Is Your SRM in a State of Flux? Maybe you need to plan against the pillars.

In our last post we reminded you that State of Flux is a global leader in Supplier Relationship Management (SRM) research that has been producing the Global SRM Research report for six years. Their most recent report, which is thicker than many (e-)books, should be seen as a wake-up call to organizations that claim they understand the importance of suppliers and relationship management, but really have no idea what relationship management means and what is involved to get it right as only 17% of companies fall into the emerging leaders category and only 21% fall into the followers category, which, using the classic Aberdeen Model, says that these companies are average at best (and, to be blunt, average companies are not very good at SRM). This also means that 62% of organizations really have no clue what SRM is, why it is important, and/or how to get it right. Given the percentage of spend that the average organization directs to suppliers and other third parties (which is as high as 80% in some verticals), this is not a good thing.

The good news is that it’s not hard to be above average in SRM. All it requires is a little (okay, a lot of) elbow grease, a focus on the essentials, the implementation of good processes and supporting technology, and a plan to address the critical gaps against each of the six pillars of SRM. A company that focusses on the essentials, identifies processes and platforms to address each critical gap, implements those processes and technologies, and makes steady progress will likely find that it goes from “needs improvement badly” to “above average” in 12 to 24 months, depending on the organizational commitment and resources dedicated to SRM.

So what are these six pillars?

  • Business Drivers & ValueLike any Procurement function, success ultimately depends on alignment with organizational goals and key business drivers.
  • Stakeholder Engagement & SupportStakeholder engagement must be proactive, include internal stakeholders and executives and key supplier personnel, scheduled, tracked, and managed like any project as each key stakeholder, if she is doing her job, will provide input and insights critical to realizing value from the supply base.
  • Governance & ProcessJust like categories and sourcing events, SRM needs to be managed against a model or plan to be successful. Formal governance methodologies and processes need to be defined, tools need to be implemented, and adherence to process needs to be monitored.
  • People & SkillsRelationships are always between people. It’s critical that an organization not only identify the best people, but place them where they can have the biggest impact. This requires identifying people who are not only strong in EQ, but who have the IQ necessary to manage the projects associated with the supplier that may require a strong technical background in one or more areas.
  • Information & TechnologyThe reality is that there is more than one supply chain. There is the physical supply chain through which goods flow. There is the financial supply chain through which money flows. And there is the information supply chain through which all of the information needed to manage the physical and financial supply chains flow. This is the most critical supply chain from a SRM point of view as you have to capture requirements, performance, and capability data on a regular basis in order to properly manage a supplier relationship.
  • Relationship Development & CultureManaging is just the first step in a good SRM program. The most successful relationships are those that are collaborative, innovative, constantly improving, and mutually beneficial.

A significant amount of work might be required to identify (and then implement) the actions that need to be taken to achieve a sufficient level of competency, but its a lot easier to do so with a high-level game plan, which the pillars provide, than it is to start from a blank slate.

Is Your SRM in a State of Flux? Maybe you should focus on the essentials!

Recently we introduced you to State of Flux and their Statess solution for Supplier Relationship Management (SRM), which, despite its recent market entry, is a relatively mature SRM solution as it was built on eleven years of best-practice SRM consulting and over six years of SRM Research. However, we did not cover their consulting services or research services in that series, which also differentiate them from their peers.

As per our previous series, State of Flux has been producing a Global SRM Research Report for six years, and their 2014 report summarized the results of a survey that was responded to by over 500 global organizations, including 454 buy side companies, that collectively provide deep insight into what makes a leader, a fast follower, a follower, or an average company that needs development (which is where 62% of companies fall) where SRM is concerned. (In other words, when it comes to SRM, using the classic Aberdeen groupings, 17% of companies are best-in-class and [emerging] leaders, 21% of companies are average, and 62% of companies are laggards.) This study, which is thicker than many (e-)books, is a wake-up call to organizations that claim they understand the importance of suppliers and relationship management, but really have no idea what relationship management means and what is involved to get it right.

In our next post we’ll discuss the six major pillars of the SRM maturity model put forward by State of Flux, which provide a solid foundation for any organization wanting to measure its progress on its SRM journey, but first we’re going to highlight the ten SRM essentials summarized in the executive summary and dive into those essentials that SI deems most critical (as they support the other essentials and more advanced capabilities). Why? Unless an organization addresses each of these ten essentials, its performance against one or more of the SRM pillars will be limited, and it will never achieve true excellence in SRM. (In other words, these ten essentials address necessary conditions of SRM success.)

  • Benchmark where you are now.An organization that does not understand where it is, how its definition of SRM aligns to the corporate strategy and business drivers, and where the biggest gaps are will not be properly focussed and it is unlikely that it will align suppliers to the business.
  • Prioritize the gaps according to their impact on business drivers.
  • Define metrics and KPIs that quantify the financial and non-financial benefits and capture them on a regular basis.
  • Engage proactively with all stakeholder groups in a two-way dialogue.
    For a SRM activity to be deemed successful, the needs of all major stakeholders need to be met. This means that they need to be properly defined and understood at an organizational level, not just within an individual organizational unit.
  • Listen to suppliers. Understand how they perceive you as a customer, where they think you can improve, and what innovation they can offer you. This is key to defining appropriate development programs and effective performance measurements.
  • Properly segment your suppliers into critical, strategic, and non-strategic
    and then into sub-groups that would benefit the most from a formal SRM program and those that would benefit the least. It’s important to focus limited resources and efforts where they will have the most impact.
  • Ensure SRM is properly defined and attracts the best talent for the job.
  • Information is at the heart of relationship and performance management.
    Implement proper systems to capture, analyze, and distribute that information.
  • Take a proactive, collaborative, approach to relationship development.
  • Leverage sell-side strategic account management.

