2022 SRM Research Report - Building Resilience

The State of Flux 2022 Global Supplier Relationship Management Research Report focuses on building organisational and supply chain resilience.

Building Resilience 2022 GLOBAL SRM RESEARCH REPORT

Contents

Invest in people and relationships

Resilience in the supply chain begins with people and how they behave. annual financial benefits from effective supplier management and collaboration (page 44). Yet most procurement and supply chain functions continue to suffer from a legacy of underinvestment. They be any higher on a board’s agenda than it is now. Risk management is now embedded alongside cost as a key business driver for supplier management (page 28); and 1 in 5 Leaders report more than 6% in The past few years have seen the world and its businesses hit by a series of seemingly never-ending challenges. We’ve witnessed the all-pervasive attack of Covid; the effect of a single container ship becoming stuck in the Suez Canal; the impact of the invasion of Ukraine; and we are now set to struggle with an inflation and energy crisis. As Sébastien Bals, CPO at global biopharmaceutical company UCB, points out (page 107): “Nowadays, we go from one crisis to another, to another. The time to recover after any one of them has been significantly reduced. If your supply chain cannot cope with these fluctuations, your overall resilience diminishes.” Procurement and supply chain cannot

require time, money and resource to improve not only processes and systems, but also to invest in the calibre of their people. Resilience in the supply chain begins with people and how they behave. It requires individuals who are able to build relationships externally with suppliers and internally with stakeholders, at every level (page 52). It needs those with the capability to sell the value of supplier management and to respond quickly and adeptly to change (pages 6, 8 and 19). Talent, experience and emotional intelligence can be hard to find; and where it is found it requires support and understanding (pages 86 and 36). It was the organisations (and the people within them) who had good supplier management that were less scathed by the pandemic. They were five times more likely to have a faster speed to market, and in these uncertain times, that agility to pivot brings resilience. Those who had already segmented their supply base, dedicated time to regular reviews, monitored and embraced two-way conversations, were far better able to ride out the storm together. Others were left floundering when problems struck. The Leaders of the best developed supplier management programmes are the most confident that they are well placed to tackle future disruption (88%). Suppliers too, need the right environment to perform. All too often we hear complaints of poor supplier performance only to discover that the root cause is driven from within the buying organisation itself.

Structures, processes and performance management; constructive, communicative relationships; and joint plans in which you can both thrive are key. They remain overwhelmingly supportive of programmes when engaged correctly and treated with respect (page 26). Recognising this, a rising number are now defining the behaviour expected from both themselves and their suppliers. An increasing number of organisations (59%) now recognise that supply chain resilience goes beyond risk management, and they are looking to supplier management to help bolster their position. Find out how to make the case for investment on page 19. Finally, my grateful thanks to all the 424 respondents from 304 companies who participated in this, our 14th annual supplier management research, and those who have shared tales of their successes and challenges throughout the pages of this book. I hope their stories will reassure and inspire because working constructively and closely with your most critical suppliers reduces risk, bolsters resilience and ultimately gives you both the best chance of success.

107

03 04 08

42 48 52 58 64 70 76 82 88 92 98

Introduction

Value

Defining supply chain resilience

Case study: Chevron

Case study: Telstra

Engagement

12 16

Embedding resilience at every step

Case study: Thames Water

Sponsored: S&P Global

Governance

19 20 22 24 26 28 30 38

Winning senior buy-in

Case study: Wellington Electricity

How to create supplier loyalty

People

About State of Flux

Interview: Dan White

Six Pillars of Supplier Management

Case study: Ministry of Justice

Alan Day Chairman & Founder State of Flux

Summary of Key Statistics

Technology

Research round-up

Case study: Kellogg’s

102 Collaboration 107 Case study: UCB

Resilience

Case study: Pressio

Defining supply chain resilience An increasing amount of research has been written on this subject over the past two decades. We explore three papers that examine what it is and how you can achieve it

Closs, Understanding Supply Chain Resilience 1 , listed natural and man-made disasters among the events that could prompt problems. It highlighted equipment failures, fires, labour disputes, supplier defaults, political instability, and terrorist attacks; and we know we can add warring conflict, a pandemic and a struggling transport network to that docket. Each can impact operations, finances and reputation. The paper said that while boosting supply chain resilience would help to manage many, and overcome some of these challenges, understanding the basis of this resilience was ill- defined and open to confusion. It said two critical capacities are required: the capacity for resistance and the capacity for recovery. The first defines the supply chain’s ability to delay a disruption and reduce its impact; the second defines the ability to recover from it. 1 Understanding Supply Chain Resilience by Steven A Melnyk, David J Closs, Stanley E Griffis, Christopher W Zobel, and John R Macdonald

