2024 Global SRM Research - Return on Relationships

The State of Flux 2024 Global Supplier Relationship Management Research Report focuses on the importance of supplier relationships and how to maximise your returns by focusing on what's important

2024 GLOBAL SRM RESEARCH REPORT

RELATIONSHIPS MATTER

Relationships matter “No man is an island, entire of itself, every man is a piece…a part of the main.” So said the poet John Donne, and the same sentiment can be applied to business. No organisation is completely independent or self-sustaining; each forms part of an interconnected web that relies on others – be they suppliers, partners, customers, or all three.

Welcome to the 16th Global SRM Research Report , a study that explores the ever-evolving landscape, role and value of supplier relationships. My thanks to the 496 individuals from 334 organisations across the globe who took part in this year’s survey. As well as summarising the findings of this research, throughout this report are interviews and case studies with leaders from organisations ranging from tech multinational Microsoft to charity Cancer Research UK; Starbucks coffee company to Westpac bank and INEOS Automotive. These are designed to inform and inspire and we’re grateful to them for sharing with us all where they are on their supplier management journey. We also announce a training partnership between ourselves and The Chartered Institute of Procurement & Supply (page 18). As well as offering insight into the six pillars of supplier management (value, engagement, governance, people, technology and collaboration), this year’s book has a particular focus on the returns to be derived from supplier relationships. ‘Return on relationships’, or ROR, is a multifaceted metric that goes beyond the traditional financial lens of return on investment (ROI). It seeks to measure the holistic impact of supplier relationships on an organisation’s bottom line. It encompasses factors such as risk mitigation, innovation, operational

efficiency, and strategic alignment (page 4). To calculate an ROR effectively,

This, respondents said, is the most significant factor that prevents organisations from quantifying the returns on their supplier relationships. Technology remains a barrier for many (page 72). Almost a fifth (19%) reported that their company had no system in place to support contract lifecycle management, and 21% said the systems they had to support performance management were ‘poor’. However most Leaders in the field of SRM (82%) do have a dedicated system to support contract lifecycle management. Worryingly, close to a quarter (23%) of all respondents said they had not yet developed a business case at all for supplier management (page 43). Also of concern is the drop we’ve seen in the number of SRM leaders. Our research shows year after year that the benefits of SRM are proven and compelling. Yet both of these findings demonstrate a lack of investment in this crucial field. Not having a well-structured programme in place leaves value, in all its forms, on the table; an oversight organisations can ill afford.

organisations need to consider both quantitative and qualitative aspects of their interactions with suppliers, something we assist with on page 11. Close to half (46%) of participants in our survey revealed their company’s supplier management programme is delivering financial benefits of above 4% per annum (page 42). And just over 9 in 10 Leaders indicated that they capture or monitor the financial benefits that are delivered above and beyond contracted spend for their critical and strategic suppliers. Beyond financial transactions, respondents said they consider ‘enhancing collaboration and innovation’ the most important return on relationships metric (page 32). They agree that ensuring regular supplier meetings and performance reviews are in operation is the key action they can take to ensure they achieve a successful return with suppliers. Benefits awarded to ‘customers of choice’ (page 4) can be the difference between having access to a scarce resource, improved speed- to-market, reduced risk, increased resilience, better communication, and so much more. However, for many it is the capturing and reporting of returns that remains a challenge. They are particularly hampered by a lack of access to accurate or meaningful data.

Contents 03 Introduction: Relationships Matter 04 Maximise the return on your relationsips 08 Welcome to the reputation and relationship age

36 Case Study: Microsoft

- Harnessing size and scale

40 Value 46 Case Study: Cancer Research UK - Gearing up to benefit 50 Engagement 56 Case Study: INEOS - You have to be comfortable with uncertainty 60 Governance 66 People 72 Technology 78 Interview: Starbucks - Measuring out value 82 Collaboration 88 Case Study: Westpac - Raising performance together 93 About State of Flux

11 Decoding success 14 Making connections, not a quick buck

18 Partnership provides skills boost 20 About Supplier Management, State of Flux and our research 22 Six Pillars of SRM 24 Summary of Key Findings 26 Research Round-Up 28 Call to Action 30 Return on Relationships

“No organisation is completely independent, each forms part of an interconnected web.”

