State of Flux 2013 Global Supplier Relationship Management Research Report focuses on the six pillars of success. Nearly 500 Supply Management professionals have contributed to this year's research. Its free to download but provides incredible insights into the SRM market right now.
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SIX PILLARS FOR SUCCESS
2013 GLOBAL SRM RESE ARCH REPORT
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SIX PILLARS FOR SUCCESS
2013 GLOBAL SRM RESE ARCH REPORT
COPYRIGHT © 2013 STATE OF FLUX LIMITED State of Flux Limited has asserted the right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photo- copying, recording or otherwise without the prior permission of the copyright owner. INFORMATION DISCLAIMER The information contained within this report is of a general nature and is not intend- ed to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Publication date: November 2013 Publication name: Six Pillars for Success – 2013 Global SRM Research Report
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FOREWORD
Without giving too much away, it’s fair to say that some very strong themes are emerging that become more evident every year we conduct this research. › › SRM continues to make progress within what has been a very challenging business environment. › › Business drivers or reasons for doing SRM remain largely focused on cost, risk and performance; this year risk has emerged as the most important. › › A wider range of business drivers such as customer of choice are emerging. › › Financial benefits are still reported at levels that make the business case for SRM very compelling. However, to deliver the business case it is evident that current SRM practices for the majority of respondents need to be further developed. › › The gap between leaders and followers continues the trend of previous years, in that it is increasingly defined by the level of benefits being achieved. › › Despite reported progress it is evident that a lot more work is required to engage a broader group of stakeholders. › › Good progress has been made with governance and processes, with more clarity starting to emerge around operating models. › › Investment in the end to end people and organisa- tion development process is still a major concern. › › Another area requiring urgent attention is informa- tion and technology, where levels of dissatisfaction are increasing. › › Important relationship attributes are increasingly understood and being developed, but truly innova- tive relationships are still more of an aspiration than reality. You will find a wealth of data, analysis and opinion on these and other topics in the report, alongside revealing cases studies from some of the world’s leading companies. I really hope you enjoy reading the report and find it a source of valuable insight and information.
Welcome to our global 2013 supplier relationship management (SRM) research report. This is the fifth consecutive year State of Flux has conducted a global survey of SRM practices. We would like to express our gratitude to the 522 individuals across 425 organisa- tions that completed the survey. I would also like to thank all those who gave up their valuable time to attend our cross organisation workshops to add more rich content to this report and to the companies that agreed to be featured as case studies. We strive each year to improve our survey and increase the value it provides to the thousands who request copies of the report. This year we have sought to retain its core purpose which is to analyse, report and comment on SRM practice from a wide range of companies, industry sectors and geogra- phies. Last year we made two significant changes that were received very positively. Firstly, we included the supplier perspective for the first time and secondly, we developed the leader and follower model to be based on an assessment of capability rather than self assessment. We have retained and further enhanced these features with more supplier side questions and a more demanding standard to be classified as a leader. An additional feature for this year is the State of Flux SRM index. This assigns a numeric value to SRM maturity, based on an assessment of capability across the six pillars of SRM. Early feedback suggests companies value this additional granularity in conjunction with the graphical representation provided by our maturity model. We trust these changes demonstrate our commitment to contin- uous improvement and providing more value from the report. The report is designed to give you data and analysis, opinion and challenge, case studies, best practice examples and guidance. We aim to challenge the status quo so that SRM in your organisations has a greater chance of adding value.
ALAN DAY CHAIRMAN AND FOUNDER STATE OF FLUX
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CONTRIBUTORS
MEL SHUTES HEAD OF SRM STATE OF FLUX
ALAN DAY CHAIRMAN AND FOUNDER STATE OF FLUX
Mel has been a procurement and supply chain profes- sional for over 30 years, holding senior management positions in the automotive sector with Ford and Toyota, aerospace with BAE Systems and financial services with Barclays, before moving into consulting in 2005. He now heads the State of Flux SRM service line and has delivered a range of consulting projects covering SRM, procurement transformation, stra- tegic sourcing and training internationally, for some of the world’s leading companies. Mel has been the principle author of the State of Flux SRM global research report since 2011.
Alan has more than 20 years’ experience designing and implementing procurement best practice. He maintains direct client ownership for a number of State of Flux’s key clients, many of which retain State of Flux SRM services. Previously, Alan ran New Zealand based Fisher & Paykel’s global supply chain, before moving to the UK to join Accenture as director of the firm’s supply chain European centre of excellence. Subsequently, Alan became a director of procure- ment and supply chain at Cable & Wireless, before founding State of Flux in 2004. We would like to thank everyone who made this research report possible by completing the online survey and taking part in our post survey workshops. We greatly appreciate your time and feedback. This report was written by Mel Shutes with editorial, data analysis and support provided by Adrian Bower, Amy Duffuor, Charlotte Ruggins, Chloe Jansen, Lance Younger, Lila Mathiou, Patrice Day and Wai-Leng Chon, along with other willing members of the State of Flux team. Special thanks to our case study contributors for sharing their SRM insights and experiences:
MIKE GONCE AND MIKE STALLARD EASTMAN CHEMICALS CATHY CUTCH KELLOGG’S TOM LEWERS AND KEITH BRAY LV= TRACEY YEADON NHS SUPPLY CHAIN MARY WAGNER PROCTER & GAMBLE NEIL BRADFORD SAINSBURY’S MARY WILDSMITH SURREY COUNTY COUNCIL
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TABLE OF CONTENTS
FOREWORD
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CONTRIBUTORS
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EXECUTIVE SUMMARY
INTRODUCTION
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SIX PILLARS OF SRM, BENCHMARKING & MATURITY MODEL
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CURRENT STATE OF SRM
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Article: TOP FIVE TRENDS TO IMPACT PROCUREMENT
BUSINESS DRIVERS & VALUE Case study: PROCTER & GAMBLE
28
41
Article: DOES THE INNOVATION YOU RECEIVE FROM SUPPLIERS DEMONSTRATE YOU ARE A CUSTOMER OF CHOICE?
