2023 SRM Research Report - Extended Enterprise

The State of Flux 2023 Global Supplier Relationship Management Research Report focuses on the importance of building relationships with your suppliers to strengthen your extended enterprise.

Extended Enterprise 2023 GLOBAL SRM RESEARCH REPORT

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Adapt to survive Procurement’s got a problem on its hands, and (mostly) it doesn’t even know it. The majority of key business processes are provided by an external company. Consider

This is concerning. Organisations are only as good as their worst supplier. Yet not nearly enough procurement functions are conducting supplier management or doing it to the extent that they can assure their firms they are helping their suppliers to be the best they can be. Once the supply base is segmented, all will need suitable treatment strategies including a playbook covering roles and responsibilities that are embedded into job roles, training, and consistent behaviour. Only then can procurement teams truly say they are leaders in this field. Procurement can and will still add value at the start of any process, particularly in assessing a customer’s wants versus their needs, but managing the extended enterprise is where our brand now needs to be. Finally, I’m incredibly grateful to the 509 individuals, from 350 organisations from across the globe, who participated in this year’s research. Huge thanks also to the companies and individuals who shared their expertise and experience for articles within these pages. I hope you find them insightful and inspiring.

IT, 10 to 15 years ago departments would have had massive teams of developers in house. Now, the role of the CIO is to manage relationships with large suppliers to whom the work has been outsourced. And with that comes risk. It all equates to power in the hands of the suppliers. It is they who increasingly have the choice of which organisations they work with and for. Our role has to be managing that supplier experience so that we’re an attractive customer and able to help our companies and its suppliers to get the results both want and need. Procurement must move to running this extended enterprise. Teams must acutely understand what’s involved for those tier-one supplier companies, even more than they may comprehend it themselves. To successfully manage suppliers - and best serve their own organisations - procurement needs to know the supplier’s cost drivers; how best to motivate them; harness innovation; and understand risk. They must also align the supplier’s value with that of their own organisation - particularly where suppliers deliver key services directly to end customers. A resounding majority agree. A whopping 97% of your said suppliers should be considered part of your extended enterprise, however, less than half are doing so. And some are only targeting a few suppliers or doing it in a piecemeal way. While a larger number of organisations have now qualified as ‘leaders’ according to the survey’s criteria - 11% compared to 9% last year, standards have fallen. Fewer organisations in the leaders group have achieved ‘advanced’ status in the Six Pillars of SRM than have done so before.

procurement functions are based on running requests for proposals (RFPS) for their organisations. There is a sprinkling of category management, and those who are looking at supplier and supply chain risk, but predominantly procurement has allowed itself to become trademarked as the ‘strategic sourcing function’. But procurement could be and should be understood to be so much more. Otherwise, the existence of AI technology that is fast able to do much of this work through automation, may beg the question ‘why do we need procurement?’ If this isn’t addressed, procurement will cease to exist. And for the sake of the profession, a bit of panic wouldn’t go amiss. The good news is, there is an opportunity. And it’s not too late. Brand procurement needs to adapt. It needs to shift to becoming synonymous with managing the extended enterprise – its organisations’ suppliers. For a lot of businesses, more than 50% of their workforce isn’t directly employed by them, but by their suppliers. Much of manufacturing is done by a third party, which means The good news is, there is an opportunity. And it’s not too late.

Contents 03 Introduction

44 Value 50 Case Study:

04 What is the Extended Enterprise? 08 Academic Interview: Supplier Stress 14 S&P Risk and Reward 16 Enable: Using rebates to drive behaviour 19 Customer of Choice: The behaviour required to become a chosen client 24 Sales Perspective: SAMA Complex Relationships 26 About State of Flux 29 Six Pillars of SRM 30 Summary of Key Findings

Discover Financial Services

54 Engagement 60 Case Study: Transurban 64 Governance 70 Case Study: Nikhil Parva 74 People 80 Case Study - Deniz Kafali 82 Technology 88 Interview: Michelle Baker 92 Collaboration 98 Case Study: AirServices Australia 102 Case Study: Savills 107 State of Flux Call to Action

36 Extended Enterprise 42 Interview: Eric Wilheim

Alan Day Chairman & Founder State of Flux

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The extended enterprise, explained

Suppliers increasingly provide an extension to company operations, and procurement should be managing that crucial wing.

Business has undergone an upheaval over the past two decades. Technological advances; increasing legislation and regulation; changing consumer demands; a heightened focus on the environment and ethics; people and skills shortages - and of course, COVID-19’s impact on everything from supply chains to a rise in remote working. All this and more has played a part in the evolution of business. Technology is helping companies escalated competition. The rise in e-commerce has enabled new entrants to quickly enter vertical markets and reach a global to keep pace with much of this change, but it has also audience with minimal overheads. This trend has prompted some of the more established, large-scale corporations to consider how they might become more agile to stay in contention. One way to do this is to reduce the size of their internal operation in order to concentrate on their core mission. “Nike is a historic example of this,” says Nick Hyner, Managing Director