Alan Day Chairman & Founder State of Flux

2024 GLOBAL SRM RESEARCH REPORT

MAXIMISE THE RETURN ON YOUR RELATIONSHIPS

Maximise the return on your relationships

Strategic supplier management generates more value, reduced risk and improved innovation

Done well, effective supplier management generates a huge array of benefits for organisations, and leaders in the field are reaping these rewards. But even for them there is so much more to do, and for followers - and those that have barely begun - there are multiple further gains to be won. The challenge for many procurement and supply teams is that some of these advantages are easier to spot and quantify than others. The business case that many supplier management programmes are built on typically covers three things: value, risk and innovation. Some elements of this can be quite straightforward to measure, while the softer, more nebulous advantages can be just as crucial but harder to capture and evidence. For instance, if your organisation is seen as a ‘customer of choice’ by a key supplier, it can mean the difference between getting - or missing out - on a vital product that is in scarce supply. Customers of choice might hope to get first refusal on innovations; greater investment in the relationship; access to and retention of the best people; superior account management; priority supply during periods of shortage; and a level of commitment that is a cut above and sees suppliers going the extra mile.

Robust supplier management practices have emerged as a linchpin for organisations aiming not only for operational excellence and to maximise their return on investment (ROI), but even simply to be able to keep going. The pandemic stretched and severely tested buyer-supplier relationships and those found wanting were among the first to fail and fall. It is vital that procurement and supply teams are able to make the business case for supplier management by directly linking it to how it can help address key challenges. Aligning supplier management outcomes to business drivers at a strategic level and engaging both suppliers and the business to deliver is essential. It may require more creativity to find ways to capture and report value by using technology to track both direct and indirect financial benefits, but without that businesses may be missing out on the full return on relationships. Evidence and research State of Flux, which is globally recognised for specialising in procurement and supplier management, has been at the forefront of research which explains the tangible benefits to be gained from strategic supplier management.

Its studies have shown time and again that the full value proposition of supplier management includes multiple gains. These include improved supply chain resilience; better continuity; increased likelihood of success through shared goals and objectives; more risk/reward sharing; joint product, process and service development; improved communication; and optimisation of resources and skills. Its annual research, now in its 16th year, emphasises the transformative impact of strategic supplier management on an organisation’s bottom line. This includes: » Improved risk mitigation and resilience: Effective supplier management significantly contributes to risk mitigation and organisational resilience. Proactive identification and mitigation of supplier risks translate into reduced disruptions, safeguarding operations and preserving revenue streams. » Greater innovation and competitive advantage: Organisations that strategically manage their supplier relationships foster innovation and gain a competitive edge.

“If your organisation is seen as a ‘customer of choice’ by a key supplier, it can mean the difference between getting - or missing out - on a vital product that is in scarce supply.”

2024 GLOBAL SRM RESEARCH REPORT

MAXIMISE THE RETURN ON YOUR RELATIONSHIPS

2. Collaborative innovation Encouraging a culture of collaborative innovation allows organisations and their suppliers to co-create value. By leveraging each other’s strengths, they can develop solutions that drive mutual success and set industry benchmarks. 3. Strategic alignment: Aligning strategic goals is crucial. Whether the supplier is a customer, partner, or competitor, ensuring that overarching objectives are in harmony creates a foundation for sustainable relationships. 4. Demonstrate adaptability and flexibility: The fluid nature of multifaceted supplier relationships requires organisations to be adaptable and flexible. Policies and processes help but without flexibility and adaptability some relationships will fail. Being responsive to changes and evolving roles helps to foster resilience and longevity in partnerships. Paradigm shift Supplier management has historically been viewed as a cost centre, but it is undergoing a paradigm shift. Organisations are recognising that, when approached strategically, supplier management is not merely an operational necessity but a critical investment with the potential to yield substantial returns on their investment in those relationships. The shift from viewing suppliers merely as vendors to acknowledging them as critical stakeholders in a company’s success is a crucial part of this. In an era where every dollar, pound or Euro invested must yield maximum returns, effective supplier management, coupled with joint account planning, is a strategic imperative for organisations seeking to unlock value and drive sustained financial performance.

Collaborative partnerships with suppliers lead to the co-creation of value, enhancing product quality and fostering a culture of continuous improvement. » Cost optimisation and better efficiency: State of Flux’s research underscores the correlation between effective supplier management and cost optimisation. By streamlining processes, negotiating favourable terms, and fostering efficiency, organisations achieve tangible cost savings that contribute directly to the ROI equation. In addition to the body of work produced by State of Flux, another key study was that produced by Dr John Henke, former president of Planning Perspectives Inc, now retired. His research focused on major automotive manufacturers and concluded that they could significantly improve their profits by improving their supplier relations. The results of the OEM Profitability and Supplier Relations study published a decade ago, were determined by the development of a unique economic model that proves and predicts “a direct cause-effect relationship between an automotive original equipment manufacturer’s (OEM’s) supplier relations and the OEM’s profitability, or in other words, an automaker’s return on supplier relations”. The headline that appeared in Automotive News, following the study’s release, announced ‘Supplier relationships cost top 6 automakers in US $1.4bn in profit, study says’. In the years prior to the profitability study, Henke published an annual ranking of the relationships between the six major North American automakers with their suppliers.