45 48 50 57 63
Case study: NHS SUPPLY CHAIN
STAKEHOLDER ENGAGEMENT & SUPPORT
Case study: EASTMAN CHEMICALS
Article: WHAT DO YOUR SUPPLIERS REALLY THINK?
GOVERNANCE & PROCESS
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Article: RISK – IS IT TIME TO BRING SUPPLY CHAINS HOME?
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Case study: LV=
82 86
Article: IS AUSTRALASIA READY FOR SRM?
PEOPLE & SKILLS
92
Case study: KELLOGG’S
101
Article: IS CSER STILL ON THE BUSINESS AGENDA?
105
INFORMATION & TECHNOLOGY
110
Article: SRM TECHNOLOGY – ACHIEVING A CLEAR LINE OF SIGHT
119
Case study: SAINSBURY’S
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RELATIONSHIP DEVELOPMENT & CULTURE
128
Case study: SURREY COUNTY COUNCIL
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Article: SRM – NO LONGER A ZERO-SUM GAME
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CONCLUSIONS AND CALL TO ACTION
149 152 154 156 158
ABOUT THE RESEARCH
OUR PARTNERS
ABOUT STATE OF FLUX AND STATE OF FLUX TECHNOLOGIES
LIST OF CHARTS
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EXECUTIVE SUMMARY
Once again, the vast majority of companies are reporting progress in developing, embedding and gaining benefit from their SRM programmes. However, some serious challenges remain.
The barriers to progress are much the same as previous and are focused around limited budgets, distractions caused by business change and insuffi- cient stakeholder engagement. Innovation remains a challenge as it is once again reported to be making slow progress. There are clear indications that SRM will become more important in the next 12 months and beyond, with it making a more important contribution to key strategic objectives.
The focus of SRM remains split between programmes that put more emphasis on contract and performance management to assure the value negotiated in contracts is delivered, and programmes that build on those foundations but are looking for more collabora- tion with suppliers to create new value. The areas showing the most improvement are now more related to outputs such as trust and collaboration. The areas making the least progress still include some of the key enablers for successful SRM, such as invest- ment in training, and information and technology.
BUSINESS DRIVERS AND VALUE This year, risk has been identified as the most important business issue driving invest- ment in SRM. While cost reduction and cost avoidance remain priorities, customer of choice related business drivers have also gained in importance. The level and range of tangible benefits are increasing, notably in supplier service levels, supply chain efficiency, impact on profit margins, risk reduction and cost avoidance. Leaders are almost twice as likely to be experiencing benefits in areas such as sustain- ability, access to the best supplier resource, and joint product or service development. Benefits being delivered are well aligned to the business drivers, although this may well be serendipitous, as little seems to be done to ensure a clear line of sight between SRM value and business objectives. Around 25% of respondents (34% of leaders) report post contract SRM related benefits to be worth 6% or more of the contract value. However, capturing and reporting benefits remains a challenge, with 32% of respondents not knowing what the benefits are. The gap between leaders and followers reflects the trend in previous years. It continues to grow both in terms of direct financial and non-financial benefits, and indicates the link between the investment leaders are putting into their SRM practices and the results they are achieving. Customer of choice discretion is certainly exercised by suppliers, as evidenced by the descriptions of the benefits received on the buy side and provided by the sell side.
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STAKEHOLDER ENGAGEMENT AND SUPPORT While respondents have consistently reported good progress in achieving stakeholder engagement and support, the evidence suggests there is still a lot of work to do. None of the three key stakeholder groups identified – executive and senior management, business and operational stakeholders, or suppliers – are fully engaged by more than 50% of respondents. Leaders have a much higher level of engagement but still not at the level it needs to be. Stakeholder engagement is almost impossible without having a clear understanding of what the SRM value proposition is. Overall, 43% of respondents have created a value proposition. However, only 14% have communicated this to all impacted stakeholders. There is a better understanding of how strategic relationships would benefit both the buy and the sell side. At the moment, 25% of the SRM programmes the sell side are engaged in, are not with customers they regard as strategic. GOVERNANCE AND PROCESS Governance and process has seen the most improvement since 2012 for both leaders and followers. Single point accountability for the development and implementation of SRM is increas- ingly evident through the appointment of process owners. Segmentation of the supplier base is now common practice for most organisations. More than eight out of ten respondents say they formally segment their suppliers. The variation in approach is now more to do with the criteria that are used and the number of segmentation tiers that are thought to be appropriate. An increasing proportion of external spend is coming within the scope of SRM, with almost 60% of respondents reporting that more than half of their third party spend is covered by SRM. Developing the appropriate SRM operating model is making progress. Last year this was one of the areas making the least progress. This year, over 50% of respondents report that progress is being made. However, it still remains a problematic area for many. The survey has sought to establish what proportion of respondents’ ‘key supplier’ group has robust contract and performance management in place. The feedback tells us only 48% of respondents have effective contract management in place for more than half of their key suppliers. For performance management the figure is only 38%. PEOPLE AND SKILLS Investment in training, and the development of an end to end talent and organisational effectiveness approach, is still a major challenge. While SRM is increasingly recognised as a distinct role by more companies, it is not always being supported by the creation of formal job profiles, skills requirements, training solutions and performance management. Organisations are increasingly making supplier relationship managers the focal point of the relationship but are also recognising the need for effective teamwork. Nearly seven out of ten buy side organisations are making use of cross functional teams to help manage key supplier relationships. The skills required to deliver effective SRM and real business value are nowmore fully under- stood. However, what this reveals is a significant gap between demand (for training in important skills) and supply (the provision of that training). The biggest gaps are for the relationship management skills such as influencing, communication and strategic thinking.