‘Resistance capacity’, it said, is the ability of a system to minimise the impact of a disruption by evading it entirely (avoidance), or by minimising the time between its onset and the start of recovery (containment). Meanwhile, ‘recovery capacity’ is the ability of a system to return to functionality once a disruption has occurred. The process of system recovery is characterised by a (hopefully brief) stabilisation phase after which a return to a steady state of performance can be pursued. These things happen not by accident but through purposeful design. The paper warns that there will likely be trade-offs between the two capacities as companies decide where to invest their time, money, and attention since “resilience is a capability that must fit the specific needs of each firm”. It examined examples from across industry sectors, including automotive, retail, FMCG and aerospace - and the varying responses and success they have achieved. It points out that regardless of effort, there may be limited resources to invest in the capabilities of resistance and recovery and the companies might also have “limited control over the environment in which a supply chain operates”. →

Events of the past few years have demonstrated the importance of resilience. The ability to recover quickly from difficulties, to demonstrate toughness and to be able to spring back into shape, is a quality as important to the health of business as it is in people. Yet supply chains and human endurance have been severely tested in recent times – and continue to be so. Those who are able to quickly respond to and recover from shocks and disruptions, are still standing – some through planning, preparedness and investment, others in part through luck. Our own research into resilience (see page 30) shows that the vast majority of Leaders (88%) are confident that their supplier management programmes will enable them to overcome future disruption, compared to an overall confidence level of 58%. Yet, nothing can be taken for granted – supply chains continue to face long term challenges and unforeseen

shocks will still occur. For businesses and individuals to continue to navigate and survive these challenges requires thought and support. First, we take a look at the business side of things. Much has been discussed and explored on this topic over the past 20 years. One researcher noted an “exponential growth in literature” in the past decade alone. Many have useful ideas and applications that both seek to explain what supply chain resilience is and how you can work to achieve it. Here, we consider a few of those papers. Resistance and recovery A 2014 academic paper noted that we operate in an “increasingly dynamic and turbulent world” where the supply chain plays an increasingly important role. Yet numerous events occur each day that threaten to disrupt operations and jeopardise that chain’s ability to perform effectively and efficiently. The paper by Melnyk, Griffis, Zobel, Macdonald and

The pandemic sorely tested the robustness of plans and business’s ability to respond to change

Covid’s impact on supply chain resilience planning

8. Sustainability – making decisions based on quality that reduce risk and protect future resources 9. Awareness/sensitiveness – the ability to anticipate actual demand 10.Supply chain risk management culture – the importance of taking a proactive and informed approach to potential problems 11. Velocity – the supply chain’s speed of reaction to adverse changes 12.Market position – associated with the financial capability of an organisation 13. Risk control/revenue sharing – encourages sharing the risk among supply chain partners 14.Partnerships – to consider strengthening a company’s position by setting up a partnership with another organisation 15. Adaptability – to design a framework that can flex according to changed requirements or conditions 16.Supply chain network design – proper understanding of how an organisation’s supply chain operates can avoid issues 17. Security – should be built in ahead of time to protect against counterfeiting and cyber-crimes, for example It concurred with some other researchers that supply chain resilience has three key parts: anticipation; resistance; and recovery and response.

• Internal and external communication should be improved, more regular and open, with a better flow of information across functions internally and externally with supplier partners • Suppliers, customers and logistics providers need more current information about what is happening within their own business and what forward plans are being made • Multinational businesses, especially those operating in the East where it first hit, could have exchanged more information about its impact and best practice to cope • The mental well-being of managers and employees, especially where health is a concern, normal working relationships break down and lockdowns cause social isolation. Now that many businesses are better set up for hybrid home/office working, any future switch should be achieved more smoothly. Managers, however, would generally welcome training to run such teams. Some suggested a ‘chief medical position’ was necessary to help support the physical and psychological wellbeing of staff. Companies could also benefit from an increase in training that generates ‘out-of-the-box thinking’ and scenario- building skills to better prepare them for the next devastating event. Other strategies highlighted included rationalising product ranges, reducing process complexity and relying more heavily on circular supply chains - “which tend to be more localised and dependable”. An acceleration in the use of augmented reality in

warehousing operations and 3D printing is also anticipated.

The majority of academic work on the subject of supply chain resilience naturally occurred before the impact of Covid. The pandemic sorely tested the robustness of plans and business’s ability to respond to change. It found many were not ready for, or able to respond quickly enough to such a high-impact, low-probability event. This is perhaps unsurprising since such rare occurrences are rarely covered by risk registers. Authors of a World Economic Forum (WEF) article published in December – just one of many reports covering supply chain resilience since Covid – noted that most supply chain disruptions have “limited geographical extent and conform to the standard single-trough, limited-duration profile outlined by Sheffi and Rice back in 2005”. Meanwhile, the impact of the covid pandemic has been “global, prolonged, and comprised a series of major shocks to companies’ logistical systems”. The WEF convened a session with a group of 60 supply chain leaders as part of the New Generation Industry Leaders community, to consider how pandemic-related disruptions were reshaping managerial thinking on supply chain resilience. Feedback was: • Response times should have been quicker – especially given the warning the West had based on what was happening in the East. There could have been a swifter move to ‘crisis management mode’ and preparedness for remote working