This annual index initially focused on three US and three Japanese automakers. Key insights from this work include: » The importance of investing in strategic supplier relationships: Henke emphasised the distinction between transactional and strategic supplier relationships. Strategic relationships, characterised by collaboration and mutual investment, result in superior supplier performance and a positive impact on the buying organisation’s financial performance, he found. » The financial impact of supplier relations: Henke’s research provides empirical evidence of the financial impact of supplier-customer relations. Organisations that invest in building strong, long- term relationships with suppliers achieve superior financial results, including higher profitability and greater market share. » Communication and trust: building in supplier relationships is a recurrent theme in Henke’s work. Organisations that prioritise transparent communication and cultivate trust with their suppliers create a conducive environment for collaboration. This yields dividends in terms of improved performance and financial outcomes. Joint account planning A pivotal aspect of strategic supplier management involves unlocking The importance of effective communication and trust- value through joint account planning with key suppliers. This collaborative approach goes beyond traditional transactional engagements to foster a shared vision and roadmap for mutual success.

Joint account planning typically involves the following: 1. Strategic alignment: Collaborating with strategic suppliers to align business goals and strategies ensures a shared understanding of objectives and a unified approach. 2. The co-creation of value: Joint account planning facilitates the co-creation of value, where both the buying organisation and the supplier actively contribute ideas, innovations, and efficiencies. 3. Risk mitigation: organisations and their strategic suppliers enhance their collective resilience to disruptions. 4. Continuous improvement: Regular joint reviews and performance assessments drive a culture of continuous improvement, fostering agility and adaptability in the face of changing market dynamics. Strategic supplier management has the potential to make a transformative impact, especially when complemented by joint account planning. Moving beyond the conventional view of supplier management as a cost centre, organisations are embracing it as a strategic investment that yields quantifiable benefits. By jointly identifying and addressing potential risks, By fostering collaborative and transparent relationships with suppliers, organisations position themselves not only for cost savings and operational efficiency but also for innovation and market leadership. The 4-in-1 supplier dynamic For supplier management to be successful, organisations must first understand the dynamic between their business and that of the supplier. This is important because it impacts how the relationship with that supplier is defined.

Here are the four potential possibilities: 1. Supplier and customer: Recognising the reciprocal nature of supplier-customer relationships can lead to a more harmonious and balanced exchange of goods and services. 2. Supplier and partner: Strategic partnerships with suppliers unlock collaborative potential, which drives innovation and positions both parties for long-term success. 3. Supplier and competitor: Acknowledging the competitive aspects of supplier relationships helps organisations to stay vigilant, which in turn fosters an environment of continuous improvement and innovation. 4. Supplier and supplier: In the traditional sense, suppliers remain vital parts of the supply chain. Managing these relationships efficiently ensures the seamless flow of goods and services within the broader business ecosystem Navigating the complexity The multifaceted dynamics of supplier relationships bring both challenges and opportunities. Navigating this complexity requires a strategic approach that emphasises transparency, collaboration, and adaptability. Acknowledging the various roles a supplier can play helps organisations to tailor their strategies to unlock maximum value. Here are the key attributes required to help buying organisations to navigate this complexity: 1. Transparency and communication: Open and transparent communication is paramount in navigating multifaceted supplier relationships. Establishing clear expectations and boundaries helps to mitigate potential conflicts and aligns all parties to shared goals.

Three examples of multifaceted supplier relationships Adaptability and strategic acumen is enabling some businesses to harness the full potential of complex supplier dynamics. 1. Automotive consortium A consortium of manufacturers, suppliers, and technology companies in the automotive sector collaborates on joint research and development projects. Suppliers, traditionally viewed as component providers, actively contribute to shaping the future of the industry. 2. Supplier ecosystem of a global retailer In this instance, a global retailer strategically partners with key suppliers to co-create exclusive product lines. These suppliers, while fulfilling their traditional role, also serve as partners in the retailer’s innovation strategy. This multifaceted relationship has resulted in a competitive advantage and enhanced customer loyalty. 3. Technology giant’s supplier-customer relations In this example, a large technology company engages its key suppliers not only as providers of components but as customers of its software and services. This dual relationship ensures a reciprocal exchange of value and creates a symbiotic ecosystem where both parties contribute to each other’s success. The dynamics of supplier relationships bring both challenges and opportunities, and it is the organisations that can navigate this complexity with agility and strategic acumen that are poised for long-term success.

