57% of respondents regard ESG as an important business driver, but only 40% currently report it as a benefit
Business Case It should now be easier than ever to make a compelling business case for expanding and improving supplier management capability. However, this remains a challenge for many organisations. Only 1 in 4 companies report having a fully defined and documented business case for supplier management. While for over half, it’s a work in progress, in terms of having defined but not fully documented it or acknowledged some elements are missing. A significant proportion has not yet defined their business case. Predictably, Leaders are far more likely to have developed their business case, with 82% reporting it as fully defined and documented and the remainder working on it. While no regional variation is apparent, the industry sector most likely to have a defined and documented business case is Financial Services at 44%, followed by the Public Sector and Consumer Goods at 44% and 38%, respectively. Tracking direct financial value Given that many business cases for investment in supplier management capability feature value that goes beyond contractual obligations, it’s remarkable that so few companies report being able to track this value. Less than half of the companies contacted during our research reported being able to capture and monitor the financial benefits that are delivered above and beyond contracted spend with critical & strategic suppliers. Possibly more surprising is that more than 1 in 10 don’t know if they can track this value. Where value is captured and reported, 2022 reflects a notable reduction in the direct financial benefits. In the years 2020 and 2021, the average proportion of companies reporting financial benefits between 2% and 6% was just under 1 in 3. In 2022 that figure dropped by almost half to around 1 in 6. Only time will tell if this is a temporary ‘blip’ due to the increased focus on managing supply chain disruption or a more permanent shift to a broader value proposition. It’s interesting to note that Leaders have been far more successful in maintaining their level of financial benefit, with the proportion reporting benefits of between 2% and 6% at almost 1 in 3. Those reporting more than 6% of financial benefits are in an exclusive club of 20% of Leaders.
Increased supplier commitment 9% 50%
What benefits have you gained from your supplier management activities with your critical and strategic suppliers, and have you been able to report them financially? (all respondents)
Supply chain efficiency 8% 27% Preferential pricing 14% 27% Best supplier resources 7% 29%
How developed is your business case for supplier management? (all respondents)
Cost reduction
49%
39%
Benefits reported Financial benefit measured
Supply continuity 8%
44%
17%
27%
Risk reduction 11% Service level 16% Cost avoidance
Quality
Speed to market 7% 23%
42%
73%
10%
Customer experience 10% 39% Sustainability and ESG 40% 12%
Joint product/service development 7% 22%
32%
58%
24%
Competitiveness 8% 18%
56%
38%
Profitability 11% 17%
Account management 5% 36% Access to market intelligence/best practice insights 6% 33%
Continuous improvement & innovation 19% 56%
Business case defined and fully documented Business case defined but not fully documented Business case has elements missing/is in progress Business case not yet defined
Sales and revenue 12% 17%
Collaborative problem-solving 8% 52%
Tracking value In the introduction to this pillar analysis, we talk about the value of building more resilient supply chain structures and how over time, a broader definition of supplier management value has developed. In previous years our analysis covered the types of indirect value being reported, but this year we have extended it to include whether that value is being tracked and assigned a financial value. The chart opposite shows the proportion of respondents reporting each of the typical supplier management benefits compared with the proportion that can express these back to the business in financial terms. The list is headed by improved risk management and reduction being reported by just under three-quarters of respondents. This is followed by service level improvements noted by 58% of respondents and cost avoidance by 56%. However, in these three cases, the ability to capture and report these benefits in financial terms is very limited, with only 15% of the companies that reported improved risk management and reduction able to quantify it in financial terms. For service level improvements, the story is similar, with just 27% able to create
a financial result. As you would expect for cost avoidance, the picture looks better, but the figure is still only 66%. It is clear from this analysis that reporting value to support and validate the business case for supplier management remains a challenge. Business value driver and benefits alignment An analysis of the alignment between identified business value drivers and the benefits of effective supplier management reveals a mixed picture of success. The best alignment between identified business value drivers and the benefits of effective supplier management is achieved in the area of innovation and continuous improvement, where it’s reported as an important business driver by 62% of respondents and a benefit by 56%. The most often reported business driver is now clearly risk management and reduction, as mentioned by 83% of respondents. When compared to the proportion of respondents reporting benefits in this area, we see an encouraging 73% making progress. At the other end of the scale, where 57% are looking for supplier management to help achieve responsible business and sustainability goals, it is reported as a benefit by 40%.
What are the estimated financial benefits from your supplier management programme, as a percentage of the relationship’s contracted value?
Do you capture/monitor the financial benefits delivered above and beyond contracted spend for your critical & strategic suppliers? (all respondents)
How well aligned are business drivers compared to benefits (all respondents)
Business drivers
Benefits reported
Leader
Fast Follower
Follower
Risk reduction
20% 4% More than 6% p.a 3%
83%
73%
11%
52% Cost reduction/avoidance
66%
16% 4% to 6% p.a 2% 11% 2% to 4% p.a 15% 3% Up to 2% p.a 5% Not captured 9% 11% 11%
46%
30%
Quality and service
64%
50% Continuous improvement & innovation 62% 58% Sustainability and ESG 57% 39% Customer experience 48% 38% Supply chain efficiency 38% 28% Speed to market 30% 25%
43%
Yes No Don’t know
31%
73%
Don’t know 18%
23%
15%
44
45
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