Supplier Relationship Management Moves Forward Despite Tough Economic Conditions

 But second annual survey reveals that maturity levels are low and barriers remain high

LONDON, 9 September – Progress has been made in supplier relationship management (SRM) initiatives during the past 12 months, despite a difficult business environment, but the vast majority of organisations are at an early stage of development and there are still major barriers to overcome, according to a global study released today by State of Flux.

More than 7 out of 10 respondents reported at least “moderate” progress in SRM activity during 2009-10, with executive support, business engagement, process development and the quality of relationships with suppliers seeing the greatest advances. Sixteen per cent said progress had been “significant” in these areas, with just under a quarter saying “no change”.

More than 80% believed SRM would become more important for their organisations over the next 12 months, with a quarter saying “much more important”.

Barriers remain

Getting time and resources committed to SRM – the main challenge reported in last year’s survey – has become less of an issue, as economic conditions have improved. Forty-three per cent said this was a barrier, down from two-thirds last year.

However, other significant barriers to progress remain. Internally, the most frequently cited were measuring SRM benefits, a lack of cross-functional co-operation, and changing mindsets about the role of suppliers. Externally, benefits measurement was also the main challenge, followed by a lack of shared benefits, cultural differences with suppliers, and a lack of trust.

Skills shortages are also a blocker. The survey found that “softer” interpersonal skills such as communication, trust building, change management and cross-functional working are lacking in the procurement and supply chain functions that typically lead SRM initiatives. Only half of respondents said they had invested in SRM-specific training to address these gaps.

Maturity levels vary

Asked to rate the overall maturity of SRM in their organisations, more than three-quarters acknowledged that it was either “undeveloped” (40%) or “formalised” (37%) – policies and processes defined and starting to be implemented with some suppliers. A fifth of survey participants described it as “established” – processes more consistently applied with some benefits delivered – while just 3% believed SRM was “optimised” with all their strategic suppliers.

Those in these latter two groups – defined as the “SRM leaders” – reported greater levels of progress and lower barriers than those in the first two – the “SRM followers”. Companies such as Procter & Gamble, Toyota and RSA Insurance Group enjoy greater business buy in, have more trained relationship managers, and are better equipped to measure the impact of SRM activities.

Benefits of SRM

To date, 72% of SRM leaders have achieved financial benefits through targeted cost reduction efforts, compared with 59% of followers, half through more efficient supply chains (versus 35%) and 45% through better levels of quality (versus 26%).

But the leaders also focus more on SRM as a driver of innovation and top-line growth. Almost a third say they have benefited financially from access to supplier innovations, compared with just 12% of followers, a quarter from collaborative product/service development (versus 8%), and a fifth from increased sales (versus 9%).

Commenting on the survey’s findings, Alan Day, Managing Director of State of Flux, said: “One of the things that distinguishes ‘SRM leaders’ from ‘SRM followers’ is that the former put more emphasis on the ‘R’ in ‘SRM’. In other words, they recognise that a genuine relationship is a two-way interaction involving mutual rewards, and not a more efficient means of extracting value at the other party’s expense.

“All too often, rhetoric about collaboration and partnership is not matched by a change in organisational and individual behaviour towards key suppliers.

“Yet mindset and behavioural change is exactly what is required if SRM is to deliver the benefits of a more open and trusting style of business relationship. That requires a strong commitment from the most senior people in an organisation combined with proper levels of investment in skills, resources and supporting tools and technology.

“The findings of our survey suggest that some progress has been made in these areas, but much more needs to be done to make SRM a way of operating rather than simply another transient corporate initiative.”

About the survey

State of Flux surveyed 373 procurement, supply chain and supplier relationship management executives in 304 organisations worldwide from April-June 2010. Industries represented included financial services, manufacturing, food and beverages, consumer packaged goods, IT/high tech, oil and gas, automotive and pharmaceuticals. A majority of participants were based in Europe and North America, but respondents were also drawn from across Asia and Australasia. The main countries represented were the UK, US, Canada, Australia, New Zealand, Netherlands, Switzerland, Germany, China and India.

About State of Flux

State of Flux is a leading procurement and supply chain consultancy, headquartered in London, UK. We work with major companies and public-sector organisations to upgrade their capabilities, drive best practice and deliver superior business performance and results. Our supplier relationship management (SRM) services include consulting, programme design, accredited training, stakeholder perception surveys, relationship health checks, outsourcing and a web-based Supplier Management System information portal.

For a copy of the full report, Value Creating SRM: Delivering Superior Results Through Stronger Relationships, please contact our enquiries team. Enquiries

For more information about our SRM services, click here.

For more information about our Supplier Management System, click here.