“A pivotal aspect of strategic supplier management involves unlocking value through joint account planning with key suppliers.“

2024 GLOBAL SRM RESEARCH REPORT

WELCOME TO THE REPUTATION AND RELATIONSHIP AGE

Data and information are important, but relationships and reputation are even more so, argues Alan Day Welcome to the reputation and relationship age

“Trust is a cornerstone, and procurement professionals are tasked with establishing and nurturing relationships built on transparency, reliability, and ethical practices.”

Information may still be power but information and data go quickly out of date, while strong relationships stick around, and reputation just sticks. “We’ve created an industry that measures information, but we’re not really measuring reputation,” says Alan Day, Chairman and Founder of State of Flux. “If you look at procurement, even today, most of the time buyers are sourcing based on facts and data, but no sooner than they make a decision the need that they outlined in the tender has probably changed anyway. More than half the time requirements change, so why not try to choose the best partner to work with, rather than the person that can provide the best widget at understand the importance of brand, over and above data. “For our kids, everything is about their reputation, nothing is about managing data. This perhaps is yet to hit the business world - but while we in business have been focused on what information is out there, younger people care more about how that information affects their reputations.” a particular point in time?” He says young people now

It is this shift - the transition from the ‘Information Age’ to the ‘Reputation and Relationship Age’ - that is happening right now and is to bring about a paradigm shift in procurement, he says. This article explores the implications of this shift on procurement practices, which have been traditionally anchored in transactional processes, and highlights the evolving role of relationships and reputation in the modern business landscape.

ethical standing, reliability, and collaborative potential. Reputation is a dynamic and networked phenomenon that aligns with the principles of supplier relationship management (SRM). In the procurement landscape, organisations are recognising that managing supplier relationships goes beyond transactional interactions. Becoming the ‘customer of choice’, as is advocated by State of Flux, involves consistently delivering value, building strong relationships with suppliers, and fostering a reputation for fair and transparent dealings. 3. Elevating supplier relationship management (SRM) Recognising the shift from transactional to relational, procurement must evolve beyond a mere sourcing function. A comprehensive SRM strategy becomes paramount. Procurement professionals are tasked with cultivating long-term relationships with suppliers, emphasising shared values, and fostering collaborative innovation. State of Flux’s work on SRM principles and the concept of being the customer of choice

in which information will have value only if it is already filtered, evaluated and commented upon by others.” Origgi examines the influence of the Internet and social media, as well as the “countless ranking systems that characterise modern society and contribute to the creation of formal and informal reputations in our social relations, business, politics, and academia”. She also highlights the importance of reputation to the effective functioning of the economy and e-commerce.

and organisations to flex, bend and impact reputations becomes paramount. This shift underscores the need for a recalibration in how procurement itself operates in a landscape increasingly defined by reputational currency - with human connections and trust playing an increasingly significant part. Parallels with procurement 1. From transactions to trust The ‘reputation and relationship age’ demands a shift in focus from transactions to trust. Procurement professionals must recognise the centrality of relationships in building trust, valuing reliability, transparency, and ethical practices in supplier interactions.

In the ‘information age’, procurement was often portrayed as a series of transactions, emphasising the efficiency of acquiring goods and services. However, in the reputation and relationship age, the narrative changes. Trust becomes a cornerstone, and procurement professionals are tasked with establishing and nurturing relationships built on transparency, reliability, and ethical practices. 2. Supplier reputation as a strategic asset In the reputation and relationship age, the quality and reliability of information take precedence. In procurement, a supplier’s reputation becomes a strategic asset. Organisations scrutinise not only product quality but also

“Procurement operates in a landscape increasingly defined by reputational currency.”

Reputations are not only formed and preserved but travel through the complex web of social networks influencing and modifying reputations through use of language, rhetoric and narrative. If you’re measuring reputation, you have to understand that complex web and be aware of its impact. And in a world where online presence and digital identity are crucial, understanding the strategies employed by individuals

Theory and practice According to Italian philosopher and tenured researcher Gloria Origgi, author of Reputation: What It Is and Why It Matters, reputation affects every aspect of contemporary life. In her article Say goodbye to the information age: It’s all about reputation now , she says we are experiencing a fundamental shift in our relationship to knowledge. “From the ‘information age’ we are moving towards the ‘reputation age’

2024 GLOBAL SRM RESEARCH REPORT

DECODING SUCCESS

“Embracing this paradigm shift ensures procurement’s continued relevance and resilience in an era where reputation and relationships reign supreme.”

becomes integral in this context. The shift from a product-centric approach to one that prioritises relationships aligns with the core of SRM, emphasising the strategic importance of understanding and maximising the value derived from supplier interactions. 4. The power of networks and collaborative ecosystems The reputation and relationship age thrives on interconnected networks. Similarly, in procurement, creating collaborative ecosystems with suppliers is imperative. Here, knowledge sharing, joint problem-solving, and continuous improvement are not just encouraged but integral to

5. Transparency and ethical sourcing as pillars of reputation Transparency and ethical practices are the hallmarks of the reputation and relationship age. Procurement professionals should actively seek suppliers who align with stringent ethical standards and transparent business practices. The reputation of suppliers, in this context, directly influences the reputation of the entire supply chain.

