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Summary Governance remains one of the stronger performing pillars – particularly with Leaders - although this year, its top spot has been taken by Engagement. The vast majority of organisations have now adopted segmentation as a standard approach to differentiating between suppliers, and the global number still stands at 95%. Little has changed regarding the criteria being used to segment, with the level of spend and business criticality leading the way with 83% and 81% of companies, respectively. Leaders are most definitely leaders in governance. Leaders outperform both Fast Followers and Followers in all aspects of governance, including a structured approach to meetings and oversight, as well as in contract, performance and risk management.
GOVERNANCE
of companies define behaviours in their treatment strategies that apply to both parties. 51% 90% of Leaders have regular scheduled meetings at the operational and strategic level with critical suppliers.
Segmentation There is no escaping that governance as part of a supplier management process, while extremely important, is also time-consuming. This makes segmentation all the more important. Ensure that the appropriate level of Governance is applied to each relationship based on how it has been segmented. The vast majority of organisations have now adopted a systemic approach to segmenting their suppliers - the number has stood at around 95% for a number of years. Broadly companies are still using the same criteria they have for a number of years, led by the level of spend and business criticality used by 83% and 81% of companies, respectively. The next most prevalent criterion is supply chain risk, which despite the challenges of the last two years, is only used by little more than half of the respondents. Finally, growth opportunity has featured more as a segmentation criterion in the last few years and continues this year. When we examine the approach that Leaders adopt to segmentation, the differences are seen in the areas of assessing reputational risk, the Only 67% of companies make widespread use of KPIs.
suppliers’ unique technological capabilities, supply chain risk and regulatory compliance. When we refer to a formal and structured segmentation process, it is clearly defined and documented and can be applied consistently across the organisation. It also requires that the output is documented. Feedback on the documentation of segmentation output suggests that this is by no means always the case. Less than 30% of organisations report fully documenting the output of their segmentation process. Treatment strategies Segmentation will not impact the business unless it directs how suppliers are managed. Having invested time and effort in deciding the appropriate criterion and developing and executing a process, the output must direct the activities undertaken with each group of suppliers. This will include the optimum approach to the management and oversight of supplier management fundamentals such as performance, contract and risk management, as well as the strategic alignment, joint planning and value creation for suppliers deemed to be the most critical. Differentiated treatment strategies for different supplier groups also enable the most efficient and effective deployment of resources. While the treatment strategies for each supplier group may vary, we know from our research that more than 70% of companies have documented treatment strategies aligned to their segmentation output.
of Leaders still rely on an ad hoc approach to conducting risk assessments during the contract lifecycle. 52%
Governance remains a vital framework for building effective supplier management but needs to be applied consistently and with more rigour.
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