Managers “argued their companies required ‘deeper knowledge’ of their upstream supply chains to assess their vulnerability to future global threats”. It was felt that visibility of tier-one and tier-two suppliers was no longer enough, especially since disruptions can occur beyond the reach of typical due diligence assessments. And finally, they said the covid pandemic may herald in a new era of supply chain collaboration that would not only allow companies to manage risk more effectively but also yield wider sustainability benefits. Earlier studies also concluded that a high level of collaboration is a key means to mitigate supply chain risk. Conclusion There are a whole range of capabilities that can affect an organisation’s ability to be resilient, we’ve focused on a few. Most of these elements are part of the procurement lifecycle and therefore require strategies embedded in the way you carry out sourcing (see the procurement lifecycle article on page 12). Since the outbreak of Covid, the State of Flux annual survey has taken a closer look at resilience. An essential tool identified by companies in our own research is to increase communication with suppliers and engage in more joint mitigation planning. The symbiosis of co-dependent suppliers and buyers working together for mutual success and to guard against disruption makes them stronger and more successful than the sum of their parts. Further reading: To find out more about our resilience research findings – what you’re most challenged with and how you are coping – go to page 30. For more on how supplier management boosts resilience turn to pages 12 and 74; for a look at the importance of mapping your value chain go to page 35, and to understand how you can become a customer of choice to your suppliers to boost the resiliency of your business, go to page 20.

Investment into resistance and recovery can take many forms. The paper lists eight key categories for such spend: 1. Discovery: Investing in the ability to identify potential problems as close to an event occurring as possible, through, for example, better IT and information sharing, forecasting, monitoring and demand sensing 2. Information: Improving the quantity, speed and quality of information flowing within the supply chain through better tools, greater visibility and communication 3. Supply chain design: Chains that can be quickly configured and reconfigured in response to change. Selecting flexible supply chain partners and strong supply base management would support this approach 4. Buffers: Cushions of time, inventory or capacity 5. Operating flexibility: Changing product specifications or flows in response to problems. Arranging alternative transportation, for instance, or amending the bill of materials in some way 6. Security: Protecting the system from shocks in the form of theft, damage or counterfeiting through, for example, improved firewalls 7. Preparedness: designing contingency plans for possible supply chain shocks and testing plans so that those involved understand what they must do. This requires investment in training, insurance, risk assessments and contingency planning

8. Indirect investments: These typically create goodwill that can be drawn on when a shock occurs. It could mean more support for innovation; engendering greater customer and supplier loyalty; relationship building; revenue management; and the use of supply chain capital

Capabilities and attributes Elsewhere a 2019 paper that

appeared in the Journal of Industrial Engineering International, collected and classified a range of articles already published to try to identify indicators that could boost supply chain resilience. Performance indicators for supply chain resilience: Review and conceptual framework (authored by Chandra Shekhar Singh, Gunjan Soni and Gaurav Kumar Badhotiya), found 17 indicators and developed a conceptual framework to help supply chain managers withstand a shock. 1. Agility – the capacity to quickly react to an erratic change, particularly in supply and demand 2. Flexibility – the ability of a supply chain to adjust, according to what’s needed and the circumstances, in the smallest amount of time 3. Robustness – the ability of a supply chain to proactively pre-empt issues and be designed to withstand them as much as possible 4. Redundancy – having a buffer of stock to cope with disruption 5. Visibility – end-to-end sight of the supply chain 6. IT capability/information sharing 7. Collaboration – operations are planned and executed jointly by two or more autonomous firms for mutual benefit

BACK

SRM key to becoming Agile

Telstra has undergone a radical transformation in the past three years on its way to becoming an Agile company. Neil Wittmann-Griggs explains why SRM is critical to its success

creating efficiencies as we go forward. Success for Telstra therefore requires a truly whole-of-business and whole- of-relationship approach, building on its agile ways of working that includes both the company and our suppliers. Changing how we work That is part of why Telstra started in 2019 the transition to our ‘agile-at- scale’ model across our organisation. A critical part of delivering on our T25 commitments is changing how we work to allow our people to collaborate more quickly and easily to deliver better and faster outcomes. There are many definitions of ‘Agile’. At Telstra, it is defined as a ‘way of working that brings people with different skills into one team, working in short sprints to deliver faster to market, at a lower cost, and with a better experience for our people and customers’. Since the inception of the agile journey, we have seen the beginnings of the benefits of adopting the new operating model and way of working across 17,000+ employees. Into T25, we are starting to see this accelerate the break-down of silos and hierarchy, as well as remove other barriers that

often get in the way of people doing their best work. Telstra’s transformation is end- to-end so we are investing in and simplifying the things that impact our employees’ working experience alongside transforming our customers’ experience, our supplier experience, our focus on innovative products and technology, and our cost base. We are certainly not there yet, but we are making significant changes to get us there.