for State of Flux in Europe. “It doesn’t make or move shoes on its own, it focuses on brand design and marketing. Coca-Cola is the same. It doesn’t try to do many of the associated functions linked to its core product, it concentrates on flavouring and marketing.” And both recognise the importance of supplier relationships. Prior to joining State of Flux, Hyner was Director of Cloud Services in EMEA for Dell, working under Chief Innovation Officer Jim Stikeleather. He says when visiting company CIOs to discuss these services, Stikeleather used to ask two key questions regarding the functions they supported internally: ‘Are you the best in the world at doing whatever you’re looking at putting in technology for? And/or do you have to do it for a regulatory reason?’ “If the answer to both was ‘no’, he would say: ‘Consider outsourcing it’. It’s extreme, but it is one way of doing things,” says Hyner. Companies that focus their own efforts on the essential essence of their business are increasingly reliant on their suppliers to do much

of the rest of the work. They look to them to operate as an extension of their enterprise and provide many of the other goods and services they need to succeed. In some cases, it includes services that are delivered directly to their own customers. Supply chain complexity The automotive sector made the shift years ago - integrating key suppliers into its factories and perceiving those providers as an adjunct of their own organisation. Much manufacturing, too, is now done by third parties; IT departments are largely outsourced; and marketing, PR, customer support, HR, recruitment, and more are frequently delivered by external providers. “Companies are engaging in increased and more complex supply chains or ecosystems,” says Hyner. This is in part because of the specialised data and technology needed. “They are outsourcing things that 30 years ago would have been done within corporate walls. When you think about it in those terms, it should impact how much money and effort you put into managing it.”

Transferring much of the work over to third parties frees up time and helps to make companies more nimble, but it can also increase risk and equates to power in the hands of suppliers. This dependency upon suppliers should translate to a rethink over how they are regarded. Instead of seeing them as a network of providers to keep at arms-length, suppliers, and in particular, key supply partners - should be seen as extension of the enterprise, and treated accordingly. “It is suppliers who increasingly have the choice of which organisations they work with and for,” says State of Flux Chairman and Founder Alan Day. “Our role, procurement’s role, has to be managing that supplier experience so that we’re an attractive customer. Procurement should be considering how it can help its suppliers to become more effective and efficient.”

They should be focused on new product development; improved organisational capability; reduced total cost of ownership; and, ensuring a better customer experience. All of these are key strategic outputs for an organisation, adds Day, and suppliers can play a key role in each. “An organisation would fail without customers; equally, suppliers are integral to its success,” says Day, which is more true now than ever before. Certain business-wide goals and strategies simply cannot be achieved and delivered without suppliers. And where key

services are delivered straight to the purchasing company’s end customers by suppliers, it is essential the behaviours, actions, and practices of that supplier mirror the brand values of the buying organisation. To achieve this, organisations must develop a strategy to integrate and treat those suppliers as part of their extended enterprise. Rethink the day job Managing the extended enterprise is not only a task that should be led by procurement, says Day, but failure to do so could eventually see the profession out of a job.

Procurement and supply chain teams must be acutely aware of what’s involved in the work of their tier one supplier companies.





“Procurement has predominantly allowed itself to become trademarked as the ‘strategic sourcing function’ - and, at the heart of that, is running RFPs,” he says. “This puts the profession in a fragile position because the existence of AI means technology is fast able to automate a lot of this work, which could prompt the question ‘why do we need procurement?’ “The profession needs to adapt. And since more than 50% of the workforce of many businesses is employed by its suppliers, procurement needs to shift to becoming synonymous with managing this extended enterprise.”

Owning supplier management: the business case When considering why procurement should take the lead in managing supplier relationships, and the extended enterprise as a whole, first consider the benefits case for supplier management within your organisation generally. A number of areas can be improved through diligent supplier management. They include: • The ability to model costs more accurately • Utilisation of cross- organisational teams • Reduction in the impact of price fluctuations on cost structures • Early supplier involvement in product and service development • Transfer of knowledge through the supply chain • Planning and design synergy • Use of metrics to drive change for both organisations • Improved risk management and continuity of supply • Access to and speed of innovation From a financial perspective, supplier management enables the deal that has been done to be implemented and managed in such a way that it avoids the Currently, however, not nearly enough procurement functions are conducting supplier management, or doing it to the extent that they can assure their organisations they are helping suppliers to be the best they can be, to get the results they both want and need. “It’s worth remembering that organisations are only as good as their worst supplier,” says Day. Procurement can and will still add

erosion of cost savings over time. This can be as high as 50% of the initial cost-benefit achieved. In addition, good supplier management can typically increase the level of savings by 3-5% and reduce risk. To answer why it is that procurement should be managing the extended enterprise, consider the following points: • It enables procurement to foster an environment where suppliers share improvement ideas and innovation. • Given the multiple levels of supplier management ownership that typically occur in any company, procurement fulfils a useful role as an ‘honest broker’ between the supplier and the wider organisation. • Procurement’s orientation towards process and governance internally makes it well suited to managing external suppliers. • Procurement is best placed to access supplier information, given its existing relationships with suppliers across the organisation. • Having visibility of the organisation’s operations and value at the start of any process, particularly in the assessment of wants versus needs, but managing the extended enterprise is where it must now be. Further Reading • Extended Enterprise, page 36 • Customer of Choice, page 19 • Summary of Key Statistics, page 30 • Call to Action, page 35

