State of Flux Has the Treatment for Your SRM Ailments: Part V The Pillars of Supplier Relationships

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:

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.

Environmental Damnation 16: PETA

After our coverage of Environmental Damnation 17, Greenpeace, you probably suspected this damnation was coming. After all, when it comes to activist organizations, two always come to mind, Greenpeace and PETA. And while you might not think that PETA is an environmental & sustainability damnation, because it’s best known for its rather go naked than wear fur campaigns, which is all about not wearing fur as the harvesting of fur is typically the result of animals being killed, and sometimes raised in inhumane circumstances just to be killed, only for fur. As a result, you might think that PETA is only a damnation for fur traders, but that’s far from the truth.

But for those of you who don’t pay too much attention to PETA, or the huge hassles they cause for any organization that the feel is unfairly treating animals, if you take the time to go to PETA‘s site, you’ll see in great big letters at the top of the screen:

Animals are NOT ours to eat, wear, experiment on, use for entertainment, or abuse in any other way.

This means that if your operation or supply chain is any way, shape, or form dependent upon animals, either for food, clothing materials, entertainment, or, and may your favourite deity grant favour on you here if this is the case, sale, you could end up in PETA’s crosshairs and feel the pain.

It’s not just big chains like Kentucky Fried Chicken (which has to deal with the perpetual onslaught from PETA which maintains the Kentucky Fried Cruelty site) and which has enlisted the help of A-list entertainers to join in its crusade) that feel the wrath of PETA. Smaller operations can also feel the pain. For example, just last month PETA decided to go after the wool processing industry, allegedly recently released a video that reveals workers on an Australian sheep farm mistreating sheep. (Source: MagicOnline), and called for a boycott on the industry as a whole (claiming that over the past 16 months it released five exposes that resulted from a review of 37 facilities on three continents where sheep are “mutilated, abused and skinned alive — even for ‘responsibly sourced’ wool on so-called ‘sustainable’ farms”).

Nor is it just obvious targets that buy animal products for food or clothing. For example, right now PETA is also calling for a boycott of Air France because it is the only major airline that continues to ship monkeys to laboratories for experimentation where they were “routinely mutilated, poisoned, deprived of food and water, forcibly immobilized in restraint devices, infected with painful and deadly diseases, and psychologically tormented” after they were forced to “suffer from the long and gruelling transport in the cargo holds of planes and in the backs of trucks”. And since it was reported that 90 percent of drugs tested on animals failed in human trials, PETA claims that primate transportation for experimentation is unnecessarily cruel.

PETA is a damnation to your supply chain because even if you are only ordering the end product, or transporting goods for someone else, you can still find yourself in PETA’s crosshairs and your brand will take damage when they go after you. (So unless your company is one that only sources and sells synthetics for vegans that insures it’s supply chain is 100% animal free, good luck!)

Normally, LOLCat can’t be bothered to comment on our damnations, because it just doesn’t care, but after finding out that Air France transports primates for experimentation, LOLCat has something to say:


LOLCat Says Boycott Air France

Geopolitical Damnation 25: Government Actions

We already know governments can be a daily source of damnation, and even though we’ve directly or indirectly addressed some of these damnations in our coverage of Waste Legislation (15), Customs Acts (28), Trade Embargoes (29), TPP & the Poison Pill (30), Tariffs (34), Labeling (36), and, especially in Consumer Damnation 71 Government, we’re going to discuss governmental actions again because, from a geopolitical perspective (as opposed to the environmental, consumer, and regulatory perspectives where the government has already received a significant amount of coverage in our damnation series to date), there is still so much more that they can do to make your job living hell.

Here are just a few of the damnations they can create that will cause you never ending nightmares.

Budget Freeze

If a budget can’t be agreed upon by a deadline, or a budget is exceeded and an overspend is not approved, until such time as the budget, or overrun, is approved, any an all payments owed to your company are on-hold. If you desperately need that cash for daily operating expenses for the big order you just delivered before the freeze, tough luck. Let’s hope you can get invoice financing or a bank loan when an expected payment date is unknown. But this is not as bad as a

State of Emergency

In a State of Emergency, you may be forced to supply goods or services to the government and/or consumers at pre-approved rates, even if such rates could net you a loss due to increased production or delivery costs in the state of emergency, and even if such goods were earmarked for sale to another customer in another locale willing to pay a premium rate. Even worse, you could be forced to deliver those goods when there is a budget freeze on, which not only prevents the organization from being paid for an unknown amount of time (and a restricted cash-flow severely hampers Procurement when the organization cannot pay its suppliers), but also clears it of inventory. Then, as we all know, there is no sale, no store.