This dynamic approach sees procurement specialists potentially working directly with senior executives and, for procurement’s part, moving talent to work where they are most

Telecoms and technology giant Telstra is an iconic business which has been (and will continue to be) an important part of the fabric of Australia. It has gone through many changes and evolutions in its history, so now could be seen as just another phase in Telstra’s inevitable journey over the past 47 years since its founding in 1975, however it is more than that. There are times through all organisational lifecycles where gradual evolution makes sense. For years, companies across industries, bent on moving from traditional, slow-moving hierarchies to flexible and fast decision-making models, have focused on agile transformations. The profound impact of the Covid global pandemic lent urgency to these efforts, creating an immediate need for adaptability, speed, and efficiency. Decision rights shifted and expanded throughout many organisations, and learning took place rapidly, in real time. Now, as organisations emerge from the pandemic, some will be looking to intensify the agile journey, while others will be taking their first steps to secure its benefits. In Telstra’s case, we have reached a point where we are truly re-thinking how we do business - what we sell, how we sell, how we create our products and services, and how we create an

organisation and culture that has the agility to respond to customer needs that are changing more rapidly than ever before. The focus for change is embedded in our T25 strategic ambition. This three-year organisational plan comes from a deep commitment to reinvent telecommunications products and services – to deliver a level of simplicity, transparency and trust that customers want; underpinned by the best network and world-class capabilities. For Telstra, this change starts from within, and it is essential our suppliers are included on this journey. In doing so we also need to be transparent that this scale and pace of change is hard, creates uncertainty and can impact our supplier relationships. Better together One of Telstra’s four core values is ‘Better Together’, which reflects an organisational culture that we are better and stronger when we work as a team. There are many cyclists at Telstra and one cycling analogy that best sums up our ambition is ‘if you want to go fast, go alone; if you want to go far, go together.’ Change is about supplier collaboration. We are part of the same team, like a cycling peloton that has to work together in synchronisation

needed at that time. Part of the ambition is to give procurement

specialists more autonomy and use the skills where they are required to help meet Telstra’s priorities, which are set and reviewed quarterly. For those companies seeking to adopt this approach, they must be prepared to rethink traditional hierarchies; to shift from top-down directives to empowering employees to use their talents where needed; and where they continuously look for new ways to enhance value. Agile ways of working are about being comfortable with change and having the mindset to respond quickly to →

Aligning on common goals The Agile approach enables

stakeholders from various parts of the company to form cross-functional delivery teams that focus on business outcomes through fewer hand-offs, better supplier collaboration, and the right capabilities to deliver.

“Without SRM we don’t know the risks or level of supplier resiliency… and that is frightening”

“We can only go far if we go together with our suppliers”

Key role to play Supplier relationship management has led to greater clarity about objectives, the commercial targets and which suppliers are important; but it has been a significant cultural shift. The elevated role and responsibility for procurement in the supplier relationship and supplier governance has given us additional dimensions to consider. We are still a complex company, with different parts operating at a different pace, so stakeholder management remains incredibly important. Suppliers are benefiting from improved, formalised governance structures that result in actions, outcomes, and constructive dialogue covering social inclusion, indigenous business, savings, growth forecasts and more. In my seven or so years here, I’ve never seen Telstra so succinctly communicate our corporate expectations to suppliers. This

There are four critical elements to Telstra’s supplier management: 1. Supplier segmentation – defining which suppliers to focus SRM efforts. 2. Supplier ownership – ensuring the top suppliers have an appropriate executive as the ultimate owner of the supplier relationship. 3. Formalised governance – ensuring Telstra and our suppliers agree to minimum formalised cadence to regulate the relationship (the regularity of business reviews). 4. Joint business planning – jointly agreed objectives that align with Telstra’s corporate objectives and act as a mechanism for collaboration

comes from our CEO, Vicki Brady, and her leadership team, who have been brilliant in their articulation of our T25 strategy and fostering that relationship of collaboration with key suppliers at the executive level. The future There is no doubt that moving to Agile is an ambitious goal, but we have seen the ability (especially for a large company with a lot of legacy) to move at pace as we accelerate our change to deliver on our goals. We recognise that change can create uncertainty with our suppliers, but we equally know we are entering an exciting phase which will see us continue to unlock the benefits of SRM as we continue to achieve our T25 strategic ambitions. And like cycling in a peloton, we can only go far if we go together with our suppliers. Images reproduced with permission of Telstra

