2024 GLOBAL SRM RESEARCH REPORT
DECODING SUCCESS
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» 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.
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