(97%) believe suppliers should be considered part of their extended enterprise, however, less than half are doing so. Most (79%) believe treating suppliers as part of an extended enterprise reduces risk. However, just one in five have made a point of mapping the supplier journey to try to fully understand their experience. “Supplier management and supplier’s performance is critical to businesses. If your role is effectively managing the extended enterprise you need to be really good at it,” says Day. Being “good at it” means knowing

some kind of treatment strategy for them all, to improve performance across the board and reduce risk. He says the importance of regularly aligning treatment of your suppliers with your strategic corporate priorities (rather than just focusing on the largest spend) was highlighted during COVID-19. “What COVID-19 exposed was that just because a business is small, or only provides something relatively small to your organisation, it doesn’t mean they’re not strategic. If you can’t get the product or service they supply elsewhere, or to the same quality, its lack could cause a major issue. So companies have to consider in more detail who is important to them in terms of price and risk.” For Day, it all comes back to segmentation of suppliers and appropriate treatment strategies for them. Many companies have only defined and dedicated attention to their very top suppliers. What’s required is a holistic, company-wide approach, he advises. “A rising tide lifts all boats,” says Day. “It’s no good only concentrating on a few suppliers - although it’s an excellent place to start. Once the supply base is segmented, all will need suitable treatment strategies, including a playbook covering roles and responsibilities embedded in job descriptions, training, and consistent behaviour. Only then can procurement teams truly say they are leaders in this field.” There’s also the issue of mounting risk. Over the past 50 years, procurement has helped to insulate corporations from risk using contractual terms to avoid liability. However, increased regulation and legislation means they can longer abdicate responsibility. Outsourcing is no protection from accountability. Corporates essentially hold the risk around sustainability issues for the entire supply chain. Suppose a supplier’s supplier’s supplier’s supplier is caught doing something they shouldn’t have done deep into the third, fourth or fifth tier.

In that case, the end company may ultimately be answerable for it. Big fines tend to follow; the money and the reputational damage alone could be catastrophic. Companies are expected to be transparent about all matters concerning the environment, social and governance (ESG); it is now very much in their interests to take action. All of a sudden, every company in the supply chain is potentially part of one’s extended enterprise, and, as such, can either help you to succeed or fail. Some sectors have been working to higher requirements for some time. Financial services, for instance, have been subject to greater controls for the past 20 years, and other verticals, such as pharmaceuticals, are already held to more stringent standards. Meanwhile, many others haven’t yet been obliged to actively manage their supply chains in this way “but that’s going to change,” says Hyner, “and that is huge”. Walking the line Admittedly, it’s a tricky balance to strike - bringing suppliers into the fold, sharing information and forming closer relationships, while also being able to remain objective and separate. If suppliers become too close they could become complacent; equally, if the relationship is too arms-length or those involved come to dislike each other, it could implode. “People think of KPIs only as a means of measuring a supplier’s performance using key performance indicators. We should think about reframing our use of this acronym. I’ve seen it said that it would better stand for ‘keeping people informed/inspired/ interested/involved,’ and I think that’s exactly right”. “Rather than just train individuals on how to set a KPI, consider what supplier behaviour you are trying to drive with that KPI, and how that will help your and your supplier’s business continuously improve.”

Organisations are only as good as their worst supplier.

Hyner summarises the challenge in a light hearted way - asking CPOs about all the actions their procurement and supply chain departments complete, “which pass the ChatGPT test?” In other words, could a series of algorithms do what they want to do instead? The conclusion is that procurement professionals need to focus on how they can use technology outputs to maximise their business value. Managing and being the real experts at managing, their organisation’s extended enterprise is a value-add role. Day says while he has witnessed “pockets” of people treating suppliers as part of their extended enterprise, it has tended to be based on the action of an individual, rather than based on a business-wide approach. He says the concern is that too few organisations have an intelligent supplier management and third- party risk management programme, and for those that do, only a small proportion of their suppliers are part of it. This means very few are treated like an important extension of the enterprise. This is despite the fact that the majority recognise the logic of this approach. This year’s State of Flux research found almost all

the business of those suppliers almost better than they know it themselves. “To successfully manage key suppliers - and to best serve their own companies - procurement needs to know supplier’s cost drivers; how to harness innovation; understand risk; and appreciate how best to motivate them to achieve the best performance.” Managing the extended enterprise To capture the benefits and avoid the pitfalls, suppliers that are deemed strategic to an organisation’s operation should be the first area of focus to be managed and nurtured using a supplier management process. Examples include suppliers with whom the organisation spends significant amounts of money, those that provide critical products or services, those with a record of innovation, or those that can make the greatest impact on an area of critical importance, such as carbon reduction. But it must not be only them. Hyner says while not every supplier is strategic, organisations need to consider who is and how best to manage them, while also considering

the entire supply chain for a particular supplier allows procurement to make more informed buying decisions.