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INFORMATION AND TECHNOLOGY Technology as a key enabler for SRM remains a concern. Dissatisfaction levels have increased, with the proportion of respondents reporting that IT supports SRM ‘very poorly’ increasing from 4% in 2012 to 20% in 2013. The use of IT systems, software or applications to support SRM has not increased from the low level reported in 2011. For those companies making use of existing IT, the majority report it to be ‘poor’ or ‘very poor’ in meeting the needs of SRM. The criticisms have remained broadly the same over this period also. These are focused on a lack of required functionality, information having to be gathered from different systems, and no access to systems for stakeholders or suppliers. From an industry sector perspective, FMCG companies appear to be making most use of IT, with interestingly the IT / high tech sector making the least use. In the absence of effective IT solutions, the majority of organisations are still relying on the use of shared drives and tools such as SharePoint to store and share information. In terms of scorecards and reporting, most respondents are currently using Excel spreadsheets. RELATIONSHIP DEVELOPMENT AND CULTURE Important relationship attributes are increasingly understood and being developed, but truly innovative relationships are rare. Successful relationships are characterised as being open and transparent, innovative, strategically and culturally aligned, trusting, collaborative, and behaviourally mature. Fundamental to openness and transparency is the willingness to share information. The type of information being most commonly shared is operational. There is also a notice- able reduction in the proportion of buy side respondents sharing more strategic information as compared to 2012. Innovation is still a real dichotomy. It is consistently identified as one of the most impor- tant elements of the SRM value proposition. However, difficulties at the implementation stage remain. This view of slow progress in making relationships truly innovative is broadly confirmed by the sell side, although three quarters of them say that being part of an SRM programme has helped them present innovative ideas. For relationships to function well, it’s important that sufficient strategic and cultural alignment is achieved. Less than one in five buy side companies are using a 360 degree relationship assessment tool to baseline and develop more strategic and cultural alignment. Trust is identified by both the buy and the sell side as the most important attribute in a relationship, and the most important thing to achieve SRM success and real business benefit. Collaboration has become almost the watchword of SRM. Around 40% of buy side companies report that they collaborate with suppliers on a regular basis. Half of these claim it is ‘business as usual’.
The full report contains detailed findings and analysis on all of these executive sum- mary highlights. Please see page 149 for a full set of conclusions and related calls to action.
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INTRODUCTION
2011 We identified a new market dynamic in the form of the ‘customer of choice’ concept. The understanding and appreciation of this concept has grown and the term ‘customer of choice’ has entered the lexicon of SRM value. 2012 More programmes than ever were delivering value and the gap between leaders and followers had grown - being more defined by benefits than previous years. However, a number of important challenges remained to be addressed, including investment in training and development, and suitable technology to support SRM. This year’s report containsmore analysis and key trends extracted from our analysis and comparisons between leaders and followers, buy and sell side, industry sectors and yearly trends. In addition, you will find case studies from some of the world’s leading companies, alongside State of Flux best practice tips and opinion articles. The focus of our research and this report is on SRM defined as: “A discipline of working collaboratively with those suppliers that are vital to the success of the organisa- tion, to build trust and maximise the mutual value of those relationships.” However, this definition must always be considered within the wider context of good practice – procurement lifecycle management for example, which incorporates category management, strategic sourcing, risk management, contract and performance management. These important activities effectively underpin SRM.
Since we started this research in 2009, we have seen steady and sustained progress in the development and implementation of SRM strategies. This progress has been achieved against a very challenging economic background. It is only in the last fewmonths that some of the key indicators seem to be pointing towards a recovery, and even this is predicted to be long and slow. This year we have expanded both our geographic reach and industry sector representation to provide even more insights into how SRM is being addressed. We have increased the number of respondents by over 25% and have over 20 different industry sectors represented in the results. We have retained and expanded suppliers’ views to provide more validation 2009 The key theme was identifying the value and ROI that SRM could deliver. This remains a challenge to many organisations and is again addressed in this report, in the analysis of business drivers and value. 2010 There was an increase in SRM activity. This was the first year that we identified leaders and followers to begin aligning good practice to good outcomes. Our view of leader and follower trends this year is supported by more analysis of responses and better defined ‘leader ‘criteria. and insight into the buy side feedback. A brief reflection on previous reports:
*PROCUREMENT LIFE CYCLE MANAGEMENT
*PROCUREMENT LIFE CYCLE MANAGEMENT “The integrated disciplines of managing all aspects of the procurement lifecycle.” STATE OF FLUX SRM GLOBAL RESEARCH REPORT 2013 *SRM “A discipline of working collaboratively with those suppliers that are vital to the success of the organisation, to build trust and maximise the mutual value of those relationships.” STATE OF FLUX SRM GLOBAL RESEARCH REPORT 2012
NEW VALUE
SRM*
ENHANCE VALUE
PERFORMANCE MANAGEMENT
RENEW RE TENDER EXIT
ASSURE VALUE
CONTRACT MANAGEMENT
SECURE VALUE
RISK MANAGEMENT
CAPTURE VALUE
STRATEGIC SOURCING
IDENTIFY VALUE
CATEGORY MANAGEMENT
PRE AWARD
POST AWARD
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STATE OF FLUX SIX PILLARS OF SRM, BENCHMARKING & MATURITY MODEL EXPLAINED...
