2024 GLOBAL SRM RESEARCH REPORT
EXTENDED ENTERPRISE SUMMARY OF INSIGHTS RETURN ON RELATIONSHIPS SUMMARY OF INSIGHTS
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What metrics are you using to quantify the return on your supplier relationships?
What key actions do you take to achieve successful return on relationships? Leader Fast Follower Follower Holding regular supplier meetings/ performance reviews 74% Collaborating on joint innovation and process improvement initiatives 82% 61% 41% Leadership engagement 71% 73% 52% Established process to collect and action supplier feedback 58% 53% 30% Establishing effective communication channels 47% 62% 46% Encouraging supplier networks (e.g. supplier summits) 39% 32% 17% Joint roadmap creation 39% 31% 14% No action taken
factors such as innovation and cost savings/efficiency gains over focusing on enhancing their reputation as these are factors that are often seen as more critical to their success. For those respondents who are targeting their reputation through supplier management, the most common method is through enforcing a Supplier Code of Conduct (73%). Other activities such as preparing business continuity plans and mandating supplier accreditation are significantly less prominent – at 49% and 44% respectively. However, we do see that 74% of Leaders conduct the above activities, and, interestingly, both activities are more widely reported by respondents within the Financial Services industry, where regulations We asked respondents to outline what activities they are undertaking to achieve a successful return on relationships. Results show that most respondents achieve this by embracing strong communication and collaboration with their key and strategic suppliers. 79% of respondents hold regular supplier meetings/performance reviews, and 59% of respondents have involved leadership into customer-supplier interactions. Leaders are more likely to create a joint roadmap with their key suppliers - 39% of Leaders highlighted this activity compared to only 14% of Followers. Double the number of Leaders compared to Followers encourage supplier networks, and collaborate on joint innovation and process improvement initiatives. We see that Leaders are maximising return on relationship by embracing and harnessing collaboration with not only their suppliers, but their wider extended enterprise. are more common. Key actions taken
These organisations are not only cultivating strategic partnerships with suppliers as an operational necessity, but more importantly as a critical investment, with the potential to yield substantial mutual returns. Despite this mindset shift, procurement professionals are still bound to targets and must ensure that ‘value’ is realised across the business. Return on investment is still a key indicator of an organisation’s success in supplier management. However, the c-suite has become more receptive than ever to considering other factors or metrics of success – this presents an opportunity to promote return on relationships as a widely- recognised metric within the procurement and supplier management sphere. For State of Flux, return on relationships is a multifaceted metric that goes beyond the immediate benefits of cost savings - the traditional financial lens of return on investment. Instead, it seeks to recognise and measure the holistic impact of supplier relationships, encompassing factors such as risk mitigation, innovation, operational efficiency, and strategic alignment. Working out the true return on relationships involves a nuanced approach. It requires both quantitative and qualitative aspects of interactions with suppliers to be measured, encompassing financial, operational, and strategic considerations. It also pulls together the impact of individual supplier relationships, performance and governance and looks at the return generated by the whole programme. This year’s research starts with looking at how organisations define return on relationships, before assessing the different ways organisations measure value. We explore what companies are currently doing to work towards a relationship-centric approach, what is working well and the improvements required to better recognise the value that can be
delivered through these supplier relationships. Defining return on relationships Respondents were asked how they interpreted return on relationships: the most common response (69%) defined it as ‘generating value beyond financial transactions.’ Other popular responses included ‘enhancing collaboration and innovation with suppliers’ (61%) and ‘fostering long-term partnerships for mutual benefit’ (59%). These results suggest that organisations are largely on-board with the idea that value expands beyond financial measures, and, at least conceptually, understand the core principles of ‘return of relationship’ as defined by State of Flux. Furthermore, ‘fostering long-term partnerships for mutual benefit’ is more significant amongst Leaders, who indicated this as their definition, 15% more than Followers. Leaders in this area appear to be increasingly moving towards collaboration and an emphasis on building strong, cooperative relationships. The age of reputation A focal point of this year’s research is the idea of ‘reputation’ as a driving force behind recent shifts in market dynamics. Organisations are recognising that managing supplier relationships goes beyond transactional interactions, focusing on value aligned to strategic objectives. Becoming a ‘customer of choice’ involves consistently delivering value, building strong relationships with suppliers, conducting yourself in a fair and transparent way – all elements that impact an organisation’s reputation. A common theme in this year’s research is that building reputation is not a priority when determining the return on relationships, nor is it a pivotal measure of success for organisations. Only 3% of respondents said that reputation is important to them in terms of return on relationships, and only 8% seek to measure this, via brand perception or reputation indices. Organisations appear to prioritise
Key statistics
Capital Intensive Consumer Goods Financial Services
Manufacturing & Automotive Pharmaceuticals & Healthcare End customer satisfaction e.g. feedback surveys, NPS scoring 37% 34% 48% 41% 39% ESG metrics e.g. carbon accounting, corporate responsibility reporting 29% 35% 42% 24% 35% Financial metrics e.g. revenue generated by contract, cost savings/avoidance 55% 62% 60% 65% 57% Innovation metrics e.g. value of innovative ideas, number of ideas 26% 33% 28% 16% 28% None 18% 4% 8% 19% 26%
Supplier management has gone through a paradigm shift within the last decade, moving from a discipline anchored in transactional practices such as price negotiation and supplier performance (return on investment), towards establishing meaningful strategic partnerships founded on collaboration (return on relationships). As highlighted in this year’s case studies, a growing number of organisations are realising the concept of return on relationships, collaborating with suppliers to anticipate challenges and capitalise on opportunities for mutual benefit. of Leaders would define return on relationships as generating value beyond financial transactions. 71% 66% 70% of organisations plan on evolving their relationships from of Followers struggle to access meaningful data when measuring the return on their supplier relationships. transactional to strategic in order to improve the return on supplier management.
89% 88%
0% 0%
9% Quantifying return on relationships
Performance metrics e.g. quality, delivery
68%
85%
To effectively measure the value derived from return on relationships and strengthen the business case for supplier management, organisations require precise metrics. Respondents identified performance-focused metrics (69%) and financial indicators (60%) as the most commonly used to quantify the impact of their supplier relationships. These metrics not only help track supplier performance, but also provide a tangible way to assess the financial benefits gained through strong, collaborative relationships. By focusing on these key areas, organisations can better understand and demonstrate the value that effective supplier management brings to their overall strategy.
75%
60%
63% Reputation metrics e.g. brand perception, reputation indices 7% 9% 13% 6% 9% Risk metrics e.g. value of impact 18% 29% 51% 24% 20%
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