who form part of our organisation’s extended enterprise. We look at the consequences of such behaviour and consider what can be done to remedy it. Three categories of microstresses Through their research Cross and Dillon identified 14 most common sources of stress that could have the greatest impact, then grouped them into three broad categories (see box out): Those that hit your capacity to achieve, diminish your emotional reserves and identity. They concluded that most people experience several of these 14 types of microstresses on a day- to-day basis. They hope the list will help people to recognise what happens to them and why, and identify where they could be the cause of microstress in others. Most or all of these 14 types could be inflicted - unwittingly or otherwise - on suppliers by buyers. Here, Cross says microstresses could occur in the buyer/supplier

relationship across all three categories and highlights the four perhaps most common sources of negative stress that procurement professionals are likely to impose. 1. The first is ‘unpredictable behaviour from a person in a position of authority’. This is an example of a microstress that drains a supplier’s capacity to get things done. Cross: “If a supplier isn’t clear what the buying organisation wants, or if the buying organisation itself doesn’t know what it wants or changes what it wants, or is emotionally irrational, stress will cascade down and it will impact on a supplier’s performance and ability to deliver.” 2. The next is ‘confrontational conversations’ . These are an example of a microstress that can deplete emotional reserves, and impact on resilience, focus and prioritisation.

Clearly buyers and suppliers will sometimes need to have some challenging conversations. There is, however, a difference between being confrontational and overly critical; rather than being curious to find the source of an issue and to resolve it together. Clashes could be, for instance, over costs or criteria. If not discussed constructively, such conflicts will likely provoke a negative response in that supplier that will, over time, diminish their resilience, resolve and ability to perform well. Second-hand stress is another that could easily be brought about by ill-considered behaviour in buyer/ supplier interactions. This is brought about by people who exude stress, effectively transferring the anxiety, tension or pressure they feel onto others. It could happen through their line of questioning, tone of voice, body language, facial expressions and so forth. “Stress passes through people,” says Cross.

How do you cope when stress is ever-present? How can you reduce the levels of stress felt by others? State of Flux speaks to academic Rob Cross, co-author of ‘The MicroStress Effect’, on the damaging impact of such anxiety and tension, and what to do about it. Reduce supplier stress to raise results

Everybody encounters work stress from time to time. That’s life right? An impending deadline, a big presentation, urgent action needed to prevent a problem. We might each find different situations more or less challenging, but we all will have instances that we find difficult to handle. Some say they thrive on stress. They may even choose to work in a field where they are regularly put into high-stress situations. Or, it could be that they particularly enjoy the moments of a job that require their immediate and effective attention, riding the wave of adrenaline induced to see them through. On those occasions - big, sudden or extreme events - our brains trigger a response to help us cope. The problem is, when it comes to small occurrences of stress, that doesn’t happen. There is no automatic first-aid mechanism, and the accumulation of near- constant mini-spikes of anxiety can cause chronic - if not crippling - complications. Rob Cross, and fellow co-author of The MicroStress Effect: How Little

Things Pile Up and Create Big Problems 1 , Karen Dillon, call these moments ‘microstresses’. These mini incursions into your equilibrium may appear on their own to be harmless and manageable, but in fact they are not so easily dismissed. Cross and Dillon cited some examples in a recent Harvard Business Review article on ‘The Hidden Toll of Microstress’. 2 “Think about a vague, worrying text from your teen flashing on your phone while you’re in a meeting; the appearance of a colleague who always wants to vent to you; or having to tell your team that the project you’ve all been grinding out extra hours on is no longer a priority. Because they’re small and brief they don’t trigger the normal stress response in our brains to help us cope. Instead, microstress embeds itself in our minds and accrues over time. The long-term impact of this build-up is debilitating: It saps our energy, damages our physical and emotional health, and contributes to a decline in our overall well-being.” They discovered the phenomenon while conducting research into what makes high performers

different from the rest of us. In total, interviewing 300 people from 30 global companies, evenly split between women and men, from 2019 to 2021. “Many of these high performers were powder kegs of stress, and to our surprise, most of them didn’t realise it,” they said. “Being ‘micro’ doesn’t mean they don’t take an enormous toll in the long run.” As Cross and Dillon found, these can come from anywhere - work, home, daily life - and there is no escaping them, they can reach you every day, everywhere. They can impact your ability to get things done, deplete your emotional reserves and challenge your identity, leaving you with the uncomfortable feeling that you are not the person you really want to be. Ultimately, the build up of all these small instances of stress can be massively damaging to the health, happiness and success of both ourselves and others. Here, Cross extrapolates the theory to explore how our behaviour as procurement and business professionals can impact on those we work with. In particular, the effect it can have on the key suppliers

1 The MicroStress Effect: How Little Things Pile Up and Create Big Problems - and What to Do about It by Rob Cross and Karen Dillon, released April 2023 2 ‘The Hidden Toll of Microstress’, by Rob Cross and Karen Dillon, Harvard Business Review , published February 2023





1. Push back on microstress in concrete, practical ways. It could be the practice of saying ‘no’ to small tasks and asks; reducing the amount of notifications on your phone or computer that interrupt you; and readjusting relationships to prevent others from putting microstress on you. 2. Be attuned to the microstress you are causing others. This will help you both. Emitting less means we’ll receive less in return. 3. Rise above. One reason some microstressors affect us is simply because we allow them to. Learn to keep them in perspective and let some things that bother you just roll off your back. We don’t simply have to react to the hyper-interconnectivity of today’s world and allow ourselves to be on-call to all 24/7. We can choose to reduce the type and amount of such intrusions into our daily lives, as well as moderate our responses to them. All these small annoyances are not simply bumps in the road to be accepted, to be happy, healthy and successful individuals and organisations, we can - and should - try to smooth our path, and that of others, as much as possible.