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SIX PILLARS OF SRM
The State of Flux six pillars of SRM is a model for SRM excellence, developed and refined over a number of years. Our initial SRM research identified key themes and activities that, if effectively combined, were resulting in better SRM practice and outcomes. We developed this into a model that defines the key interdependent elements of SRM. We are confident the value and benefits derived from SRM will increase if the activities described in the six pillars are effectively implemented. You will find our research and report on SRM best practice is aligned to each of the below pillars.
VALUE
_1_ BUSINESS DRIVERS & VALUE
Effective and proactive stakeholder engagement across executives, the business, and suppliers. _2_ STAKEHOLDER ENGAGEMENT & SUPPORT
_3_ GOVERNANCE & PROCESS
_4_ PEOPLE & SKILLS
_5_ INFORMATION & TECHNOLOGY
Measures to develop supplier relationships to be more collaborative, innovative and mutually beneficial. _6_ RELATIONSHIP DEVELOPMENT & CULTURE
SRM value proposition
Creating an effective
Understanding of the required skills and capabilities , organisation structures, job profiles and training solutions.
Optimised use of technology to enable connection, collaboration and value creation across the business and with suppliers.
clearly aligned to business drivers. Value captured and measured.
operating model, and governance and process methodologies and tools.
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STATE OF FLUX MATURITY MODEL
The State of Flux SRMmaturity model provides a benchmark against which the maturity of a company’s SRM activity can be consistently measured. It has four levels across the six pillars of SRM.
ADVANCED
ESTABLISHED
DEVELOPING
UNDEVELOPED
BUSINESS DRIVERS & VALUE
STAKEHOLDER ENGAGEMENT & SUPPORT
GOVERNANCE & PROCESS
PEOPLE & SKILLS
INFORMATION & TECHNOLOGY
RELATIONSHIP DEVELOPMENT & CULTURE
At each level maturity is characterised as follows:
ADVANCED Clear alignment between SRM value and key busi- ness drivers. Strong and active C–level support. Optimised operating model in place with high levels of compliance. Leading practitioners in clearly defined roles. Capability is regularly assessed and leading training solutions are in place. The information and technology solution is integrated and extensively used by the supply and the buy side. Leading tools and techniques are employed. Strong and sustainable relationships exist based on trust, with measured financial and non financial benefits being realised. Customer of choice status has been quantified with all suppliers and a strategy to manage implemented.
ESTABLISHED There is good alignment between SRM value and key business drivers. Strong and active executive level support. Effective operating model with good levels of compliance. Practitioners are generally capable working in defined roles. Training needs are assessed and training solutions are mostly in place. Good use is made of information and technology solutions. Tools and techniques are well developed. Evidence that relationships are improving and meas- ured benefits being delivered. Customer of choice status has been quantified with most suppliers and strategy to manage has been developed.
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DEVELOPING The value of SRM has been defined but is not neces- sary linked to business drivers. The importance of stakeholder engagement is under- stood and plans may be in place. A number of SRM practitioners have been identified. SRM roles are being defined. Skills and capabilities are understood but capability assessment and training are unlikely to have taken place. Data is being manually extracted from systems and manipulated on spreadsheets to support SRM. Tools and techniques are in development. SRM is being rolled out with a small group of suppliers and some early opportunities identified. Customer of choice status with key suppliers is under investigation.
UNDEVELOPED No clear policy or objectives have been set and activity remains ad hoc. Some good practice might exist but this is isolated and no consistent or cohesive approach has been developed.
LEADERS AND FOLLOWERS
The remaining 26% of respondents have not been used to create the ‘leaders’ or ‘followers’ groups, because either their SRM practices are undeveloped or they did not respond to a sufficient number of questions in the survey for an overall assessment to be completed. However, individual question responses are included in the overall summary.
The concept of leaders and followers as a means of comparing the maturity and effectiveness of SRM approaches has featured in our last few reports. We continue to evolve this method of benchmarking and this year the criteria to be described as a leader has become tougher than ever. We believe that as SRM develops we should ‘raise the bar’ so that organisa- tionswill continue to improve in order to be considered leaders in this field. In previous years we have defined the leaders as simply the survey respondents with the highest aggregate score according to our weighted control questions embedded in the survey (30 companies in 2012). This year we have set absolute parameters that a company will need to meet to be classified as a leader. Simply, a leading company will have a State of Flux SRM index score of at least 3.0 (SRM index explained overleaf) with no more than two pillars still in the developing level of the maturity model. This year we have identified 45 ‘leaders’ representing 14%of the respondents. The ‘followers’ group consists of 186 companies, which represents around 60% of all respondents. Followers will have a minimum SRM index score of at least 2.0 .
Leaders and followers
LEADERS 14% 45 COMPANIES
FOLLOWERS 60% 186 COMPANIES
OTHER 26% 83 COMPANIES
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STATE OF FLUX SRM INDEX
This index has been developed to help companies quickly and easily understand where they are ranked against the SRM maturity model.
