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 7^th 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:

Business Drivers

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):

• communication
• strategic thinking
• trust building
• influence
• 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.

At the State of Flux Chicago and London Events, State of Flux released their 2015 Global SRM Research Report: The Business of Supplier Relationships. This report, which is their 7^th 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. As the report clearly states in its introduction, the nature of business is changing, with many companies becoming both flatter and more reliant on third parties to delivery everything from customer support through to research and development … in other words, businesses are putting more and more of their brands’ reputations into the hands of other companies. In such a scenario, a business can only be as good as its worst supplier.

On the other hand, becoming a key supplier’s customer of choice will bring access to a range of benefits, from price advantages to innovation — and that failing to do so will mean such benefits accruing to competitors instead. However, this is no longer as easy said as done as changing business dynamics are giving suppliers more power and choice about who they partner with, and how.

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. While a strategic sourcing decision optimization event on a category might save 10% or 12%, that savings is limited to the handful of categories that the organization has time to strategically source. If the average organization has 60% of spend under management, only has time to strategically source ¹/_3^rd of that in a given year, then the organization only saves 10% on 20% of spend, for a grand savings of 2%. But a great SRM program can save 4%. Across the board. Year over year. This is substantial.

This is not unrealistic. As per our previous posts, research demonstrates that good SRM contributes to as much as 70% of a company’s gross profit. No other business function can make this claim. And, most importantly, State of Flux‘s seven years of research has demonstrated that the benefits, both ‘soft’ and ‘hard’, that have been secured by the companies leading the way in SRM have continued to increase. The gap between the leaders and the laggards is getting bigger and bigger.

Supplier relationships are big business, but improving them requires more than a will. It requires knowing the way. That will be the subject of our next post.

In Part I we noted that while State of Flux had the treatment, before we could talk about the treatment, we had to talk about the ailments, but before we did that we needed to give a bit of background on the recent State of Flux SRM event in Chicago which was the US launch for their most recent Global SRM Research Report, The Business of Supplier Relationships (which is their 7^th annual research report on the subject). But before we could talk about either the event or the research, we needed to start with the need — which we nicely summarized using the research from Planning Perspectives who have independently found that not only does gross profit increase as working relations improve, but that 71% of the positive change is contributable to changes in the supplier relationship.

Then, in Part II, we gave additional examples of the value that can be obtained from good supplier relationship management (SRM), noting that a major oil and gas company extracts almost 1 Billion a year from its advanced SRM program while a major global electronics giant also extracts hundreds of millions from its SRM program. After this, we told you that while we don’t have permission to release specifics, we can share the general advice on how to structure a program and when you combine the basics covered in both presentations, which are quite similar, you can easily outline the foundations of a good SRM program.

Find opportunities.
Identify methods to capitalize on them.
Do it. Select the best method and go.
Overse the process. Don’t just set and forget.

Measure progress.
Accelerate implementation as circumstances permit.
Rsward success through recognition and remuneration.
Cooperate and collaborate at all times.

However, just knowing the basics is not enough. One needs to know how to put them into action and how to best capitalize on the opportunities available. In this post, we’ll present some of the best tips and tricks. Some will seem obvious, some not as obvious, but all are easy to implement and capitalize on.

Involve Suppliers From the Get Go

Don’t wait until after your supplier relationship management program is fully formed to reach out to your first supplier. Reach out to your strategic suppliers during formation of the program and ask for their input and help in creating the program. This will hasten your suppliers’ acceptance of the SRM program once it goes live and possibly give you some great insights that you can use to get a jump start on results from day one.

Align with Key Stakeholders

Success requires a unified front on the buyer’s side. This requires buy in from all key stakeholders, so align with key stakeholders before finalizing the SRM program and going live. Get buy-in and, more importantly, use these stakeholders to help get executive approval.

Start with a Pilot

Select a small group of key, willing, suppliers — preferably including some you engaged from the get go — and work-out the kinks before trying to go broad on a supplier relationship management endeavour. The last thing you want is to expand an inefficient program or replicate practices that have unexpected adverse or side effects. Get it right. Get it smooth. Then take it broad.

Challenge Suppliers to Solve Stakeholder Pain Points

It’s not just about savings, it’s also about value. If the stakeholders want new functionality in that electronics product, a more sustainable production method, a leaner production method that will allow for faster design (and line) changes, or the introduction of more environmentally friendly materials, challenge the supplier to come up with solutions that support this. This will help Procurement to not only secure the support of key stakeholders but to report wins early on in the initiative.

Regular, Positive, Supplier Feedback

Regular feedback is key to maintaining a good relationship. However, it’s important to make sure that the feedback is not just negative, what the supplier is doing wrong, but also positive, and what the supplier is doing right, and how they can build on this to do even better. It’s the old saying — you catch more flies with honey than vinegar.

Instill Relationship Management in the Supply Base

Make sure they understand that relationship management is about relationships, relationships are a two way street, and that it is up to them to manage their side of the effort. Moreover, they should take what they learn and use it in their supplier relationship management efforts to get better results from their suppliers, and push value further into the supply base.

These simple techniques, discussed at the State of Flux Chicago event, will go a long way to making your SRM efforts a great success.