COLLABORATION
Only one in five organisations have joint plans with half their critical suppliers
Snapshot analysis
Proportion of companies with joint business plans in place for more than 50% of critical/strategic suppliers (all companies)
The result supports evidence from the collaboration question [p84], which found only one in five organisations were engaged more joint planning. Joint business plans are very much a feature of the SRM programmes developed by SRM leaders: more than 55% report having joint business plans in place for more than 50% of their critical or strategic suppliers. Only 33% of fast followers and 17% of followers can say the same. The industry sector most likely to have joint business plans in place with its critical or strategic suppliers is IT & telecoms. The sector least likely are is the industry is the public sector and manufacturing and automotive. While we have seen some encouraging signs of progress in the collaboration pillar of SRM, there is much work to be done before organisations get the full benefits of working more closely with suppliers. As SRM leaders demonstrate, more collaborative working is possible and also desirable, as we see from leaders greater returns on post-contract value. SRM can help many aspects of supplier performance, but, through collaboration, the creation of joint business plans is an activity that can release the most value. They can be the culmination of a lot of hard work in bringing together internal stakeholders and executives from the supplier, but joint business plans offer the opportunity for two organisations to work together on something concrete, on which they can see results and share the benefits. Since only one in five organisations have joint business plans in place, we can see how much more they could gain from SRM.
83% Less than 50% 17% More than 50%
Price and risk hinder supplier innovation
Sally Guyer, Global CEO, International Association for Contract & Commercial Management
I’m not saying either view is correct, but when these divergent views of the relationship exist, it is difficult for organisations to come together and collaborate on innovative programmes. If there is too much pressure on price, suppliers cannot afford to innovate and try to maintain margins by doing the bare minimum. In the case of risk, they fear being caught out and feel safer sticking to rigid ways of working. Equally, when we look at SRM, suppliers tend to fear it will simply be an opportunity for a buyer to extract lower prices or, worse, an opportunity to take intellectual property. Given the divergent views on price and risk, we see a lack of trust which corrodes their ability to innovate and create new value between them. So, instead of simply putting innovation in the contract, buyers need to work with suppliers on joint programmes that lead to greater trust separately from commercial considerations or discussions around risk.
If innovation is proactive and done in collaboration with suppliers, it stands a greater chance of achieving returns. Despite the buzz around supplier innovation, we find few organisations are doing it well. In May 2019, an IACCM survey found that although 79% of contracts include terms related to innovation or continuous improvement, 70% of organisations say these contract terms are frequently ineffective. There is a schism between suppliers and buyers when you talk to them about their relationship. Procurement professionals tend to say that focusing purely on price is old fashioned and no longer the approach; they are really more interested in the overall value they gain from the relationship. When you talk to suppliers, they say, ‘No, it is still about price’. It is the same story with risk. Buying organisations say they are interested in understanding operational, legal, environmental or ethical risks and managing it effectively. For suppliers, they see procurement simply pushing risk on to them.
86
STATE OF FLUX
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