› › 0-1.5 Undeveloped › › 1.5-3.0 Developing › › 3.0-4.5 Established › › 4.5-6.0 Advanced
The SRM index is a scale of 0 to 6 and correlates to the maturity model as shown below. An index score is calculated based on the self assessed responses received to specific questions within our 2013 SRM survey. These questions are selected to reflect what organisations are actually doing and experiencing, and are weighted to reflect their importance to effective SRM. Scores are calculated for each of the six pillars of SRM and the SRM index is the average of all six. 2013 SRM index In preparation for this year’s report, we applied the newly created SRM index to last year’s leaders and followers group in order to establish an easy to understand baseline against which this year’s results could be compared. As you can see, the leaders average has moved positively on the index scale by 0.3 to 3.8 . The area with the most noticeable improvement being governance and process. From this we can conclude that govern- ance and process, including more stable operating models, are becoming embedded and treated as business as usual. The average for followers has increased by 0.8 to reach 2.8 . The biggest area of improvement is again governance and process, followed by information and technology, and relationship development and culture.
SRM MATURITY MODEL
6.0
ADVANCED
4.5
3.8 2013 LEADERS 2.8 2013 FOLLOWERS 2.0 2012 FOLLOWERS 3.5 2012 LEADERS
ESTABLISHED
3.0
DEVELOPING
1.5
UNDEVELOPED
BUSINESS DRIVERS & VALUE
STAKEHOLDER ENGAGEMENT & SUPPORT
GOVERNANCE & PROCESS
PEOPLE & SKILLS
INFORMATION & TECHNOLOGY
RELATIONSHIP DEVELOPMENT & CULTURE
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FOLLOW THE LEADERS
State of Flux helps you become a leader in SRM. We transform your supplier relationships into an asset rather than a risk. Our SRM solutions include: › State of Flux Technologies’ Supplier Management Platform › Training and organisational development
› SRM diagnostic and benchmarking › Voice of the supplier programmes › 360° relationship assessments › SRM programme design and change management
Call us on +44 (0)207 842 0600 or email us at enquiries@stateofflux.co.uk to find out how SRMunlocks value from your supplier relationships. www.stateofflux.co.uk
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CURRENT STATE OF SRM
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Figure 0.1. Primary focus of SRM – buy side
■ 2012 ■ 2013
What is SRM focusing on?
CONTRACT
Managing supplier contracts to ensure that negotiated terms and service levels are adhered to
20%
The first question asked in the survey is designed to help us understand where organisations are placing their efforts in their SRM programmes. This can be influ- enced by a number of factors including how they define SRM and also the ambition they have for the programme. The adjacent chart indicates a slight reduction in the proportion of companies that are prior- itising collaboration and the creation of incremental value.
25%
PERFORMANCE
Defining andmonitoring key performance indicators (KPIs) to ensure that suppliers deliver services as per the contract and that they also deliver continuous improvement Collaborating with key suppliers to jointly deliver value (cost reduction, risk reduction, innovation, etc.) that is beyond contractual obligations COLLABORATION
25%
27%
55%
48%
A comparison across industry sectors in figure 0.3 shows that the sectors most likely to be making collaboration and incremental value the primary focus of their SRM programmes are financial services and manufacturing. These are the only two sectors where more than 50% of respond- ents identified collaborationand incremental value as their primary focus. Supplier organisations’ experience of their customers’ SRM programmes support the findings above; that slightly fewer were about collaboration and more were concen- trating on performance management. We can conclude that only half the programmes and initiatives described as SRM prioritise collaboration and value creation.
Figure 0.2. Primary focus of SRM – industry sector
■ CONTRACTS ■ PERFORMANCE ■ COLLABORATION
FINANCIAL SERVICES
FMCG / CPG
IT / HIGH TECH
MANUFACTURING
OIL AND GAS
The six industry sectors with the largest number of responses have been used to cre- ate industry sector comparison throughout the report.
UTILITIES
0% 10% 20% 30% 40% 50% 60% 70% 80%
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We maintain that effective SRM can only thrive within the wider context of good supplier management, including contract and performance management. However, the incremental value of SRM is realised through changing the nature of relationships with key strategic suppliers through more effective governance, collaboration and changed behaviours. It is therefore essential that a definition of SRM is agreed, which makes it distinct from, but complimentary to, contract and performance management, and that all three feature in the overall supplier management approach.
Is progress being maintained? Despite the last few years being a bleak business environment, our respondents continue to report that progress is being maintained. From our direct experience we believe this momentum is being driven in some cases by organisations looking to seriously address SRM for the first time and others re-evaluating their programmes, seeking a new direc- tion or simply to accelerate benefits. Compared to 2012 and 2011, the proportion of respondents reporting either moderate or significant progress has remained constant.
Figure 0.3. Assessment of SRM progress – buy side
■ 2013 ■ 2012 ■ 2011
61%
57%
54%
21% 24% 24%
20%
15% 13%
3% 3% 2% 0% 1% 0%
SIGNIFICANT PROGRESS
SOME PROGRESS
NO CHANGE
MODERATE DECLINE
SIGNIFICANT DECLINE
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Figure 0.4. Assessment of SRM progress – sell side
61%
■ BUY SIDE ■ SELL SIDE
50%
26%
21%
15% 17%
6%
3%
0% 1%
SIGNIFICANT PROGRESS
SOME PROGRESS
NO CHANGE
MODERATE DECLINE
SIGNIFICANT DECLINE
From a sell side perspective the level of perceived progress mirrors the buy side much as it did in 2012.