This approach fosters a collaborative and mutually beneficial environment.

Customer of choice Customer’s of choice typically get preferential treatment compared to others for reasons other than sales and revenue. They may get early access to new opportunities for growth, as well as benefit from reduced risk and cost. Being a customer of choice comes from consistently building strong relationships with suppliers and fostering a reputation for fair and transparent dealings. And it is in this way that customers of choice achieve greater value. In the reputation and relationship age, being the customer of choice translates to being a trusted and valued partner in the supplier network. Procurement now finds itself at a pivotal juncture. Beyond the confines of transactional processes, the focus has shifted to cultivating robust supplier relationships, building trust, and aligning with ethical and transparent practices. Embracing this paradigm shift not only positions procurement as a strategic player, it also ensures its continued relevance and resilience in an era where reputation and relationships reign supreme. The principles of SRM and the concept of being the customer of choice, championed by State of Flux, serve as guiding beacons for procurement professionals navigating this dynamic landscape. In this age of interconnectedness, where reputation is currency, procurement has the opportunity to redefine its role and contribute to the broader success of organisations. As companies start to recognise the strategic importance of supplier relationships, procurement emerges as a key player in shaping this collaborative and mutually beneficial environment.

Decoding success

A guide to calculating your Return on Relationships

2. Revenue preservation » Formula: Revenue preserved ÷ total revenue x100 » Assess how supplier relationships contribute to maintaining consistent production and service levels, preventing revenue loss during disruptions 3. Innovation impact » Formula: Innovation impact ÷ total R&D spend) x100 » Quantify the influence of supplier

To prove the value that strategic supplier management programmes can bring to businesses, procurement and supply teams need to be able to comprehensively calculate the return they get for those supplier relationships. ‘Return on relationships’ (ROR) is a multifaceted metric that goes beyond the immediate benefits of cost savings and efficiency, in other words the traditional financial lens of return on investment (ROI). Instead, it seeks to measure the holistic impact of supplier relationships on an organisation’s bottom line, encompassing factors such as risk mitigation, innovation, operational efficiency, and strategic alignment. Working out the true return on relationships involves a nuanced approach. It covers both quantitative and qualitative aspects of interactions with suppliers, encompassing financial, operational, and strategic considerations.

It pulls together the impact of individual supplier relationships, performance and governance and looks at the return on the investment for the whole programme. Here we explore key components and methodologies that will help to decipher and determine the real returns derived from supplier relationships. Quantitative metrics 1. Cost savings and efficiency » Formula: (Cost savings + efficiency gains) ÷ total spend x100 » Identify and quantify cost savings achieved through negotiations, bulk purchasing, and process efficiencies. » Measure the impact of

In the reputation and relationship age, organisations are scrutinising suppliers not just for their product quality but also for their ethical standing. Transparency in sourcing practices and adherence to ethical standards become critical considerations, and procurement practices should align with the broader ethical values of their organisation. 6. Insights on SRM and being the customer of choice The principles of SRM emphasise the strategic importance of understanding and maximising the value derived from supplier interactions. Becoming the customer of choice echoes the ethos of the reputation and relationship age, where organisations prioritise relationships over mere transactions.

enhanced competitiveness and resilience in a rapidly changing business landscape. As companies navigate the complexities of today’s business world, the power of networks and collaborative ecosystems in procurement cannot be overstated. The interconnectedness of suppliers and organisations fosters an environment where collective innovation and problem-solving contribute to sustained success. This interconnectedness can be used to harness success for buyers and suppliers, but also risks damaging the reputation of both should problems arise.

collaboration on product/ service innovation, market competitiveness, and the organisation’s overall innovation agenda.

Qualitative metrics 1. Risk mitigation and resilience » Evaluate the effectiveness of supplier relationships in identifying, mitigating, and managing risks.

streamlined processes on operational efficiency and cost reduction.