Their research found that the happiest high-performing individuals they interviewed belonged to two or three groups outside of their family and work. These could be sports clubs, intellectual groups, regular social gatherings, a class that teaches them a new skill, anything, but in each case they involves interacting with others with whom you have something in common and yet who bring their own point of view. “These groups keep stress in perspective, and help people to boost their mental health and resilience outside of work and the family setting,” says Cross. They are especially important now that an increase in connective technology means stresses - from family, friends or work - can come at us all day, every day. In addition, social distancing during Covid and the increasing work-from-home culture has generally reduced our level of interaction with others. “Some of our coping mechanisms went, or have gone, away; you need to laugh with others and see issues in a different light.” Cross and Dillon highlight three key strategies to zap these microstresses, all of which require small and simple changes:

If you can identify where problems are repetitive or constantly bumping up and causing problems, that’s where you need to focus.” In addition to recognising the sources of persistent annoyance or anxiety, reflecting on how you might be causing it in others is a valuable and important skill. “I try to be more cognisant of where I’m causing stress,” says Cross, “if I pass it on it inevitably it boomerangs back at me some time. It’s the same in procurement, there will be times where you need to discuss performance or targets being missed, but if you push too hard in demanding concessions in certain ways that are unnecessary - it will come back at you at some point. If people purchasing “From decades of social science research, we know that a negative interaction is up to five times more impactful than a positive one.”

“It’s contagious, trickling through people’s behaviour and across their networks in different ways.” 3. The third particular pain point to highlight is the microstress brought about by the ‘pressure to pursue goals out of synchronisation with personal values’ . This is an example of a microstress that can challenge one’s identity, and trigger the uncomfortable feeling that you’re not acting as you’d like. This can chip away at motivation and sense of purpose. In this case, it may be pressure applied to a supplier to act in such a way that is discordant with their own values or that of their organisation, such as “at a price that doesn’t allow them to do their best work,” says Cross. For example, if they are pushed into acting in a way that is incompatible with environmental, social or governance goals because it’s quicker or cheaper. “It often happens when people are under pressure to cut costs and they have to push themselves or their teams to deliver at a certain price point.”

4. The fourth and final stress to highlight is prompted by suppliers constantly having to respond to demands from the buying organisation. This includes anything and everything relating to their product or service; to updating documents; and requests for data such as risk assessments or compliance documents. “This is another I would put in the ‘drain capacity’ category. It could be either be caused by sudden ‘surges in responsibilities’ , or a shift in expectations caused by ‘unpredictable behaviour from a person in authority’ .” The trouble is, each of these instances incrementally leads to a deterioration of the buyer/supplier relationship. Each individual occurrence may only leave a tiny dent or depression but over time, they could gradually amount to a gaping hole that damages performance (theirs and yours) - and may ultimately lead to the end of that partnership.

“From decades of social science research, we know that a negative interaction is up to five times more impactful than a positive one,” say Cross and Dillon in HBR. “That means finding ways to eliminate even just a few microstresses in your life can make a significant difference.” Remove or relieving microstresses Each chapter of The MicroStress Effect details specific things behind each idea, including systematic processes and actions that can be undertaken to achieve a shift in behaviour, without shifting blame. One approach, says Cross, is to isolate where the stress is coming from. “Can you specifically identify what’s happening, where and when and in such a way that it’s affecting your ability to do well? If so, can you see how you might change the nature of the interaction or remove yourself from it? “We’re wired as humans to think we should never walk away, but sometimes relationships are just too toxic or unhealthy and pull people down in negative ways.

my services start nitpicking, I find I either don’t want to put as much effort in or I just walk away.” In terms of combating microstress, Cross and Dillon advise that instead of learning how to endure it, it’s better to try to remove it altogether.




Causes of microstress The full table can be seen in The MicroStress Effect

Microstresses that drain your personal capacity

What is it


Optimise your third-party risk management approach Businesses need to harness data, leverage technology, and deploy expertise to manage an increasingly complex supply chain risk landscape.

