GOVERNANCE
GOVERNANCE
means they miss the opportunity to use the information gained from the segmentation process to make best use of their resources and drive value quickly. It is also important that treatment strategies embrace the principle of collaboration. Where appropriate, one way this can be achieved is by ensuring that treatment strategies include behaviours that the customer, as well as the supplier, should adhere to. Among Leaders, 88% of respondents indicated that their treatment strategies include behaviours that both parties should abide by. There has been single- digit percentage growth among Fast Followers and Followers in this area since last year. Their response rates of 81% and 67% respectively indicate that they have some catching up to do in this area.
Key segmentation criteria across all respondents
This year, the question was split into two parts to understand whether the fault lay with contract management or performance management. Encouragingly, the results clearly indicate progress. Within both the contract and performance management questions, 75% of Leaders indicated that they had effective management in place for 75%-100% of their suppliers. Nearly all Leaders indicated these elements were in place for more than half their supply base. However, there appears to be work still to do to match this among the lower maturity levels. Among Fast Followers, less than half the respondents indicated contract and/or performance management was in place for 75%- 100% of their suppliers. Of the Follower respondents, 56% had contract management and 63% had performance management in place for fewer than half their suppliers. This is a crucial area to focus on in future. Having a good handle on contract and performance management – assuring risks are managed and the value received by both parties against what is contracted – is an essential foundation to being able to work together to develop value.
SUMMARY
(total respondents)
Business criticality of products/services 87%
A robust framework of collaborative practices, principles and rules should underpin relationships between suppliers and customers to ensure continuity, consistency, and transparency. Since setting up arrangements can be time-consuming, this work should follow a supplier segmentation exercise to ensure effort focuses on the most critical and/or beneficial relationships. Segmentation has evolved significantly in the past 13 years. It now encompasses a range of criteria to determine which suppliers are key or strategic. Segmentation models now include the business objectives of an organisation, adding a new dimension to the traditional spend criteria. While attention should be given to the most strategic suppliers, it is important all deals have sufficiently robust contracts, performance and risk mitigation to realise value and manage risk. Contract management ensures that key contractual terms are understood by both parties, monitored for compliance, and acted upon where necessary. Performance management helps to establish consistency by defining fair, achievable, and targeted SLAs/KPIs. Risk management includes maintaining and regularly reviewing a risk register, and ensuring business continuity plans are in place and tested periodically. Positive work is being done on governance, with most participants segmenting their suppliers and most Leaders carrying out contract, performance, and risk management for a significant proportion of their supply base.
Level of spend
80%
Supply chain risk
58%
Market characteristics – number of suppliers/competitiveness
40%
Potential for growth and value creation
35%
Regulatory requirements
34%
Contract and performance management
Supplier innovation capability
33%
In previous iterations of this report, contract and performance management have been areas requiring further development. Last year’s report found that only 56% of Leaders had effective contract and performance management in place for over 75% of their critical suppliers, a figure that dropped to 35% of Fast Followers and 12% of Followers.
Reputational risk
32%
Segmentation criteria
to suit an organisation’s business objectives. The view that the vast majority are segmenting their supply base is also echoed in the industry data, with the IT, Telecoms and Media the only industry that has more than 10% of the respondents not employing the practice.
Your importance as a customer
29%
87 %
As with previous years, our research backs up the notion that most participants segment their supply base – only 6% (the same as last year) indicated that they do not, of which all were in the Follower bracket. The key criteria for segmentation remained largely consistent with those reported in previous years: Business criticality of products/services (cited by 87%), spend (80%) and supply chain risk (58%) represented the top three, all of which featured in the same positions last year with similar percentages. Responses diverge at the fourth most popular choice. Leaders favour regulatory requirements – a new option in this year’s research – whereas both Fast Followers and Followers place greater importance on market characteristics and the number of suppliers and level of competitiveness. There is no right or wrong criteria for segmenting suppliers however it is important to ensure that the segmentation model can flex
Supplier appetite and capability to work collaboratively
Risk management
OFRESPONDENTS INDICATE THATBUSINESSCRITICALITY OFPRODUCTS/SERVICES ISTHEMOST IMPORTANT
28%
This is another part of governance that has been improved across the board since last year, but one that continues to have scope for further development and focus. Among Leaders, 73% said risk management was in place for more than three quarters of their suppliers, with 47% of Fast Followers reporting the same. There is still scope for progress on two fronts. Firstly, to further boost the figures among Leaders and Fast Followers (given the importance of adequately managing risks). Secondly, for more Followers to put risk management in place to continue progress from last year. A total of 59% at this maturity level indicated that risk management was only in place for less than half of their supply base. →
Supplier unique technological capability
26%
Treatment strategies
SEGMENTATION CRITERIAUSED 75 %
We haven't segmented our suppliers
The overwhelming purpose of supplier segmentation is to use its outputs to inform which treatment strategies are employed, as opposed to using a ‘one size fits all’ approach. Based on responses received to this question, as with previous years, we can see a delineation between Leaders and Fast Followers, and Followers. Whilst Leaders (99%) and Fast Followers (87%) overwhelmingly do use the outputs from their segmentation process to define treatment strategies, the same can’t be said for Followers. At this level of maturity, 41% said they did not define strategies based on segmentation outputs. This
5%
OFLEADERS INDICATED THATCONTRACT ANDPERFORMANCE MANAGEMENTRESPECTIVELY WERE INPLACEFOR75%- 100%OFTHEIRSUPPLIERS
THE OVERWHELMING PURPOSE OF SUPPLIER SEGMENTATION IS TO USE ITS OUTPUTS TO INFORM WHICH TREATMENT STRATEGIES ARE EMPLOYED.
13 %
OFFOLLOWERS INDICATED THATRISKMANAGEMENTWAS INPLACEFOR75%-100%OF THEIRSUPPLIERS
5 1
5 0
STATE OF FLUX
2021 GLOBAL SRM RESEARCH REPORT
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