleagues. Those that do face the risk of projects stalling after their initial launch. Risk management is absent from too many governance strategies Poor governance threatens the return on investment in supplier management.
Never forget the scope of benefits suppliers can bring. While suppliers will always represent a cost to the business most organisations have the potential to extract greater value. By working with suppliers, you can increase innovation, reduce risk and collaborate to improve environmental and social outcomes. And, yes, you can also reduce costs. Organisations successful in SRM will build all these benefits into the value proposition for SRM – from the beginning. It becomes the sales pitch to senior executives and helps secure ongoing funding to build and expand the programme.
Our research shows common approaches to governance do not necessarily reveal underlying operational and strategic risks because of the paucity of effective contract, performance and risk management. Poor governance damages relationships with the most strategic suppliers and threatens the value businesses gain from existing contracts
Lack of IT strategy and investment is holding back SRM. So much of the activity depends on access to data, consistent record keeping and insightful analytics. Desktop software is not fit for purpose in SRM, but the enterprise tools are there to help – if you reach for them. Although the up-front costs may have come down thanks to cloud computing, procurement will need to convince the in-house IT gatekeeper of the benefits of SRM technology investment.
while undermining stakeholder confidence in the case for SRM.
2. Work to engage all stakeholders – and industrialise SRM
4. People put plans into practice
6. Working towards sustainable success – together
Sustaining SRM – and boosting sustainability
While respondents show encouraging signs of improvement in their approach to managing supplier relationships, SRM is too easily sidelined by competing business priorities or the loss of stakeholder support. It needs to be woven into strategic objectives – including sustainability. All organisations will need to collaborate with their suppliers more effectively to make their activities more sustainable in the coming decades.
Technology remains a weak spot
To get the most out of SRM – and suppliers – procurement teams need to engage stakeholders throughout the organisation. Not only is support from senior executives necessary to secure funding; operational and middle management will be vital to maintaining day-to-day momentum in SRM and that is a weakness for too many organisations. Demonstrating the value of SRM to them is important. Organisations that do so will help ‘industrialise’ SRM, ensuring it is embedded into the organisation outside of procurement.
People are the substance of SRM. Their skills, and the relationships they can form and maintain, will be the crucial factor in ensuring that the value, engagement and governance pillars of SRM benefit the organisation. Investment in the people who manage supplier relationships should be commensurate with the value of the contract, and the magnitude of the supply-side risk.
The SRM process builds understanding and trust, as well as creating shared responsibility and goals. The best SRM projects celebrate their successes and honour the collective accomplishment. Establishing a collaborative environment is a catalyst for future success. It is what organisations will need to meet the challenges of technological, political and environmental upheaval in the coming decades. SRM is a collaborative exercise.
SRM lacks serious technology investment. Only 7% of firms say they are totally satisfied with the way their IT systems and technology support the supplier management lifecycle. Leaders are far more likely (27%) to have their supplier management activity fully enabled by technology than followers (2%). Very few organisations are using technology to manage compliance to their sustainability standards (18%) or to better enable innovation (8%). As cloud computing makes enterprise
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STATE OF FLUX
2018 GLOBAL SRM RESEARCH REPORT
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