Why SRM is critical Supplier relationship management is crucial to the success of T25 in an Agile environment because without it you are operating at speed while ignorant of potential pitfalls. Using a cycling analogy, SRM provides you with

altering demands. The idea is to deliver more often, in smaller chunks, react to any change that is required and build up velocity. And the key to generating more value is increased collaboration. The result has been an increased alignment of stakeholders on joint business objectives, wrapped and controlled with good supplier governance. But it is actually much bigger than that. Agile-at-scale across Telstra is fundamentally changing how our business runs; we are shifting our mindset to support our T25 objectives and mobilising our Functional Units, Procurement and our suppliers around common goals and priorities. It means now, more than ever before, there is the need for supplier relationship management (SRM). Procurement is increasingly leading the way forward. SRM to support value The procurement team - one of the largest in Australasia - is positioned inside our Global Business Services business and therefore is in a key position to support and enable Telstra’s commercial and growth objectives. Procurement is also at the heart of the company’s relationship with suppliers. It helps to manage AUS$12 billion per annum of influenceable spend, spread across around 5,000 service and product suppliers, both domestic and international. This covers everything from the purchase of a 5G tower to submarine cables, fibre optic network infrastructure to IT software, devices, contact centres, professional services and much more.

Procurement plays an important role in leading contract negotiations and uses market and category intelligence (qualitative and quantitative) to identify areas for improvement across the value chain. This capability of the team builds upon the corporate policies and governance frameworks to provide a level of assurance to the Functional Unit that our suppliers have demonstrated the required compliance to statutory regulations and Telstra’s Supplier Code of Conduct. This central position at the heart of Telstra and supplier relationship gives procurement oversight of the most critical suppliers and provides ‘one version of the truth.’ It looks at the total value of the company’s key relationships (spend on both sides) and helps Telstra to maximise the value of the supplier achieved through formalised business governance (annual, quarterly and monthly business reviews) with defined roles and responsibilities of those in attendance. SRM at Telstra uses a segmentation methodology to identify the Top 100 strategic, critical, and emerging suppliers so that our management resources and relationship is regulated in a clear and consistent manner. The purpose of good governance aims for a ‘no surprises approach’ by sharing our strategic ambitions such as T25 with key partners and enabling them to return the same levels of transparency. The idea is to build trust; maximise the value of the relationship; and to foster a proactive approach to prevent risk and potential issue resolution together.

the lights when cycling at night. It has been estimated by global

and strategy development (i.e. responsible business, ESG, sustainability, resilience, performance and innovation).

consultancies that 75% of value gained from strategic sourcing and contract negotiation is eroded within 18-24 months without effective SRM but that timeframe can be much sooner. Without SRM we simply do not know what the risks are or the level of supplier resiliency. And not knowing that in a demanding environment is frightening. While insights into suppliers and the market are important, the real value comes from building supplier relationships. This means engaging with suppliers to understand the value they bring, how they operate, keeping up-to-date with any business changes (i.e., acquisitions, mergers) and ensuring they have a sound understanding of Telstra’s strategy and their part in helping us to achieve it. The Functional Units are always having conversations with suppliers, what has changed is the richness of them. It is the depth that we are able to take an idea beyond a concept and apply it to a real-life scenario. We have never had so many joint business plans. The demand for SRM, and purposeful supplier engagement, is there.

“Change starts from within, and it is essential our suppliers are included on this journey.” OPINION SNAPSHOT:

Neil Wittmann-Griggs, Supplier Relationship Management Supplier Services | Global Business Services

Embedding resilience at every step How each stage of the procurement lifecycle can be used to strengthen supply chains

you ultimately select? What weighting is given to cost, quality, supply chain resilience and risk – and does it truly reflect your requirements? Do a deep-dive analysis on those you invite to participate. Understand what lies beneath their supply chains to help evaluate their bids. Try to map some of their supply chain to protect your own from issues and scandals. The initial supplier segmentation needs to take place at the category strategy phase. This ensures you know which suppliers are strategic – based on cost and/or risk – and develop an appropriate approach to their management. But remember that this too, may need revisiting. For example, for many companies cleaning contracts used to be a transactional service. That changed during Covid when hygiene levels were essential to the continuation of some operations. Achieving this kind of ongoing vigilance means giving people the headspace to think and to carry out checks. Reviewing a category strategy may require two to three weeks’ work and can’t be focused upon whilst juggling multiple tasks. To boost the resilience of your team - and therefore operation - give them the support, time and training they need. Try to relieve pressure where you can and be aware that they will be facing it in and outside of work. Build in more contractual safeguards, including clear lines of responsibility but ensure you do this fairly, don’t just dump it all at your supplier’s door. History suggests risk has generally been pushed down the supply chain to the point that it’s not managed – but this doesn’t remove the problem or risk. Be specific and design a process that covers how things will be handled and escalated. Be aware that the risk profile of events has changed. They are occurring more often and having a greater impact because of the interconnectedness of global supply chains.