Unpredictable behaviour from a person in authority

Sudden shifts in work requests, performance expectations or mood from people in power

A boss who praises you on Friday, but fires off an impatient email by Saturday night

Surge in responsibilities at work or home

Unexpected or new tasks that overwhelm not because you can’t do them but because the ‘collaborative footprint’ required to get them done makes the work feel exponential

You’re asked to lead a new task force at work that spans departments or your aging parent requires a hospital visit and consultation with doctors

Microstresses that deplete your emotional reserves

What is it


Confrontational conversations

Discussing differences of opinions or differing needs with someone who you rely on who may not be open to your perspective

Communicating to a direct report that they need to step up their performance or resolving misalignment with a colleague from another department Two managers are in a subtle power struggle, leaving you feeling like you have to tread carefully to not step on political landmines just trying to get your work done

Political maneuvering

Feeling caught between hidden agendas or trying to navigate situations that affect you without having a chance for input

Microstresses that challenge your identity

What is it


Stakeholders, shareholders, and regulators are increasingly explicit about their expectations of decision makers to be equipped with accurate and timely information about their supply chain risk. Businesses must seize the opportunity within their supply network whilst managing the risk from this extended enterprise. Dynamic management is required across a wide range of risk domains:

Pressure to pursue goals out of sync with your personal values

Feeling pressured to do something that makes you feel uncomfortable or distant from the person you set out to be in your career Events, behaviours or work requests that make you feel unqualified, like an impostor or not able to control your world

Succumbing to revenue pressure and over-selling a product’s features because of performance expectations cascading down the organisation Your role at work in a three- dimensional matrix feels impossible to keep up with, leaving you constantly focused on what balls you can drop, rather than how to excel; or you get a call from your child’s school about their misbehaviour, which makes you feel like a bad parent

– Data management – Legal & regulatory compliance – Operational maturity – ESG

Challenges to your sense of self- confidence, worth, or control

– Operational resilience – Continuity and recovery – Cyber security

– Geo-political KY3P® by S&P Global has a unique combination of best-in-class data, award-winning end-to-end technology, and third-party risk management expertise to provide customers with the insight to anticipate and manage the ever-changing third-party risk landscape. At KY3P, we help your business gain valuable knowledge to navigate third-party risk and build better supplier relationships. To learn more, visit us at: www.spglobal .com/KY3P

“If you can identify where problems are repetitive or constantly bumping up and causing problems, that’s where you need to focus.”

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“More and more, suppliers are viewed as an extension of an organisation’s enterprise. This is a vital repositioning, not only because it gives suppliers the power to choose who they work with, but because companies are increasingly looking to their third parties to help them deliver on key corporate objectives.“ Simon Chard , CEO, KY3P at S&P Global

» Monitor risk - Continuous surveillance of the performance and risk profile of vendors. The platform also provides additional detailed information, such as a cyber score or credit rating. Customers can receive alerts if an issue occurs, such as a cyber attack or looming administration, and quickly switch to an alternative provider. » Validate suppliers - Verification of information provided by suppliers, through, at times, on-site assessments. This information can be shared across the network of buying organisations, so suppliers only have to undergo a single check. » Generate incident alerts - ‘Significant event notification and tracking’ (or SENT) can remove weeks of work by companies trying to manually assess if suppliers have experienced an issue as a result of a critical event, such as the invasion of Ukraine. Suppliers on the system answer a standard set of questions, and the responses are shared with all who need them. In addition to the above, platforms like KY3P enable fourth-party discovery, an increasingly useful tool as companies become responsible for the actions of suppliers with whom they have no direct contact.

For example, a smaller provider may be a third-tier supplier to you but a first-tier supplier to another user, but your business still benefits from access to information about it. What’s more, having multiple layers of ready-to-use due diligence in place is good for both buyers and suppliers. Finally, using data-informed risk management removes friction, which can help improve relationships. It can also free up time for all parties, allowing them to focus more energy on value-added initiatives. New opportunities Many companies, including major corporations, have committed to supporting diverse organisations. For example, companies in Australia have committed to using indigenous suppliers, while companies in the US are seeking veteran-owned firms. However, the onerous due diligence demanded by large companies before on-boarding smaller businesses can mean big barriers to entry for many. Requests for the completion of Due Diligence Questionnaires (DDQs), on-site assessments and so forth can be quite a struggle for some smaller businesses.

Supplier risk management platforms, such as KY3P, can remove those obstacles by reducing the work. Suppliers need only answer one set of questions and one on-site assessment, or other external verification, then that information can then be shared among the platform’s community. KY3P is also working with some of the largest accountancy, audit and consulting companies to offer pro-bono support to help improve standards where required. The supplier experience As a reflection of the wider trend, we have shifted how we think about our network and are adopting a more balanced model that focuses on the suppliers as well as the customers. It is an approach demonstrated by successful tech and shared economy disruptor’s, who are focused on the experience of the provider in addition to the client.. The community and network found on the KY3P platform balances the power across buyers and suppliers to the benefit of them both.

Riskand reward Effective risk management can boost supplier relationships and uncover new providers.

The dynamic between buyers and suppliers is shifting. Customers used to call the shots, but a significant rebalancing is underway. By Simon Chard Purchasing organisations now need

Risk management Luckily, there are platforms available in the market that can help manage supplier risk and identify new sources of supply. These solutions effectively house the oversight of your extended enterprise in one place. The KY3P® platform from S&P Global Market Intelligence is one of these solutions, and primarily helps customers to manage their supply chain risk. Additionally, KY3P can be used to: » Select suppliers - Some 250,000

However, in this new dynamic, businesses are also held accountable for the operations of their suppliers. They are increasingly responsible for ensuring that the actions of every supplier in their value chain are both moral and legal - a tough task even with oversight systems in place. Chief procurement and supply chain officers are tasked with managing risk and sourcing new opportunities to meet strategic aims, and some are using technology to help, much to their benefit. Meanwhile, procurement teams that don’t have oversight technology in place can lose weeks chasing information, often only to find it is inaccurate, unreliable or simply out of date.

suppliers as much as suppliers need the business - sometimes more so. It is in this more equitable environment that relationships between customers and suppliers are being reformed and strengthened. More and more, suppliers are viewed as an extension of an organisation’s enterprise. This is a vital repositioning, not only because it gives suppliers the power to choose who they work with, but because companies are increasingly looking to their third parties to help them deliver on key corporate objectives.

users have access to 50,000 vendor profiles, with many popular providers that work across multiple industries, already on the system.





