GOVERNANCE
90% say that while supplier segmentationmay be process based it has not been done in conjunction with the business 23% have fully differentiated 9% of both leaders and followers use innovation as a criteria for segmenting suppliers supplier management treatment strategies
SUMMARY While there is evidence that organisations are taking governance seriously, there is still cause for concern. Even among SRM leaders, 29% of organisations do not have strong governance in place for more than half of their strategic suppliers. The struggle with governance starts in supplier segmentation: 90% of respondents say that while supplier segmentationmay be process based it has not been done in conjunction with the business. This is reflected in treatment of suppliers: among leaders and followers only around 23% have fully differentiated supplier management treatment strategies. Organisations find it a challenge measuring supplier performance. Even among leaders 39% say they measure performance of less than 50% of their key suppliers. There is work to be done if organisations are to move from functional management of suppliers towards harnessing their support for broader strategic objectives.
we see more progressive firms increasing the weighting they give them. Although spend and criticality will always be important to organisations in segmenting suppliers, increasingly the SRM value proposition has revealed the opportunity for suppliers to boost growth and innovation. This potential should be reflected in the segmentation criteria so these suppliers are managed accordingly. Growth and innovation should be reflected in the segmentation criteria so suppliers are managed accordingly differences between suppliers, they can move to manage the relationship with them according to how the supplier ranks against the relevant criteria. The extent to which they employ differentiated treatment strategies based on segmentation is an important indicator of progress in delivering higher value through SRM. The approach can also help plan allocation of resources and investment. We see from the data that little separates leaders, followers and others in terms of implementing differentiated treatment strategies. They are still a work in progress for over half of respondents. Among leaders and followers around 23% have fully differentiated supplier management treatment strategies. The remainder of respondents are a little way back at 22%. DIFFERENTIATED SUPPLIER MANAGEMENT REMAINSWORK IN PROGRESS Once organisations understand the An indication of how effective the segmentation process has been in differentiating between suppliers is the number of suppliers that an organisation can identify as genuinely critical or strategic. We consider the optimum to be between 11 and 25. Compared with previous years it appears organisations are identifying fewer suppliers that are genuinely critical or strategic: 47% of leaders say fewer than 10 suppliers are critical, compared with 28% of followers. Followers are more likely to select 11 to 25 suppliers as critical: 33% of them do.
THE MINORITY OF ORGANISATIONS CONSIDER STAKEHOLDERS’ INPUT WHEN SEGMENTING SUPPLIERS
% of respondents
Fig 17. Where you have segmented your suppliers, what approach have you used?
Other Follower Leader
An objective, structured process involving functional business stakeholders
2
0
5
An objective, structured process limited to procurement/supply chain
50
49
35
The best practice approach is to implement an objective process taking input from functional stakeholders. Those who do not risk a mismatch between how they value suppliers and how the business does. JUDGMENT OF SUPPLIERS REMAINS FOCUSED ON SPEND AND CRITICALITY Once organisations have decided how they will segment suppliers for the purpose of SRM, they need to think about the criteria against which they will judge suppliers. We see in the results of our survey a reflex to segment vendors on the level of spend with them or their criticality to business or service mostly from the perspective of risk. These are the most cited criteria among all groups in the survey. However, we do see subtle differences between leaders, followers and others. SRM leaders are increasingly considering the suppliers potential to contribute to growth, value creation and innovation and their appetite to work collaboratively. While organisations have considered these criteria for a while Stakeholders have an important perspective on the value and potential of suppliers
Governance is about consistency, clarity and compliance to process. It says how decisions will be made and who (or which roles) will make them; it does not predicate the decisions themselves. Although governance can seem a little abstract, leaders in change management and large-scale project management have recognised over the past 20 years that it is the bedrock of any new programme. If SRM is to survive the initial flurry of activity, it will need good governance. SEGMENTATION OF SUPPLIES REQUIRES INPUT FROM STAKEHOLDERS One of the first steps in the governance of SRM is understanding the supply base. Businesses need to know what their suppliers mean to them. When we ask about how companies segment their suppliers for the purpose of SRM, we see that more than 90% say that while it may be process based it has not been done in conjunction with the business. It is encouraging that 50% of leaders, and 49% of followers, use an objective and structured approach, but this process is limited to the procurement or supply chain function. Procurement ignores the stakeholder’s view of suppliers at its peril. Stakeholders have an important perspective on the value and potential of suppliers aside from the volume of business or supply-side category.
An objective, informal approach based on gathering stakeholder opinions
26
24
35
A subjective, informal approach based on executive opinion
10
13
9
Suppliers have not been segmented
5 5
6
Another approach
7
10
11
44
45
GOVERNANCE STATEOFFLUX 2017GLOBAL SRMRESEARCHREPORT E STATE OF FLUX GL AL SR RESEARCHREPORT
GOVERNANCE STATEOFFLUX 2017GLOBAL SRMRESEARCHREPORT
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