New Legislation Outlawing Your Product or Service

As makers of betting and lottery technology, radar detection units, and even video game consoles know all too well, a single incident of consumer outrage or, even worse, the single minded focus of an effect lobbyist or lawmaker can result in your primary product becoming illegal almost overnight. Then the organization can be stuck with a glut of inventory, ironclad contracts (with huge penalty clauses), and, sometimes, no (obvious) way to get the product to where it might still be legal to sell the product in a secondary market. But yet Procurement will be expected to save the day and get the contracts nullified in exchange for new contracts for other, still legal, products, get rid of the inventory, and manage the paperwork hell that will ensue.

Criminal Charges against your Organization and/or Executives

Even if your organization unwittingly broke the law as a consequence of a rogue employee who broke the rules (despite training and policies in place to prevent it), a contractor, or a supplier that you couldn’t monitor as closely as you’d like, your organization could still be the organization brought up on charges. If an authorized party, acting in the interest of your business, makes a bribe, conducts business with a terrorist (organization), or purchases from a supplier that uses forced labour, you’re on the hook. And since Procurement is ultimately held responsible for policies and purchases, the heat will be coming down hard on Procurement.

There are, of course, a dozen more areas where government actions can pile on the damnation, but as these are among the nastiest that have not yet been covered in this series, we feel we’ve made our point. Enjoy the heat. (On the bright side, at least you’re not freezing in the cold northern winter.)

State of Flux Has the Treatment for Your SRM Ailments: Part IV The Business of Supplier Relationships

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 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. 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 1/3rd 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.

The Marketing Spend RFP – Everyone is debating over the death of it — I think it needs to be improved Part II


Today’s guest post is from Mat Langley, a Strategic Advisor and Procurement Executive with 14 years experience in leadership roles in strategic sourcing and category management in Europe, Africa and Asia across Finance, IT Outsourcing and Oil & Gas industries who is currently associated with Shortlist.co.

In this post I am suggesting three areas the tools we’re implementing need to change to give Marketing what they need and then I’d love to hear any more ideas/suggestions that you have.

The ideas below are based upon the fact that a significant percentage of marketers (greater than 50% according to a July study by Walker Sands2) believe that we’re not investing enough in the right amount or the right type of solutions for them.


eMarketer.com Marketing Attitudes
1. The tools we’re providing need to improve usability – day 1

A recent international survey of Procurement Executives by Ivalua shows that we are focused on transforming the toolsets we’re using today — 80% of us consider Digital Transformation an opportunity3. That’s fantastic – now our focus needs to continue finding tools that are simple for marketers to use — on day 1 — not year 1. Preferably they should have modern interfaces and be SaaS so Marketers don’t have to use one brain at home and another at work.

2. The tools we’re providing need to improve access to qualified agencies

With the significant increase in channels and the number of content components that need to be created – access to a broader set of qualified specialist agencies to meet campaign needs is required. We need to provide tools that let marketers find, engage and then partner with agencies big and small across the specialist spectrum regardless of whether they are across the street or across the globe. And no, I’m not recommending that long-term relationships or that strategic and broad partnerships aren’t important — I’m simply pointing out that Marketing needs an agile toolset to deliver against compelling (and evolving) challenges — and they need access to partners ‘on demand’. This needs to be done in a way that meets our obligations to protect the organization commercially while bringing in the best and brightest vendors.

3. The tools we’re providing need to improve the creation of Request for Partnerships (RFPs) – perhaps they could even be user friendly?

Everyone in the organization has too much work… We need to provide tools that allow Marketers to find and share best practice workflows, templates for briefs, easy access to current best practice questions and that have the maximum amount of automation built-in for comparisons, approval workflows, agreement signatures, and so on. And our tools need to integrate with other tools marketers are using to get the job done – whether that’s Dropbox for file storage, Slack for communication, Office365 for email and yes, even your ERP system! And most of all the tools we choose need to help engage agencies and build long-term partnerships – not drive them all into a single box as described by Kirk Cheyfitz in his piece on ‘6 New Reasons to Kill the RFP4:

I think the fact that you put your RFP out only to agencies you really like is a demonstration that it wasn’t too closely allied to the mass, mindless cattle calls that I rail against. Then you actually seem to ask open-ended questions that invite the respondents to define or re-define the conversation. And that puts you completely outside classic RFP territory. Even I would respond to an RFP like that.

I believe that with a renewed or for many an on-going focus on the above 3 items we can align with Marketing and let them take control of their Request for Partnerships which will, hopefully with the right tools, lead to RFPs being done in days and weeks – not months and with less frustration and pain for all stakeholders involved: Marketing, Procurement and Agencies. This should lead to more of the Marketing spend being influenceable and competitive, thereby addressing both obligations of procurement to the marketing team and the broader organization.

Thanks, Mat.

2 Walker Sands State of Marketing Technology 2016 Understanding The New Martech Buyer Journey
3 Ivalua. (2015, 3 November). “International Survey Procurement Executives”, PROCUREMENT IN THE DIGITAL AGE: Measuring the impact of Digital on Procurement Departments.
4 Kirk Cheyfitz. (2015, April 02). 6 New Reasons to Kill the RFP: Find Innovators, Not Commodities.