To boost your supply chain’s ability to prevent or withstand a shock, you should consider ways to strengthen it at each step of the end-to-end procurement process. The good news is, you already have all the tools to do so; it’s simply about embedding resilience into the key stages of the procurement lifecycle: 1. As you develop a category management strategy 2. As you implement the strategy – through sourcing and contracting 3. As you deliver the strategy through supplier management Step 1: Category strategy development • Review business drivers to balance cost against risk and resilience • Re-align category segmentation/ portfolio analysis criteria • Develop strategies that will improve resilience from the start (risk avoidance) First, consider your category management strategy and ask yourself a number of questions. What were the drivers when it first began, cutting costs perhaps or reducing risk, and do those same motivations remain the same today?

Might your current strategy be exposing your organisation to risks that have occurred since it was initially put in place? Perhaps you were following a low-cost sourcing strategy that has consequently led to longer, more complex supply chains, which may have since introduced risk? For example, many companies shifted production to China to take advantage of cheaper manufacturing and labour costs. Yet more recently, some have seen factories – even whole regions – cease production at short notice to try to reduce pollution, leaving those who rely on them scrabbling around for an alternative. Meanwhile, many supply chains in Europe look vastly different since the conflict began in Ukraine. Supply chains should be continually monitored to enable you to respond more quickly to, or even pre-empt, changes. Consider how many links there are in your chains and whether you might be able to reduce them. If you reduce your vulnerability, by definition you increase resilience. In addition to ongoing checks, the pace of change means more formal reviews should be carried out annually, instead of every two years, with individuals held accountable for their performance.

“As supply chains have lengthened they’ve become more complex and exposed companies to greater risk”

Another shifting trend has seen businesses seeking ready-made capability rather than investing in its development. You have a choice to accept the market as it is or shake it up and help the supplier to do more. Investing time and effort into influencing the market and developing supplier capability may reduce your exposure and therefore vulnerability. Yet it’s not always the answer, because new technology could emerge at any time that supersedes your efforts. There is also the challenge of deciding whether you select a best-of-breed supplier or ‘good at a number of things’ provider. There’s been a tendency to consolidate requirements into fewer suppliers – often with good reason, such as cutting costs or carbon emissions – but it can be at the expense of getting the precise product or service you require.

Step 2: Category strategy implementation

If procurement’s role is actually to safeguard the delivery of quality products and services to the business, it’s going to have to stop being tasked with chasing savings. Achieving value for money (VFM) includes protecting organisations from risk and loss through sourcing and contracting activities. To help with this, ensure your supplier selection criteria adequately reflects risk. How are you judging and choosing both those who are invited to take part in the process, and those whom

• Make supply chain resilience a key feature of sourcing strategies and supplier selection • Increase breadth and depth of supply chain risk assessment • Develop more robust risk mitigation and business continuity strategies • Increase contractual safeguards • Develop leading indicators (KPIs) for supply chain disruption

Step 3: Supplier management • Re-align supplier segmentation criteria • Create deeper more transparent relationships • Improve communication and information sharing • Work with suppliers and the business to become more agile • Extend performance management to include supply chains • Improve planning and demand forecasting • Improve vigilance and risk management Supplier management is key to the mitigation of risk and the boosting of resilience. In our 2021 survey a total of 65% said relationship management was the most effective element of supplier management in mitigating the impact of Covid. Communication and collaboration continue to be key to managing risk. A trusting and transparent relationship means you are more likely to be aware of what’s coming, and more able and willing to resolve it. Open and honest conversations should include the development of joint risk management strategies. It

Round and round Using the procurement lifecycle to reduce risk and build resilience is a continuous and iterative process. Everything that is learned about the market or suppliers at each step can be used to inform the next version of the strategy. Ask yourself: Did the supplier perform adequately? Should you renew the contract? What do you know about the current market - are there new players, alternatives, fresh developments or innovations? And if supplier and category management are carried out by different individuals, ensure they talk to one another. That way, supplier management becomes a stakeholder in developing the future category strategy. Don’t forget that no matter how much effort you put in, some kind of crisis will occur at some point. Ensure your procurement team is adequately trained to manage a crisis. Just as trauma staff know what to do in an emergency. Support them with technology to remove some of the guesswork and give them the space and time to do what only people can. Organisations increasingly have a risk manager or director at board level who can mobilise a team when a crisis occurs, procurement should be part of that team. All this requires work and preparation. It isn’t about seeking a silver bullet but nor too do you need to abandon tried and tested methods. They simply need reinventing or revisiting to ensure they can cope with changing circumstances. Thoroughly review your procurement processes to strengthen each element that builds resilience. Invest in training to ensure professionals are comfortable handling, recognising and mitigating risk; and ensure you build trusting transparent relationships with key suppliers so you can handle hurdles together.