An industry sector perspective When looking at industry sector comparisons reveals that fast-moving consumer goods (FMCG) are reporting the most progress with 23% reporting significant progress in the last 12 months.
Figure 0.5. Assessment of SRM progress – industry sector
23%
11%
10%
9%
8%
4%
FINANCIAL SERVICES
FMCG / CPG
IT / HIGH TECH
MANUFACTURING
OIL AND GAS
UTILITIES
While progress remains steady, which is encouraging amidst such a difficult busi- ness environment, we believe that programmes in general need to accelerate. SRM is key to addressing so many supply chain and procurement challenges that it can’t afford to be playing catch up as the business outlook begins to improve. SRM should be established and proactively supporting business growth.
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Where is progress happening? We have found in previous studies that progress does not take place at the same pace across all activities important to delivering effective SRM. This table highlights the top five areas of SRM activity that are making the most progress, and conversely the bottom five areas making the least progress
Figure 0.6. SRM activity progress – buy side
■ SIGNIFICANT PROGRESS ■ SOME PROGRESS ■ NO CHANGE ■ MODERATE DECLINE ■ SIGNIFICANT DECLINE
SHARING BENEFITS WITH SUPPLIERS SUPPLIER INNOVATION MEETING EFFICIENCY (OUTPUTS AND RETURN ON TIME INVESTED) FUNCTIONALITY AND USE OF IT SYSTEMS INVESTMENT IN TRAINING PEOPLE'S SKILLS AND COMPETENCIES DIRECT FINANCIAL BENEFITS DELIVERED OPERATING MODEL TRUST AND COLLABORATIVE WORKING INDIRECT BENEFITS DELIVERED QUALITY OF SUPPLIER RELATIONSHIPS NUMBER OF SUPPLIERS INVOLVED SRM MEASUREMENT AND KPIS AVAILABILITY AND USE OF TEMPLATES AND OTHER TOOLS EFFECTIVE PROCESSES DEVELOPMENT OF EFFECTIVE GOVERNANCE MODELS INTERNAL STAKEHOLDER ENGAGEMENT SENIOR EXECUTIVE SPONSORSHIP / SUPPORT
TOP 5MAKINGPROGRESS Internal stakeholder engagement Quality of relationships Senior executive sponsorship Number of suppliers involved Trust and collaboration
BOTTOM5 MAKING LITTLE PROGRESS Meeting efficiency Innovation Sharing benefits Investment in training IT systems
0% 20% 40% 60% 80% 100%
Both lists have changed little from last year, although the top five do indicate more progress for the outputs from SRM such as trust and collaboration, and the quality of relationships. The bottom five indicates, as in previous years, that investment in IT and training remains a challenge.
The key elements of SRM, as represented by the six pillars model, all require effort and investment to build and maintain an effective approach. The lack of investment in IT and training is clearly linked to most organisations, including leaders and followers scoring low for maturity in the information and technology, and people and skills pillars.
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What are the barriers? It is clear from the areas of SRM that are not making significant progress that a number of barriers remain. We asked buy side respondents to identify the most significant barriers they are encountering.
Figure 0.7. Barriers to SRM progress
NO BARRIERS
LACK OF SUPPLIER SUPPORT
FUNCTIONALITY AND USE OF IT SYSTEMS
LACK OF TOP MANAGEMENT SUPPORT
LACK OF CROSSFUNCTIONAL BUSINESS SUPPORT ORGANISATIONAL CHANGE, E.G. BUSINESS OWNERSHIP, SENIOR MANAGEMENT CHANGES, RESTRUCTURING INABILITY TO QUANTIFY AND MEASURE BENEFITS
CHANGING BUSINESS PRIORITIES
LACK OF BUDGET / RESOURCES
SHORTAGE OF PEOPLE WITH THE REQUIRED SKILLS / COMPETENCIES
0 10% 20% 30% 40% 50% 60% 70% 80%
When we take a closer look at the barriers to progress identified we start to see certain common themes emerging. › › Limited budgets available – this will be a factor that results in lack of resource and the inability to invest in training, and information and technology. › › Change – organisational change and changing business priorities are both likely to deflect attention and effort from SRM. › › Stakeholder engagement – despite good progress reported for stakeholder engagement there is still concern over top management and cross business / func- tional support. › › Measurement – quantifying and measuring benefits remains a significant challenge. › › Suppliers – a significant number of respondents point to a perceived lack of supplier support as a barrier.
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Lack of support from suppliers? In order to explore the perceived lack of supplier support for SRM programmes identified as a barrier previously, we have taken a closer look at the supplier perspective. Our sell side research has led us to believe that the vast majority of suppliers are supportive of SRM and keen to be involved. So here we look at some reasons why for 13% of buy side respondents, supplier support is seen as a barrier. Firstly, how many SRM programmes are suppliers typically involved in?
Figure 0.8. Number of SRM programmes engaged in – sell side
49%
26%
23%
2%
1 3
4 6
7 10
MORE THAN 10
In last year’s report it was evident that sell side organisations were encountering many similar barriers to the buy side when trying to effectively engage in SRM programmes. Included in these were a lack of time and resources, and a shortage of staff with the required skills. With 23% of the sell side engaged in more than ten SRM programmes it is perhaps inevitable that these issues will be more evident and some buy side organisa- tions might perceive there to be a lack of support. In order to test the buy side perception we asked the sell side to what degree they felt they were engaged in their customers SRM programmes. The feedback makes inter- esting reading in that 14% of sell side companies report minimal engagement in their customers’ SRM programmes. This figure is remarkably similar to the proportion of buy side respondents who report a lack of supplier support.