2024 GLOBAL SRM RESEARCH REPORT

DECODING SUCCESS

» Consider qualitative factors such as responsiveness during crises and the supplier’s role in enhancing organisational resilience. 2. Strategic alignment » Assess the extent to which supplier relationships align with the organisation’s strategic goals and long-term vision. » Consider qualitative indicators of shared objectives, joint planning, and collaborative initiatives. 3. Supplier performance » Gauge qualitative aspects of supplier performance, including reliability, quality, and adherence to contractual agreements. » Consider feedback from internal stakeholders and assess the supplier’s contribution to overall organisational goals. Customer of choice A key sign of success for buying organisations is if they are considered a ‘customer of choice’ by their most important and strategic suppliers. A customer of choice is an organisation that suppliers prefer to work with because they are treated fairly, openly communicated and collaborated with. Striving to become a customer of choice, which has been championed by organisations like State of Flux, emphasises the reciprocal nature of supplier relationships, where both parties contribute to each other’s success. It is a guiding principle for organisations seeking to establish mutually beneficial and enduring relationships with their suppliers. Earning this status reaps returns that are both quantitative and qualitative. It means a client that is given preferential treatment compared to others for reasons other than sales and revenue, such as new opportunities for growth and reduced risk. A customer of choice might hope to get first refusal on innovations; access to and retention of the best people; greater investment in

Critical exercise For CPOs, embracing the return on relationships is not merely a strategy but an urgent necessity. Volatile market conditions, rising global competition and sustainability goals demand a swift pivot towards relationship-centric procurement practices. By championing the importance of understanding the full return on their supplier relationships, CPOs can build resilient supply chains, mitigate risks more effectively and drive innovation and improved sustainability practices. This makes calculating that return a critical exercise. By combining quantitative metrics with qualitative assessments, businesses gain a comprehensive understanding of the impact suppliers have on their financial performance, operational efficiency, and strategic goals. And it motivates organisations to continue to maximise the value they get from their supplier interactions.

the relationship; prioritised supply during periods of shortage; superior account management; and a supplier that goes the extra mile. Methodologies Here are three key approaches organisations can take to calculating the return on their supplier relationships (ROR) to evidence the value of strategic supplier management. 1. Balanced scorecard approach » Develop a balanced scorecard that incorporates financial, customer, internal process, and learning/growth perspectives . » Assign weights to each perspective based on your organisation’s priorities and assess supplier relationships against these criteria. 2. Supplier Relationship Management (SRM) metrics » Leverage established SRM frameworks and metrics to evaluate supplier performance. Many organisations already have a methodology for calculating category savings, this can be used and added to with metrics that are typically considered benefits given to buying organisations that the supplier considers a customer of choice. Consider dimensions such as collaboration, innovation, risk management, and strategic alignment. 3. Composite index » Create a composite index that combines quantitative and qualitative metrics (as described above) and pull them into a single, weighted score . » Regularly review and adjust the weights based on changing organisational priorities. In a real-world example, one automotive manufacturer captured quantitative and qualitative data to demonstrate the value of their strategic supplier relationships. Quantitative evidence included 15% cost savings achieved through collaborative negotiations and bulk purchasing agreements; as well as

a 20% reduction in lead times, which resulted in operational efficiency gains. Qualitative metrics included that they successfully navigated supply chain disruptions and preserved 95% of projected revenue during a global crisis. They also collaborated with key suppliers on an innovative product line, which contributed to market leadership. Challenges and considerations There are two key sticking points that can present challenges to collecting the evidence: the availability of data and subjectivity in qualitative metrics. These will need to be overcome to make the full case for the return on relationships. It’s vital procurement and supply teams have access to accurate and comprehensive data for both quantitative and qualitative metrics as the starting point. This will be aided by collaborating with internal departments and suppliers to collect relevant information, and through the use of technology to track and record progress. In terms of subjectivity, the best approach is to first accept and openly acknowledge the subjective nature of qualitative assessments, and to implement regular feedback mechanisms and performance reviews to maintain objectivity. Continuous improvement and adaptation Once you’ve established your metrics, keep an eye on them and keep them continually updated to ensure they remain accurate and relevant. This can be done using periodic reviews of your ROR metrics to make sure they align with organisational goals, and to use feedback loops to make adjustments and refinements to the calculation methodology. It is also important to be adaptable. Supplier relationships and organisational priorities will evolve over time, so procurement and supply departments will need to flex and alter the ROR measurements to reflect changing business priorities.

The methodologies outlined here provide a structured approach to measure ROR, allowing organisations to make informed decisions, foster collaborative supplier relationships, and continuously enhance their overall business performance. Finally, remember, ROR is not a one-time calculation but an ongoing process that evolves with the dynamics of supplier relationships and the broader business environment.

Get in touch at enquiries@stateofflux.co.uk for help with maximising your return on relationships.