is good practice to carry out a risk review with all your major suppliers once a year and to jointly consider how the world has changed in the past 12 months and what actions you might need to take. Supply chain mapping should form part of this conversation to help you identify and mitigate potential risks, and supplier development may include helping your providers to manage their own. This ensures good practice flows down the chain. If you have good processes, why not share them? You can work clauses into contracts, such as an expectation to hold regular reviews, but you may need to help them to achieve it. If they don’t know how to run sessions or have the right KPIs, help them out. If you do include clauses, ensure you follow up on them. Most contracts require suppliers to plan for when something happens, but rarely are they checked. Ask to see a continuity plan for the top 3-5 risks, and help with some scenario planning. And remember there will be costs attached to these requests both from the supplier, and from you if you are to carry out audits, site checks, scan paper trails, conduct regular reviews, or arrange third-party assessments. And a warning: Don’t rely on performance management to identify risk. It may flag something, but that issue could have occurred three months before showing in any metric. Active monitoring will enable you to catch, or even predict problems, before they impact performance. A current leading indicator of a future problem is the UK’s employment situation. As businesses are finding it hard to recruit staff, they are employing less capable individuals, which means, at some point, service quality is likely to drop.

is on hand Help

Implement Supplier Management at speed without any additional headcount or resources. State of Flux managed services delivers flexible people, processes

ARMOUR OR AGILITY?

The word ‘resilience’ suggests you have to put on a suit of armour for protection, but sometimes the answer is to drop the heavy armour and be fleet-of-foot to swerve the problem in the first place.

and technology to give you head start. Ask us how.

“The days of playing at resilience are gone, it’s no longer a choice, it’s essential.”

KY3P

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By Richard Blore (CEO of KY3P, S&P Global) and Simon Chard (Head of Business Development of KY3P, S&P Global) of threat and four tools for better resilience The next vector

Two key factors challenge an organisation’s resilience and make its systems, processes, and supply chains fragile: the number of external interconnections and the speed required to react when something falters. Globalisation and increased digitisation are tightening these chains, which could present perils, and cyber security is now a significant focus. Yet technology can also be used to guard against risk. Covid taught us that organisations with resilient supply chains had a competitive advantage. Those with access to information about who their suppliers were and where they were, as well as potential alternative sources, could implement business continuity plans on Day One. In contrast, others spent weeks trying to find this out. Ten years ago, spreadsheets could handle what little data was available; nowadays, organisations are overwhelmed with information. They need assistance to gather and harness this intelligence so that they may convert it into meaningful decisions that can help boost supply chain resilience. Prevention and cure Many companies seeking to identify and segment their suppliers – to help manage them – do so using a pyramid methodology. They typically group those with whom they spend the most at the top. Some will also consider those that could present a risk and group them at the peak. There are, however, often much smaller suppliers who could be vital yet slip below the radar for supplier management. This tends to happen because what these smaller suppliers provide has not been captured correctly by businesses that continue to operate in functional silos. Solving the challenge of supply chain transparency requires a trio of elements well known to procurement professionals: the combination of people, process, and technology.

The arsenal of solutions offered by providers includes more robust and thorough data; on-site supplier assessments; an IT platform that provides a workflow of information and alerts to potentially flag issues; and the talent to analyse the output of all these. Let’s explore four tools for better resilience. 1. Data: Every day, more and better information becomes available, enabling you to judge the financial stability, cyber security, environmental performance, and more of the suppliers you work – or are considering – working with. Procurement departments are increasingly accessing and getting better at using this data to identify changes and risks and to put back- ups in place. 2. Supplier assessments: Providers can offer intensive on-site evaluations in addition to collecting, compiling and analysing publicly available information and carrying out remote evaluations on thousands of suppliers. These consist of intrusive visits of around two to three weeks, examining policies, processes, and validated data in person. Reports are then typically made available to all customers. This utility model provides scale and efficiency to all, and demand for it is increasing. 3. Platform: This is technology to support supplier management. It provides a workflow of information about suppliers across different risk domains. Everything is brought together into a dashboard that can instantly generate reports, test scenarios, detect changes and assess potential impacts. It ultimately saves teams’ time and money sourcing and sorting such information for themselves. For instance, when Russia invaded Ukraine, those with systems in place could immediately use them to model the impact.

4. Talent: There is a severe shortage of individuals with expertise in supply chain risk. External providers have highly experienced professionals who can analyse risks and understand their relationships. We advise that companies let others interpret this information while focusing on their area of expertise: how to respond to it. Informed decisions Until this point, many procurement functions have focused on improving internal processes, disciplines, and ways of working and are now better able to put this information to use. A failure at some point is inevitable. Resilience is how well you can hold off problems or react to them. Knowing who your suppliers are, and whom you need to work most with closely, enables you to consider ‘what if?’ scenarios and plan for them. It also enables you to focus your supplier management efforts where you will benefit most. The days of playing at resilience are gone; it’s no longer a choice. It’s essential. Without adequate resilience, investor confidence and the ultimate value of your organisation will be damaged. So ensure you arm yourself with the tools and information you need to judge which suppliers you choose and how to work with them.