Figure 0.9. Supplier engagement with customer SRM programmes
MINIMAL ENGAGEMENT 14%
FULLY ENGAGED 38%
MODERATE ENGAGEMENT 48%
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Here we look at a number of other reasons why suppliers might not be fully engaged and supportive of SRM programmes. The analysis below shows that supplier uncertainty regarding the motives and commitment of the buy side is relatively high . It would appear that suppliers see benefits for them as less of a barrier than the buy side . Buy side organisations consider skills and senior executive commitment to be an issue , and also believe that suppliers have more conflicting priorities .
While this analysis is useful to identify and address these barriers, it should be remembered that only 13% of buy side companies identified a lack of supplier commit- ment as a barrier.
Figure 0.10. Reasons for suppliers not being engaged in SRM – sell side
■ BUY SIDE ■ SELL SIDE
1
2
27%
4
3
21%
21%
20%
20%
19% 17%
17%
17%
15%
15%
14%
12%
10%
Suppliers uncertain of motives
Suppliers not convinced of commitment
Corporate and cultural differences
Suppliers do not recognise any benefits for them
Suppliers lack requisite skills and competencies
Lack of senior executive support
Other more pressing priorities
In our experience, suppliers are very supportive of SRM initiatives. Procurement process and governance has developed significantly over recent years, to the point where most suppliers are aware the previous ‘divide and conquer’ strategies no longer work and they have a vested interest in working more collaboratively within a defined governance model. “I’ve never had a supplier say, ‘look this doesn’t add any value to me’ - in most cases suppliers would pay to get this level of information and engagement.” – CATHY KUTCH, DIRECTOR SUPPLIER RELATIONS AND DIVERSITY, KELLOGG’S
22
Future growth There is an overwhelming consensus; 86% of respondents believe that SRM will become more important over the next twelve months. See the article ‘top five trends to impact procurement’ on page 25
Figure 0.11. Future growth of SRM – buy side
58%
28%
13%
1%
0% MUCH LESS IMPORTANT
MUCH MORE IMPORTANT
MORE IMPORTANT
REMAIN THE SAME
LESS IMPORTANT
The majority of respondents see SRM contributing more to the strategic agenda in the future. Asmany businesses navigate their way back to growth, SRM is perceived asmaking a positive contribution to address challenging economic and market conditions, improve competitive advantage, and be a vehicle to switch from tactical to more strategic objectives . Nearly half believe stakeholder support and value potential will improve .
Figure 0.12. Reasons for future growth – buy side
20%
SHIFT FROM TACTICAL TO MORE STRATEGIC PRIORITIES NEED TO IMPROVE COMPETITIVE EDGE MORE CHALLENGING MARKET AND ECONOMIC CONDITIONS INCREASED INTERNAL STAKEHOLDER SUPPORT CURRENT SRM ACTIVITIES DEMONSTRATING VALUE POTENTIAL NEED TO DEMONSTRATE REGULATORY COMPLIANCE INCREASED SUPPLIER SUPPORT MORE RESOURCE AND SKILLS AVAILABLE
21%
23%
47% 47%
2
52%
1
55%
69%
23
Optimism regarding the future of SRM is largely maintained across industry sectors with the added dimension of regulatory compliance being an additional driver in the financial services sector .
Figure 0.13. Reasons for future growth – industry sector
1
■ More challenging market and economic conditions ■ Need to demonstrate regulatory compliance ■ Need to improve competitive edge ■ Shift from tactical to more strategic priorities ■ Current SRM activities demonstrating value potential ■ Increased internal stakeholder support
FINANCIAL SERVICES
FMCG / CPG
■ Increased supplier support ■ More resource and skills available
IT / HIGH TECH
MANUFACTURING
OIL AND GAS
UTILITIES
0% 10% 20% 30% 40% 50% 60% 70% 80%
While cost, risk and service remain, for many businesses, the most important and, in some cases, the only business drivers for SRM, it’s clear that the value SRM can create to drive a more strategic agenda is increasingly being recognised.
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WHAT’S THE CURRENT STATE OF SRM IN YOUR ORGANISATION? State of Flux offers an SRM diagnostic approach that reveals the true state of SRM in your organisation. We use our research and a deep knowledge of SRM best practice to help you build a detailed improvement plan. Call us on +44 (0)207 842 0600 or email us at enquiries@stateofflux.co.uk to discover the next steps tomore collaborative and productive relationships.
www.stateofflux.co.uk
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TOP FIVE TRENDS TO IMPACT PROCUREMENT
Procurement and supply chain management is constantly changing. Here we reflect the views of a procurement leader on what the future might hold.
We have reproduced Tom’s top 5 list for three reasons: Firstly, it is a fascinating insight into a whole range of developments that will have a fundamental impact on the way supply chains are managed in the future. Secondly, it clearly positions SRM (in Tom’s opinion) as the most influential trend likely to affect procure- ment in the next five years. Finally, it’s clear that SRM, if done well, will be a significant enabler for organisations to either take advantage of these emerging trends or to mitigate against their negative impact.
Tom Linton is the chief procurement and supply chain officer at Flextronics, the giant US electronics manu- facturing services company. Tom has been a keynote speaker at many procurement conferences where, amongst other subjects, he has presented a fasci- nating personal perspective on the top trends influencing procurement. From the research we have conducted and our engagements across many FTSE 100 and Fortune 500 organisations, we would broadly agree with Tom’s view.
