2015_Global SRM Research Report - Supplier Relationships

Our research indicates that good SRM contributes to between 30

and 70 % of a company ’ s gross profit .

Where does this figure come from ? For the past 25 years we have

studied the relationship between major manufacturing companies

and their tier - one suppliers – first in the automotive industry , and

then in another 17 sectors . From this research we developed the

Working Relationships Index ®, which shows that the more

collaborative the relationship between supplier and customer , the

greater the supplier ’ s contribution to the company ’ s profitability . In

the auto industry this contribution is , on average , around 70 % of

gross profit . In other sectors , where customers spend a smaller

proportion of their revenue on suppliers , the supplier impact can

drop to 30 % – still a substantial contribution to the firm ’ s profit .

This contribution comes in two ways . The first is that better

relationships give suppliers the assurance that they will continue to

supply the company in the future , which results in suppliers being

willing to offer greater price concessions in the present .

The second factor relates to non - price benefits . For example , the

more collaborative the relationships , the more willing are suppliers

to share new technology without the assurance of a purchase order

or to invest in innovation in anticipation of future business . In

addition , when the customer needs support , suppliers will give this

‘ customer of choice ’ A - team support ( rather than B - team ), and will

invariably provide more support than is contractually required .

Mutual benefits

Together these non - price activities allow customers to be more

eficient and effective in their operations and to get products to

market faster than their competitors . At the same time , the

arrangement also benefits suppliers : our latest research suggests

that collaborative relationships improve not only customer profits ,

but supplier profits as well . The reason

for this joint benefit is that neither side has to waste time on