2024 GLOBAL SRM RESEARCH REPORT

MAKING CONNECTIONS, NOT A QUICK BUCK

the marketing industry, and it’s an ethos he continues to live by, no matter how much effort and energy it requires. “You have to walk the walk,” he says. “Relationships matter to me and if you say you care about them, you have to show you mean it. Don’t leave your voicemail full or ignore messages, get back to people and engage with them. If you ask for feedback from customers [or suppliers], really listen to what they’re saying and act on it.” Personal and political relationships may be trickier, but in business, taking a professional approach to doing the right things is actually pretty straightforward, he argues. And when you’re competing for scarce resources or the best access to talent - or in the case of cosmetics marketing, competing for sales in a crowded market - relationships can mean the difference between failure and success. “Customer experience is the only true branding and the only time you have a customer’s 100% attention is when they’re seeking customer service to resolve a problem, so you need to be there ready to help.”

“Return on investment is about dollars and cents, return on relationships is about people.”

Making connections, not a quick buck

This culture, like so much in business, has to be led from the top to succeed. “If you need help from Amazon or Apple they’re there. Airlines pick up the phone to speak to people because they don’t want you flying with another provider. In hotels, you can tell if the manager comes out of their office and cares by how clean and tidy it is and how staff treat customers. “I like to stay at Ritz-Carlton because all its staff - from the management to housekeeping - are empowered to ensure customers are satisfied. Up to a certain point, every employee has the ability to solve a problem. Empower your employees and they will empower your brand. That’s return on relationship gold.” Do your homework When trying to form a relationship it’s helpful to build up a picture of a person or company before you meet with them, says Rubin.

He calls this ‘looking people in the eye digitally’ and says pre-meeting prep is key. It is also a whole lot

simpler than it used to be. “In the 1980s you relied on

We speak to social media strategist, speaker and author Ted Rubin about the value of getting a return on relationships in marketing and sales, and draw parallels with procurement and supply.

microfiche and trade directories for information, it’s so much easier now. I find it appalling when I go to meetings with a salesperson who doesn’t have a clue what’s happening for that company - are they being sued, is there something positive in the news about them - it’s a two-second check to find out.” He also suggests people arrive early at meetings to scope out the general environment to get a sense of a place, its atmosphere and surroundings. “Check what kind of restaurants are in the area; ask if you can you go into the meeting room ahead of time to look for things that can be used to make an emotional connection. Find out what matters to them.”

It was while as Chief Marketing Officer for e.l.f Cosmetics that Ted Rubin persuaded bosses to hold off on the hard sell to customers. Instead, he proposed, they should use burgeoning social media platforms to develop relationships with them. “Fortunately the senior leaders scratched their chins and thought it was an interesting idea,” he tells us. It was in 2008 that Rubin began to use platforms including Twitter, MySpace and FaceBook to connect with consumers and take a longer term view to the marketing of the brand. “I was seeing all these conversations and it was clear how much our customer base loved it. I don’t buy from merchants who constantly haunt me with ads. If you start loading social media with crap, people will stop coming.” So instead of chasing extra profit to boost quarterly results, the company took time to create a following, raise brand awareness and give people a reason to return. “When you treat people better, the product does better.” The success of this approach led Rubin to start - as he puts it - “evangelising” the term ‘return on relationships’. As a marketeer, for him the phrase describes the value that companies can derive from building and maintaining strong relationships with their customers.

And it is distinct from simply focusing on acquiring new customers or making one-time sales. “Relationships are like muscle tissue,” he says. “The more you engage them, the stronger and more valuable they become.” Beyond money Now a speaker and author dedicated to spreading this message, Rubin says ‘return on investment’ (ROI) is about dollars and cents but ‘return on relationships’ (ROR) is about people. “It is the value accrued by a person or a brand (perceived and real) that accumulates over time through nurturing a relationship. You do this through loyalty, recommendations, sharing and the trust you build. ROR is a measure of the value that a business or brand derives from its relationships with customers, partners, and other stakeholders. And as a broader concept than ROI, it can also include non-financial benefits such as increased customer loyalty, brand advocacy, and social media engagement. Much like the advantages that come with being a supplier’s ‘customer of choice’ benefits may include - but are not limited to - reduced risk and costs; increased opportunities for growth; Trust leads to loyalty, and trust and loyalty will always lead to return on investment.”

better access to scarce resources (products, services, expertise); greater investment in the relationship; superior account management; and a level of commitment that sees suppliers willing to go the extra mile. Return on relationships is larger and more valuable than ROI, he says, because ROR is able to create the ‘halo effect’. “Two projects can have the same ROI, but if one was completed with better relationship management, it has the added benefit of a satisfied customer and/ or long-term relationship.” In today’s competitive marketplace, says Rubin, it is more important than ever for businesses to build strong relationships. “Engage, interact and add value,” he says. In the case of customers, he says those who are loyal to a brand are “more likely to repurchase, recommend the brand to others, and forgive minor mistakes. They are also less likely to be price sensitive”. The same can be said for the supply base. It is critical for businesses to build a reputation for being fair and efficient to work with since this will not only attract new suppliers, it will help them retain

those they already have. Authenticity and focus

Rubin doesn’t claim to have coined the phrase ‘return on relationships’, but it captured the imagination of

