GOVERNANCE
GOVERNANCE
segmentation exercise. In this year’s results we see organisations ‘easing’ more criteria into their segmentation process. While business criticality and spend remain the core drivers for segmentation, used by 91% and 87% of companies respectively, as well as supply chain risk 1 , which is identified as a discrete criterion by 60%, we also see increased consideration of measures that cover growth and opportunity rather than just focus on risk. These emerging criteria include: > Potential for growth and value used by 44%
with 2019. However, in the case of Leaders and Fast Followers that figure is at over 90%.
Behaviours
Summary
When we talk about treatment strategies and plans we automatically start to think about the control side of the relationship, for instance, what meetings need to take place. While this is important, we know that working with suppliers and developing productive relationships is not just about control but also about behaviours. This year, for the first time, we have asked companies if the treatment strategies they created to deliver optimum supplier relationships make any reference to the behaviours that need to be adopted.
Segmenting suppliers is now well established, with more than 94% of respondents reporting they do this, but the criteria used continues to be limited. A significant shift has been the increased use of a measure for supply chain risk. Treatment strategies for managing suppliers are in place for 69% of respondents – a small increase compared with 2019. Three out of four include behaviours in these strategies. Governance is still not treated as a priority by enough companies. Currently just 57% of respondents have an effective model in place for more than half of their key suppliers. This goes hand in hand with contract, performance and risk management where companies do not invest sufficiently. While remaining the strongest of the six pillars, governance can still be a challenge.
> Market characteristics used by 42%
> Supplier innovation capability used by 36% SRM Leaders are far more likely to be adopting these ‘growth’ segmentation criteria. The feedback indicates that an SRM Leaders are more than twice as likely as Followers to be using ‘potential for growth and value’ and ‘supplier innovation potential’ as segmentation measures.
Segmentation in itself has no purpose unless it influences the way in which suppliers are managed.
I n the early days of researching SRM we discovered that for many companies governance activities didn’t extend much beyond putting in place a framework that was limited to a handful of scheduled meetings. These had no clear purpose other than to tick a box that said: ‘governance model in place’ and possibly satisfy a compliance audit. Thankfully very few organisations still think that way. Governance is now more widely regarded as an essential piece of the SRM jigsaw. It provides a framework that enables oversight, accountability and transparency and creates the regular drumbeat by which relationships are managed. Good governance isn’t imposed by one party on the other, it should be one of the many collaborative efforts that go into making a relationship function effectively. You can’t escape the fact that governance requires effort and will compete for time along with the other responsibilities that supplier management needs to deliver. It must therefore be as effective and efficient as possible, and this is where the direction provided by segmentation comes in.
Segmentation
69% HAVEDEVELOPEDSUPPLIER MANAGEMENTTREATMENT STRATEGIESALIGNEDTO THEIRSEGMENTATION OUTPUT 26% OFCOMPANIESHAVE EFFECTIVECONTRACT ANDPERFORMANCE MANAGEMENT INPLACE FORMORETHANTHREE QUARTERSOFTHEIR CRITICALSUPPLIERS 9 IN10SRMLEADERS INCLUDEBEHAVIOURSAS PARTOFTHEIRSUPPLIER MANAGEMENTPLANS
Most organisations, even those at the very start of the SRM journey, have now reached a level of maturity that means they are systemically segmenting their suppliers (more than 94% according to our latest figures). However, some companies are still using a relatively crude approach based only on spend, in most cases applying historical data, and a vague notion of risk. While achieving a segmentation output this won’t deliver the real purpose of the While business criticality and spend remain the core drivers for segmentation, we also see increased consideration of criteria that look at growth and opportunity rather than focus on risk.
Treatment strategies
Segmentation in itself has no purpose unless it influences the way in which suppliers are managed. Having gone to the trouble of designing and executing a process, the output must be put to good use in devising the most appropriate plan for each group of suppliers. This will include the best approach to the management and oversight of 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 strategies for different supplier groups also enable the most efficient and effective deployment of resources. While the detail of treatment strategies for each supplier group may vary, we know from our research feedback this year that almost 69% have developed plans aligned to their segmentation output – a small increase compared
Snapshot analysis
1 Supply chain risk has seen a marked increase in its use as a discrete segmentation criterion since the exposure extended supply chains received during the Covid-19 crisis. 2 All supplier engagements are covered by valid contracts, approved by the appropriate authority; key contract terms and milestones are understood, monitored and acted upon; contracts contain appropriate SLAs and KPIs; and contract change is managed effectively. 3 Organisations can only say they have effective risk management if a comprehensive risk assessment has taken place and is documented, typically covering all aspects of risk related to the provision of the supplier’s product or service. It should include risk and impact of failure, financial stability, supply continuity, and reputational risk. A single risk register should be maintained and reviewed on a regular basis. Business continuity plans (BCPs) and exit plans should be ready.
Segmentation is most often applied to an existing supplier base. However, some organisations are increasingly using it – or at least the thought process – as part of their sourcing strategy. This can influence both the approach to market and the supplier selection criteria based on the type of relationship required for a particular spend category or need. It can result in better sourcing outcomes by having identified risks and opportunities not previously considered.
46 STATE OF FLUX
2020 GLOBAL SRM RESEARCH REPORT
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