“Rebates are the currency of the supply chain.” Andrew Butt , CEO, Enable

This doesn’t have to result in a greater overall payment, it simply means the incentive - and therefore action required from the supplier - is more targeted. And this is what changes behaviour. Greater clarity Rebates are the currency of the supply chain. They typically account for significant sums of money that are often quite badly managed, which companies can ill afford. Poor management takes more time, money, resource and often means disagreements between the parties. Instead of discussions around money going wrong, using digital tools to record and track agreed aims means everyone is clear on the expectations and able to work towards those common goals. Joint goal-setting ensures the process is clear and transparent, and that helps to generate trust in trading relationships. This is essential because the vast majority of global trade (around 75%) goes between these central trading partners in the supply chain. It’s vital they understand the goals and strive to meet those aims successfully together. Customer expectations are now incredibly high. They’ve seen what can be done by the giants in the online retail space and they want that same speed, accuracy and low cost of delivery on everything they purchase. Businesses, therefore, need to invest in their digital supply chain capabilities to meet these demands and expectations. Digital capabilities Companies big and small across industries and geographies are starting to apply this advanced approach. They are using their rebate programmes to incentivise positive and profitable change for

their companies and that of their suppliers. And, in turn, they are boosting their supplier relationships. Instead of issuing one standard payment for their many thousands of trading partners once each year - as calculated and designated by often inaccurate and unwieldy spreadsheets; they are using a cloud-based, software-as-a- service system to run their entire programme. This has numerous benefits. For one thing, Enable’s B2B platform can be used to create mutually beneficial agreements. Where previously one side dominated in making these arrangements and holding the information, now each has the tools, software and access to what’s been agreed together and to track progress with it. Not only does this increase the chance of both buyers and sellers making a greater profit, it is an efficient and cost-effective way of working. Gone are the days of staff spending hours calculating payments at the end of an agreed term, or disputes over their accuracy, now each can

see figures updated daily. Whether you have a team managing 1,000 supplier payments or a handful, automation results in around an 80% reduction on the time spent reconciling rebates. Speedy set up Platform set up is swift and simple, and could be led by either the manufacturer or the distributor. Each side is able to use the tool from the first day of it going live, with full integration following a short time later. Typical set-up times are 30-90 days, with the return on investment usually delivered within one quarter of going live. Rebates are here to stay. Enable is re-thinking how these funds are deployed, managed and measured to help both sides of the B2B trading relationship succeed. This requires much more targeted and sophisticated rebate programmes to help organisations succeed in reaching their mutual goals. This is a huge opportunity for businesses, which is why so many are switching to a shared digital solution

Generate profits and create better trading relationships with a targeted approach. Using rebates to drive behaviour

In the past, rebates have been deployed like blunt instruments. Companies generally paid them annually and, begrudgingly; meanwhile recipients viewed them as an entitlement. The result has been a failure to boost buyer/seller relations and limited impact on commercial success. Now it is possible to take a far more advanced approach, and, in doing so, generate greater rewards for both sides. Past, present and future In the supply chain, distributors and retailers are like the sales and service teams of manufacturers. Just as companies reward staff with incentives, such as commissions or bonuses for hitting internal goals and objectives, rebates can

be used to remunerate suppliers for achieving agreed aims.

Instead of a one-off payment at the end of the year, these funds can be paid more frequently and in a more selective way to drive behaviour in an intelligent way. Let’s take an example. Where previously a manufacturer may have paid 3% bonus on all sales at the end of a year, they could try a more specific approach. They could incentivise their distributor to concentrate on selling a particular product line - perhaps one that drives greater profit or raises brand awareness. Success with this line could result in a larger and more regularly paid rebate, such as a 7% uplift, paid quarterly to ensure consistent performance across the year.

Benefits at-a-glance Using a shared, cloud-based platform, like Enable, to manage your B2B rebate programme can

and profitability, generating commercial benefits for manufacturers and distributors • The risk of mistakes that impact P&L are cut because the system that calculates rebate amounts daily • Efficiency and employee satisfaction is increased because time is freed up for more strategic work

bring multiple benefits: • Trust between trading

partners in the supply chain is exponentially improved through shared agreements, clarity of purpose and progress • Modern rebate programmes can help to drive revenue



Turn Your Rebates into an Engine for Growth with Enable Unlock the growth potential of your rebates with advanced rebate management.