It’s not a complete list of tasks, or areas, but a fundamental list that provides a solid starting point for your organizational effort.

One Hundred and Fifteen Years Ago Today

The Linear B script was formally rediscovered in an excavation in Knossos, Crete. While evidence of the script was discovered as early as 1886, when Arthur Evans of the Ashmolean Museum was presented with a sealstone from Crete by Greville Chester that displayed signs similar to those discovered by Heinrich Schliemann in his work, but that were never identified as writing, until the treasure trove of tablets was discovered it was just a hunch that the language existed. However, after Evans obtained more in 1893, he began to suspect that the stones he obtained evidenced various phases in the development of a writing system and that there might be another lost language.

Linear B is an early syllabic script used for writing Mycenaean Greek, the earliest attested form of Greek that predates the Greek alphabet by several centuries. As it is likely that it influenced development of the later Greek alphabet, which would have been designed to simply the script (as a syllabic script requires a lot more base characters than an alphabet script) — which was used to record the works of Socrates, Plato, and Aristotle — it was a very important development in the history of written communication and one that should not be forgotten.

40 Years Ago Today

Microsoft was founded by Bill Gates and Paul Allen. And forty years later we are drowning in their software, including Office which is 25 years old. But, for better or worse, we cannot ignore this milestone. They inspired a lot of other software companies and still do to this day.


Over the Hill!

Societal Damnation 47: XaaS (Part II)

In our last post we introduced you to XaaS, Everything as a Service, and told you that this latest craze is going to cause your Supply Management organization nothing but suffering and pain. Why? Because even though, historically, the transformation of a non-core but essential function or utility to a service was a good thing that made your life easier, like all good things, there is an end to the goodness. Taken too far, nothing but chaos will result by handing over a function to a third party that is not well equipped to handle your service needs because they do not have the expertise, cannot achieve the necessary economies of scale, or just can’t be managed effectively.

For example, let’s say sales and marketing decides that IT just isn’t cutting it and decides to outsource IT support for marketing to a third party, and the organization is a CPG company that depends on all communications, orders, and marketing deliverables being properly archived in the ERP and Marketing Procurement system for compliance, cost management, and post-campaign/event analytics. This brings with it a host of problems. One, the systems are not being managed by IT or the support organization IT recommends. This increases 3PM overhead, causes the organization to lose out on better rates that come with more volume, and could result in core systems being bypassed (if the provider is inept and can’t figure out how to push critical data into the core systems). Two, it sets the organization up for a compliance nightmare down the road (when audit trails go cold due to missing data). Three, it opens the door for over billings, duplicate billings, and even fraudulent billings when AP can’t find all of the associated PO and contract data to m-way match an invoice. Four, instead of providing Supply Management with an opportunity to determine why IT isn’t meeting Sales and Marketing needs (which could be due to a misunderstanding, lack of staff, or other issue that could be easily solved by Supply Management) and identify a solution that would benefit the entire organization, it instead opens the door for each OU to hire their own provider (since Sales and Marketing did it), and burden the organization with a 3PM nightmare in IT.

And this is just the tip of the iceberg, as IT has been commoditized for over a decade now, and there are methods to manage this madness. The real problem is when different Business Units decide that anything they don’t feel is critical to manage in-house should be a service and the marketplace adjusts to that mindset. Product Design as a service. (R&D) (Hey, all we need to do is approve a design since we just need something to sell, right?) Supplier Management as a service. (Engineering) (We’ve approved the design, who cares who builds the product and how they do it, right?) 3PL Transportation, Inventory, and Distribution Management as a service. (Logistics) (Who cares how it gets to the shelves as long as it eventually gets to the shelves, right?) Campaign Management as a service. (Marketing) (Once we’ve defined the message we want to get across, we can just hand it off to a local marketing management firm to best tailor the message to the region and produce the ads, right?)

Each of these services can lead to massive headaches, fines, and reputational damage if the service provider does not understand the needs of the organization, does not employ proper processes and procedures necessary to ensure quality and reliability, does not have the right certifications and insurance, does not have a proper focus on sustainability and Corporate Social Responsibility, and does not ensure fair and equitable treatment to workers throughout the supply chain. For example, a design that does not adequately consider product safety and results in an electrical appliance electrocuting a consumer during normal use (due to lack of safeties and blowout circuits) will result in massive lawsuits. Poor supplier management could result in missed deliveries, poor quality, high defect and return rates, and even the inclusion of banned chemicals or compounds in the product which will result in costly recalls or border seizures. Poor logistics management will lead to high stock-outs on the shelves, and lost sales, which, if significant, could make the difference between profitability and impending bankruptcy for the organization. And a poor marketing campaign, that includes phrases or images offensive to members of the local community, will result in a media onslaught that will result in massive damage to your brand. And that’s just the beginning.

Services are good. But Everything-as-a-Service is a ridiculous concept and any organization that buys into it is just asking for trouble.