GOVERNANCE
ROBUST GOVERNANCE REMAINS A PROBLEM, EVEN FOR LEADERS
CONTRACTANDPERFORMANCE MANAGEMENTREMAINSASTRUGGLE
POOR RISKMANAGEMENT EXPOSES BRANDS
SNAPSHOT ANALYSIS Businesses need suppliers to add value: to support innovation and growth. But when we look at how they manage supplier performance, even SRM leaders are struggling to get to grips with themost basic measures. Thirty-nine percent of leaders have contract and performance management in place for less than half of their key suppliers. Meanwhile, 37%of leaders have riskmanagement in place for less than half their key suppliers. Without understanding how suppliers are performing on fundamental measures such as performance and risk, organisations will struggle to get suppliers to a make value-added contribution.
Fig 21. For what proportion of your critical or strategic suppliers do you have a robust governancemodel in place?
Fig 23. For what proportion of your key suppliers would you consider you have effective risk management in place?
Fig 22. For what proportion of your key suppliers would you consider you have effective contract and performancemanagement in place?
% of respondents
Other Follower Leader
32
50% to 70% 70% to 90% 90% to 100%
Don’t know Less than 50%
50% to 70% 70% to 90% 90% to 100%
Don’t know Less than 50%
29
29
25
24
22
22
21
Leader
Leader
20
20
16
16
21% 24% 16% 39%
Follower 16% 29% 16% 37% 3%
29% of leaders have good governance in place for less than half their key suppliers
13
Follower
12
27% 25% 20% 22% 7%
13% 30% 20% 28% 8%
Other
Other
0
13% 21% 20% 37% 9%
21% 24% 18% 31% 7%
90% to 100%
70% to 90%
50% to 70%
Less than 50%
Don’t know
But secondly poor or inconsistent contract and performance management is no basis on which to build successful SRM. BUSINESS EXPOSED TO RISK THROUGH POOR SUPPLIERMANAGEMENT Similar to contract and performance management is risk management. Effective risk management means that a comprehensive risk assessment has taken place and is documented, typically covering all aspects of risk related to the provision of the suppliers' product or service. Riskmanagement is fundamental to protecting the business. However, the proportion employing effective risk management remains low. The industry sectors reporting themost effective implementation of riskmanagement across key suppliers are the transportation and public sectors. It is surprising that financial services are weaker.
Contract and performance management are the foundations on which productive relationships need to be built. Given that this question asks respondents about how they manage key suppliers, the proportion with effective contract and performance management remains worryingly low. There are some exceptions. The financial services and oil and gas sectors report the most effective implementation of contract and risk management across key suppliers. However, across all industries, only around 20 to 25% of all organisations have between 90% and 100% of their key suppliers under effective contract and performance management. Roughly the same proportion has 70% to 90% of suppliers under performance management. However, even amongst leaders, 39% say the same about less than 50% of their key suppliers.
Across all sectors, even among SRM leaders, only 16% have more than 90% of their key suppliers under risk management, and only 29% have between 70% and 90% of their key suppliers managed in this way. Among leaders, only 63% say they have effective risk management in place for more than half of their key suppliers. Clearly poor implementation of risk management of key suppliers exposes operations and brands to damage. It also makes it difficult to move ahead with more effective value-adding SRM. Despite the importance of governance to SRMwe see significant gaps in how organisations segment andmeasure their suppliers. Without sufficient understanding and control of the supply base it is difficult to build effective SRM. If businesses are to see added-value benefits fromSRM, such as product innovation or reduced time tomarket, they need to put more effort into governance.
IN THE NEXT SECTION... Even with good governance in place, it is employees – both within and outside procurement – who will determine the success or failure of SRM. We consider organisations’ progress in developing them in the next section.
Governance can sound like a burden but, actually, it saves time avoiding duplicating processes and helps ensure you put effort in the right areas to create value. This starts with defining the segmentation model and focusing effort on those suppliers that can add the most value. Look to identify broader supplier attributes such as opportunity, rather than spend and risk alone. Opportunity is still underrepresented within segmentation criteria. Entrepreneurial SRMwould look to score opportunity higher, look for suppliers that can provide more opportunity and rank these at the top of the list. Good governance supports entrepreneurial thinking because it frees up the organisation to be creative and look for new sources of value as opposed to spending unnecessary time and resources fire- fighting or stumbling over operational challenges.
Firstly, the result shows business are exposing themselves to risks.
48
49
GOVERNANCE STATEOFFLUX 2017GLOBAL SRMRESEARCHREPORT
GOVERNANCE STATEOFFLUX 2017GLOBAL SRMRESEARCHREPORT
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