In our last post, we noted that State of Flux released their 2015 Global SRM Research Report: The Business of Supplier Relationships at the State of Flux Chicago and London Events. This report, which is their 7th annual research report that analyzes detailed survey data from over 500 global companies, provides deep input into the state of supplier relationship management and the benefits that it can bring.
The importance of good SRM cannot be underestimated. For example, more than 40% of survey respondents have achieved a positive, quantifiable post-contract benefit from their SRM activities, with 31% reporting a benefit of 4% or more. Moreover, 60% report cost reductions, 52% report cost avoidance, and 39% report preferential pricing. These are substantial across-the-board benefits.
So how do you achieve these benefits? According to State of Flux, it starts by mastering the six pillars of SRM value mastery. These are:
As discussed in the next pillar, an SRM program needs to be adopted to be successful. This adoption will not happen if there is no clear reason for the program to be adopted, and given that many Procurement professionals are against the wall to deliver results, the most attractive programs are those with business drivers.
There should be business drivers that will deliver solid, measurable, value to the organization. This can include spend reduction and cost control, but can also include an increased rate of innovation, faster product design and delivery, and a more collaborative, problem solving, working relationship.
As per previous posts in this series, SRM can deliverable measurable savings. And even though the soft benefits can be hard to measure, over one third of the State of Flux survey respondents indicate tangible benefits from supplier innovation, service level improvements, and risk management / risk reduction.
Stakeholder Engagement and Support
SRM requires collaboration between all stakeholders and suppliers in order to work. SRM needs to benefit the organization as a whole, not just one department. That’s why all stakeholders need to be engaged up front and support the program up front. Many SRM initiatives fail because they start in one department and overlook other key stakeholders who need to be involved because their absence causes an inconsistent front to be presented to suppliers down the road.
However, executive level stakeholder support is critical for success. As per the state of flux survey, 46% of leading companies have the backing of their chief executive. This is more than double the number of non-leading companies that have senior executive backing for their SRM initiatives (which check in at 21%).
Governance and Process
SRM programs need to be well designed, well run, and well executed. This requires a good governance program and a good process that all parties can follow. A good governance program requires a number of factors, which include, but are not limited to:
- a designated, accountable executive
- regular performance review meetings
- period strategic review meetings
- an agreed upon issue escalation process
- performance scorecard(s)
- contract reviews
- risk reviews
Leaders in governance and process have all of this, and more.
People and Skills
SRM requires the right people with the right skills to be involved. They should not be led by the former office manager with no negotiation or account management experience who was thrust into a buying, and then a relationship management, role as a result of a couple of reorganizations.
Just like the skill set required by a sourcing professional (who must be a jack of all trades and master of one) is quite diverse, so is the skill set required by a(n) SRM professional. While a number of skills were identified as important by survey respondents (with over 50% of respondents identifying over 12 different skills), the following five were identified as the most important (by over 70% of respondents):
- strategic thinking
- trust building
- cross-functional collaboration
Information and Technology
Modern supply chains, and the buyers and suppliers who keep them moving, run on information and information technology. SRM is no exception. Even though supply chains are fundamentally driven by people, as highlighted in the last pillar, these people need good information and good technology to not only get their jobs done, but excel at their jobs.
However, as we have seen, SRM is more than just process and the best SRM platforms are those that augment (or include) existing technologies that manage key aspects of relationships that affect the entire organization. For example, contract management, sustainability management, risk management, and performance management are critical to SRM success, but, with the exception of contract management, only a small number of organizations have systems for these core capabilities in place. Specifically, as per the survey:
- Contract Management 62%
- Performance Management 42%
- Risk Management 31%
- Sustainability Management 12%
Relationship Development and Culture
SRM is not a set-it-and-forget-it process or platform, it is an ongoing endeavour that must be managed as relationships must be continually nurtured and developed. In addition, cultural alignment is very important. The State of Flux Survey found that over 90% of respondents said that good cultural alignment was key to good supplier relationships. This is rational and logical — if both you and your supplier want the same thing and work the same way, it will be a lot easier to work together than if both organizations have different goals and different business processes.
To master SRM, you must master these pillars, but we have just scratched the surface with regards to what is involved and what success looks like. We highly recommend that you download the new State of Flux 2015 Global Research Report on The Business of Supplier Relationships, which is jam packed with not only definitions, but findings that will help you address each pillar appropriately. You won’t be disappointed.