2024 GLOBAL SRM RESEARCH REPORT

MAKING CONNECTIONS, NOT A QUICK BUCK

Benefits of strong customer or supplier relations

Ted on: Brand vs reputation Rubin says while brand and reputation share similarities, they are not the same thing. “Your brand is the sum of what your business does, what you stand for, and how you approach your work. You have a degree of control over this. Your reputation, on the other hand, is what people remember and share about your business. It’s the culmination of their experiences with you, and it’s something that you have less control over. “Your brand is a promise, and your reputation depends on whether you keep it. Building and keeping trust is the key… and it takes work and dedication.” “Trust leads to loyalty and trust and loyalty will always lead to return on investment.” He says word-of-mouth recommendations are a powerful marketing tool - be it for customers or suppliers. For customers it is about quality products and exceptional service; for suppliers it’s about ease of doing business, trust and transparency.

Good sales professionals will be employing all these tactics, and it’s as well for procurement to be aware of them and potentially apply the same approach to their own networking with suppliers. It demonstrates a level of focus and engagement - and Rubin’s father gave him the same advice ahead of his first date. “He said: ‘Make sure you look at her Ted, concentrate on her or you’ll never get a second date’. Whether you’re connecting in a room or by email, always try to find ways to personalise it; when people tell you things, really listen and hear what they’re saying.” Nowadays procurement may find itself ‘selling’ its organisation to a supplier as much as a supplier is selling a product or service. It is vital to demonstrate trust, respect, and engagement. wIt is only by listening and forming these relationships that procurement will gain supplier expertise, market intelligence and possibly access to the next big thing. “Ultimately the aim is to have suppliers wanting to work for you,” says State of Flux Founder and Chairman Alan Day, “that way you get what the leaders in the field of supplier management achieve: Earlier access to innovation, preferential pricing and the supplier’s ‘A team’.” Rubin shares a final tip: Be sure to use their name in conversations and correspondence. “As Dale Carnegie, author of How to win friends and influence people, said, ‘A person’s name is to that person, the sweetest, most important sound in any language’, so make sure you use it.”

For business-to-consumer companies exceptional service will set you apart, says Rubin. He outlines some of the benefits to be gained from this approach and we draw comparisons from the B2B world - particularly in becoming a supplier’s customer of choice. Customer satisfaction: Exceptional service leads to higher customer satisfaction and satisfied customers/ suppliers are more likely to become advocates for your business. Brand loyalty: Exceptional service can help to build a greater sense of loyalty, which can, and will, result in long-term relationships. The same can be said for creating strong and successful supplier partnerships. Competitive advantage: In competitive markets, exceptional service is a key differentiator. Similarly, as companies compete for scarce resources, how you behave towards key suppliers can mean the difference between achieving or failing to access that product or service. Customer retention: Acquiring new customers is more costly than retaining existing ones. Exceptional service boosts satisfaction, reducing churn, and increasing their lifetime value. Finding and onboarding new partners is a time-consuming business. Where you have partners you want to retain, work to keep them by being fair, transparent and efficient. Employee morale: Empowered employees are more likely to deliver exceptional service and achieve higher job satisfaction. Happy staff are more likely to stay and contribute positively. It’s important that suppliers receive consistent messages from whomever they contact within a business. Internal colleagues too are more likely to convey those messages clearly and positively if they understand them.

Community culture: Companies should reach beyond creating networks to establishing communities. A network gives you reach; but a community gives you power. Businesses can play an important role linking and connecting supplier firms to build a stronger ecosystem for their providers and themselves. Problem resolution: Providing exceptional service can turn a negative experience into a positive one. Prompt and effective problem resolution can leave customers feeling valued and appreciated. Done well, how you behave when tackling an issue about or for a supplier can lead

complaints or share ideas, you may miss opportunities to make improvements that could help you both, or break into new markets. Customer-centric culture: Building a customer-centric culture within your organisation reinforces the importance of putting customers first. This mindset permeates through all levels of the company and influences decision- making. Business-to-business organisations can generate this same culture by ensuring all departments focus on how and where their company makes money. Increased profitability: Satisfied customers are more likely to spend more and make additional purchases. Exceptional service contributes to increased customer spending, leading to higher profitability. Honest, open buyer/ supplier partnerships can generate more value for both sides. The better they work together the more opportunities they will be able to grasp and the more problems they will be able to overcome.