Macro Risks

• Increased digitisation • Globalisation • Recession • Geo-political impacts • Inflation • Pandemics • Reduced cashflow and capital • Cyber security

Armed with supplier information and assessments, tools and analytics, procurement professionals can improve supply chain transparency and help to counter risks

Image reproduced with permission of S&P Global

KY3P

Winning senior buy-in How to gain crucial investment into supplier management

Strong and active supplier management support leads to a multitude of advantages: increased innovation, improved competitiveness, lower costs and higher profits. We know this from 18 years of practice and 14 years of annual research. And the benefits don’t end there. Reduced risk is currently the number one motivation for investing in a Supplier Management programme (for 83%) and 59% see it as a means to boost supply chain resilience, our research has found. Organisations are starting to appreciate the vital role played by procurement and supply chain management in setting strategies that can help to prevent supply chain shocks or to withstand them if they hit. The importance of close, constructive relationships that comes from proper supplier management isn’t changing anytime soon. Hot on the heels of Covid, the world experienced the impact of the invasion of Ukraine, and now organisations are being hit with higher costs and an energy crisis. There should be no issue persuading businesses to set time and money aside for supplier management. For skills development, for segmentation exercises, market research, Voice of the Supplier surveys, and the tools and technology required to support and improve all these stages. Yet struggles persist. Alan Day: “Our research has shown that nearly 4/5 of organisations rely on supplier relationships to overcome supply chain risks or disruptions. Yet very few have supplier management programmes mature enough to be considered a ‘leader’. CEOs spend far too little time with and understanding suppliers. And, because of this, investment in supplier management – into technology, training and skills, and processes – remains low.”

And the problems don’t end there. Day says once procurement has persuaded the board of the business case for supplier management the hard work of convincing senior stakeholders begins. “Procurement needs to get its selling shoes on and demonstrate the value of investing time and budget in this area.” Here are four things to consider when building your business case for Supplier Management: 1. C-suite buy-in is crucial, without it, your programme is not likely to be successful. Get them on-board and ensure they themselves are invested in the programme. 2. Some programmes are not fully aligned to the organisation’s needs. Ensure there is a direct link between the main business drivers and the benefits reported. Link your proposition directly to the way your organisation defines value, and remember, nothing is as powerful as real examples. 3. Once you have had your business case approved by the board you need to translate it into a communications plan and sales pitch

that can be used to persuade business leads and heads of function to dedicate time, money and resources to these activities (see Value Proposition Communication Framework graphic). You can use the results of Voice of the Supplier research and ‘Current State’ assessments and diagnostics of current supplier management activities as vital input to that framework. 4. Evidence: Ensure any and all gains are recorded, not only those that relate directly to the top or bottom line. Anything from increased commitment; performance improvement; better supplier collaboration; reduced risk; increased sustainability or social value, should also be logged and reported on.

What Don’t You Know? Corporate leaders are increasingly exposed to constantly changing risks across their third-party networks.

Successful supplier management programmes provide a wealth of

advantages. If any more evidence were needed, consider the successes reported by the Leaders of this year’s study. In the meantime, as organisations focus on supply chain resilience, remind them that supplier management is key to possessing both the strength and agility to cope. Contact enquiries@stateofflux.com for help to make your case

Customers, regulators, and stakeholders expect immediate insight, intelligence, and confidence across a range of risk domains, including:

The ‘messaging house’ summarises project objectives, themes and ideals to allow for clear and concise stakeholder communication. To be used in conjunction with a communications plan and the 20:2:20 technique. Combining all the elements below could produce a 20-minute presentation. Value Proposition Communication Framework

Financial stability

Cyber security

Geo-political risk

Operational maturity

Sanctions

ESG and more.

S&P Global KY3P ® has a unique combination of best-in-class data, an award-winning platform, and leading risk management expertise to allow our customers to anticipate and manage those threats. We can help your business know more and navigate through the hazards while providing a competitive advantage.

Offers stakeholders a 20-second overview of the project’s vision. Your ‘elevator pitch’ Outlines 3-4 primary focus points of the project. Adding this detail in can turn your 20-second overview into a 2-minute message Highlights the major obstacles facing stakeholders

Hero message

Message focus points

Stakeholder challenges

To find out more visit S&P Global KY3P ®

Outlines skills and expertise required to address challenges

Stakeholder needs

Provides experience and case studies to emphasise stakeholder benefits

Proof points

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