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‘NON-ZERO’ APPROACHES TO SUPPLIER MANAGEMENT EVOLVES SRM › › Top relationships develop to become integrated › › The trend towards win-win continues › › End to end supply chains create more value for customers › › Supply ‘ecosystems’ focus on balance of risk and opportunity for success › › New tools and technology drive trust, transparency and reliability › › Supply chain becoming a magnet for top students For more on ‘non-zero’, see the State of Flux article ‘SRM no longer a zero-sum game’ on page 146 CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY (CSER) BECOMES FUNDAMENTAL › › Country and company CSER opt outs disappear › › CSER policies expand globally › › Emerging countries increasingly legislate for CSER › › Foreign corporations adopt global CSER norms For more on CSER and SRM, see the State of Flux article ‘is CSER still on the business agenda?’ on page 105 UNPREDICTABILITY BECOMES PREDICTABLE › › Risk, resiliency and preparedness define winners as conflict, terror and geographic disturbances change business behaviours repeatedly › › Supply chains become three dimensional and more cost efficient › › Multi-tiered › › Risk reduction and emergence of end to end supply chain risk management › › Need for increased velocity › › Supply chains break through barriers to become faster, more cost efficient and safer. For more on effective risk management via SRM, see the State of Flux article ‘risk – is it time for supply chains to come home?’ on page 79 GROWTH OF REGIONAL AND LOCAL SOURCING › › Regional sourcing expands as economies grow › › Regional manufacturing pulls back supplier ecosystems › › In the US and Midwest: a manufacturing renaissance › › In Europe: growth in Poland, Romania and the Ukraine – become a local low cost option › › In Asia: India and Indonesia grow to compete with China › › CSER becomes the norm in emerging countries
1
2
3
4
27
CONTROL TOWER MODELS REPLACE TRADITIONAL PROCUREMENT FUNCTIONS › › Virtual vertical integration › › Mobile and intelligent networks › › Improved logistics tracking capabilities › › Risk and velocity drive cost management › › New tools for supply chain visibility › › Risk mitigation technologies For more on technology, see the State of Flux article ‘ SRM technology - achieving a clear line of sight’ on page 119 While it is clear that the developments described by Tom impact across the whole of procurement, SRM has a vital role to play in procurement and the wider organisation’s ability to either take advantage of these emerging trends or to mitigate against their negative impact. Areas SRM can contribute are: › › True SRM will strive to achieve win-win outcomes and at the top end of strategic segmentation, relationships will become more integrated. › › SRM system tools exist to drive trust and transparency. › › Collaborative working and seeking mutual value in supplier relationships will contribute to improving CSER performance across the supply chain. › › Working collaboratively with suppliers to jointly manage risk and build supply chain resilience. › › Developing flexible governancemodels tomanage global and regional / local sourcing strategies and vertical integration.
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Article by Mel Shutes, Head of SRM at State of Flux. Call him on +44 (0)207 842 0600 or email him at mel.shutes@stateofflux.co.uk to learn more about how SRM can help you take advantage of emerging procurement trends.
This article is based on the publicly available presentation by Tom Linton, chief pro- curement and supply chain officer at the Flextronics investor and analyst day 2013.
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BUSINESS DRIVERS & VALUE
29
Risk and customer of choice business drivers have become more important.
For the first time since we started our annual research in 2009, risk has been identified as the most important business driver promoting an invest- ment in SRM. While cost reduction and cost avoidance remain priorities, customer of choice business drivers such as the need to secure the best supplier resource and account management focus have also become more important. The level and range of tangible benefits is increasing, with notable increases in supplier service levels, supply chain efficiency, impact on profit margins, risk reduction and cost avoidance. Leaders are almost twice as likely to be experiencing benefits in areas such as sustainability, access to the best supplier resource, and joint product or service development. All the evidence suggests that the benefits being delivered are well aligned to the business drivers, although this may well be serendipitous as little seems to be done to ensure a clear line of sight between SRM value and business objectives. Around 25% of respondents report post contract SRM related benefits to be worth 6% or more of the contract value. However, capturing and reporting benefits remains a challenge, with 32% of respondents not knowing what the benefits are. For the most part, there seems to be a good understanding of the value that SRM provides suppliers. In fact, in many cases it seems the value received by the sell side is more than the buy side think. Customer of choice discretion is certainly exercised by suppliers, as evidenced by the descriptions of the benefits received on the buy side and provided by the sell side.
Highlights Over 90% of respondents believe risk is either important or very important as a business driver for SRM. It’s ranked number one by financial services, utili- ties and FMCG industry sectors. Leaders are twice as likely to be receiving customer of choice type benefits. 34% of leaders are reporting post contract benefits in excess of 6%. Financial services and man- ufacturing (both 25%) report benefits in excess of 6%. The top three benefits reported are: cost reduction / avoidance, risk reductionand service improve- ment. These correspondwith the top three business drivers. Only 15% of buy side com- panies regularly share SRM benefits with suppliers. Customer of choice benefits are real and reported by both sides.
Business drivers and value best practice A value proposition or business case for SRM, capturing the full range of value, has been devel- oped, socialised and accepted by all relevant stakeholders. A clear understanding of the realistic value potential of SRM and alignment to key business drivers has been established and is realigned when business drivers change. Capability to capture and report on both direct and indirect benefits has been developed. A commitment and mechanism to share the benefits of collaborative SRM initiatives is in place. Activities to drive value are in place and embedded in a jointly agreed account plan. Examples could include: › › Continuous improvement workshops › › Site visits › › Innovation forums › › Value release activities
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