VALUE
Companies still fail to treat suppliers as partners: the benefits of joint working flow just oneway In the type of benefit derived from SRM, we see a distinct difference between leaders, followers and others in our sample. Although non-financial benefits can be particularly difficult to quantify, 95% of SRM leaders report both financial and non-financial benefits, while 72% of followers do the same. Only 23% of other businesses report these benefits. Of the others, 42% do not record and report any benefits. Despite SRM leaders’ focus on non- financial benefits, they are still more likely to demonstrate post-contract financial benefits than other groups. Twenty-seven percent of leaders achieved financial benefits of more than 6% after signing supplier contracts. Only 13% of followers did the same. Over several years our research has shown an increasing gap between leaders and followers in outcomes they achieve through SRM. Average post-contract financial benefit is the headline number that companies will look for to test the effectiveness of their SRM approach and justify ongoing investment in it. It is alarming then that the followers and others combined, which
improved speed to market, and persuade suppliers to take on and manage more risk. These benefits represent increasing maturity in SRM. Businesses ignoring them are almost certainly losing ground against the competition. SHARING REACHES LIMITS Some organisations share the benefits of joint activities with suppliers to encourage their participation. Compared with other groups, leaders in SRM are more likely to frequently, or at least occasionally, share the benefits of SRM programmes with suppliers. At the same time, they are much less likely to never share the benefits than other respondents. However, in the overall result we still see reluctance among survey respondents to share the benefits. Companies can’t expect suppliers to be committed and motivated to create new value if they do not get to see some of the benefits. Companies still fail to treat suppliers as partners and the benefits of joint working flow just one way. This pattern has shown no real change over the years. However, 88% of SRM leaders offer suppliers non-financial rewards for engaging in SRM programmes. Around half of all companies recognise suppliers’ contribution in ways other than directly sharing benefits, such as through supporting the supplier’s brand promotion.
make up 86% of respondents do not know the financial benefits of SRM. Even among the leaders, one in five does not know the financial benefits of SRM. While organisations that are highly committed to SRMmay not make the same demands for clearly quantified benefits, at some point their investment in time, effort and resource to support SRM will come under the spotlight. Organisations that cannot point to tangible validated benefits will come under pressure to do so or risk losing the vital support and commitment of senior managers. Clearly, an inability to capture and report financial benefits remains a challenge for all organisations. SRMHELPS REDUCE AND AVOID COST, MANAGES RISK ANDMUCHMORE A detailed examination of the benefits from SRM programmes shows that, aside from direct financial benefits and risk reduction, they include a raft of indirect wins which can ultimately make a lasting impact on not only the bottom line but also the top line. The most common and tangible of these is an improvement in service levels, reported by 55% of respondents, and more supplier innovation reported by 41%. While less tangible, but potentially of equal value, increasing supplier commitment (‘going the extra mile’) is indicated by almost half of respondents and improved account management being enjoyed by 41%. SRM leaders and followers also say SRM is helping them gain competitive advantage,
LEADERS ARE MORE LIKELY TO SHARE SRMBENEFITSWITH SUPPLIERS
LEADERS ARE MORE LIKELY THAN OTHER GROUPS TO OFFER SUPPLIERS NON-FINANCIAL BENEFITS
SNAPSHOT ANALYSIS Not only are leaders likely to benefit fromSRM, they are alsomore likely to share those benefits, both financially and non-financially. Since much of the value generation of SRM comes through collaborative working, sharing benefits is an important tool in engaging suppliers. Those that do are also likely to see greater benefits themselves.
Fig 10. Do you recognise suppliers in other ways?
Fig 9. Do you share financial benefit derived from joint SRM activities with your suppliers?
Leader
Yes 12%
Leader
Follower
Other
%
No 88%
Always
3
1
4
Follower
Often
No 24%
No 76%
22
20
12
Occasionally
51
Other
42
No 46%
Yes 54%
44
Never
16
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Businesses that can align a value proposition with the strategy of the business will be at a considerable advantage when they start to build the business case for an SRM programme compared with those who do not. Entrepreneurial procurement aims to bring broader value to the business, not just in contract price and supplier performance, but in engineering new processes and creating newmarkets from innovation among suppliers. Procurement becomes the conduit for the business to access that supply-side value.
IN THE NEXT SECTION... Understanding the value SRM can offer in all its various guises is one thing. Turning that value into reality is quite another. To do so, procurement needs to engage stakeholders, senior management and suppliers in SRM. In the next chapter, we look at this topic.
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Don’t know
Typical supply-side benefits no longer constitute the primary motivation for investing in SRM
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VALUE STATEOFFLUX 2017GLOBAL SRMRESEARCHREPORT
2017GLOBAL SRMRESEARCHREPORT
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