The behaviour required to become a chosen client (and the benefits it brings)

Leave the frustrations of manual rebate management behind; it’s time to embrace a new era of strategic growth. Enable’s transformative platform automates time-consuming rebate processes, gives you full control of all rebate types, unites teams and trading partners and

Gone are the days when companies can assume every supplier would be delighted to win their business. Third parties are now increasingly in control over which organisations they work for and with. This makes a key part of procurement’s role striving to ensure their company is an attractive prospect.

As Harvey Dunham, Managing Director, Strategy and Marketing, at the Strategic Account Management Association (SAMA) tells us on page 24, one of the most powerful things a supplier can do is simply not take part in any procurement process. “There is always the option of not providing a quote,” he points out. “Supplier management requires ‘IQ’ and ‘EQ’ in equal measures to take the lead in building strategic relationships,” says State of Flux Founder and Chairman Alan Day. “Work to engender loyalty and consider what you can give suppliers that others can’t.”

Schedule a demo at enable.com.





Defining terms At State of Flux, the term

and respect. And it needs to be consistent at both an individual and a corporate level. Buyers need to ensure they listen to suppliers - that way they glean market intelligence and possibly access to the next big thing. The supplier experience Most organisations rightly put a large amount of effort into ensuring their customers get the best possible experience in an effort to build loyalty and to keep them coming back for more. Too few consider the experience that suppliers have doing business with them, despite being increasingly dependent upon them.

strategies for all your suppliers, or only your key partners? Entrepreneur and investor Eric Wilhelm believes the basis of a better relationship between suppliers and buyers lies in the use of reciprocal scorecards. “There needs to be a very transparent and open discussion on behaviours,” he says in an interview on page 24. “Suppliers are afraid to tell a customer when they’re wrong, but a customer has to be open to that. And often there are silos within those companies which don’t communicate and sometimes compete with each other.”

‘customer of choice’ means a client that is given preferential treatment compared to others for reasons other than sales and revenue. Advantages to being in this coveted position, include new opportunities for growth, and reduced risk and cost. Customers of choice might hope to get first refusal on innovations; greater investment in the relationship; access to and retention of the best people; superior account management; prioritised supply during periods of shortage; and a level of commitment that is a cut above and sees suppliers going the extra mile. Boosting supplier relationships in order to become a customer of choice is not about backscratching or cronyism, it’s about treating people and their businesses the way you would like to be treated and ensuring each side reaps the benefits that such behaviour brings. Relationships should be two way, with an element of reciprocity. Over time, they should aim to deliver the requirements of both parties if the partnership is to be successful and sustainable. None of this removes the ability to have respectful and robust conversations about difficult issues - in fact, achieving a level of trust and understanding can actually help to support such confrontations. Ultimately the aim is to have suppliers wanting to work for you, wanting to give you early access to innovation, preferential pricing and the ‘A team’ (all the things the leaders in this field enjoy). The best way of getting suppliers wanting to do that is to treat them with trust

When resources are in demand, it is the suppliers who have the power to choose who they supply and with whom they share knowledge and ideas.

• To find out more about how to conduct a Voice of the Supplier study and develop the right behaviour to become a customer of choice, email enquiries@stateofflux.co.uk FURTHER READING: • Interview with entrepreneur and investor Eric Wilhelm, page 42 • Strategic Account Management Association viewpoint, page 24 • The Extended Enterprise explained, page 36 • The role of Objectives and Key Results, page 70

to choose who they supply and with whom they share knowledge and ideas. Building supplier loyalty could therefore be a differentiator. Below we’ve listed six key areas in which you could see benefits as a result of becoming a customer of choice. We’ve also outlined the actions you would need to take, and the behaviour your buying organisation would need to demonstrate, to achieve them. Each requires businesses to draw on the three critical elements of people, processes and appropriate technology to ensure they succeed. Demonstrating these behaviours and actions and earning the accolade ‘customer of choice’

is not the end of the story, it’s the start. Retention of this status requires consistency and effort across organisations. As Christopher Jensen, director, customer solutions, at Strategic Account Management Association (SAMA), says on page 24: “This isn’t a case of becoming a customer of choice and staying there forever; it’s being a customer of choice for now.” Don’t forget you need your suppliers as much as they need you - maybe more. Shift your focus to ensuring the way you manage companies that are, and could be, an extension of your business is clear, fair and fruitful for both sides.

Consider the following: How you treat providers? Do you return their messages, listen to their ideas or share updates? Do you try to build a rapport with key contacts, put in place two-way performance metrics to judge you both and request regular 360-degree feedback? What happens when they enter your building or come to a meeting? Are they treated with respect and common courtesy? Do you try to understand their goals and targets both at a corporate and an individual level, and set joint annual plans (see box out)? If you do the above, do you do so consistently and constantly? And have you set out treatment

Wilhelm, who has established a number of successful supply businesses, adds: “Customers are realising that they have to become a customer of choice. They have to be open to gain- sharing and partnering, and allowing us [the suppliers] to provide an environment that’s attractive to people. If they [customers] want to be in that upper quadrant, they’re going to have to get away from that strict procurement mentality. Quality suppliers want to provide the best value for customers, and that goes way beyond the contracted price.” When resources are in demand, it is the suppliers who have the power

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