Is Australasia ready for SRM?
Adrian Bower, CEO of State of Flux Australasia
We are regularly discussing SRM with Australasian CPOs and how to bring it to life within an organisation. In nearly all these conversations it appears SRM is one of their top three objectives.
The general tone of the survey has provided a somewhat different perspective from that of our conversations with Australasian clients. Elements of the survey have suggested greater maturity than people have openly spoken about and so we have investigated the reasons for this, using our SRM best practice framework.
Looking at the evidence
Is it that the Australasian market are self-effacing when speaking openly about their SRM programmes in person, or more upbeat when it comes to the formalities of filling out a survey and being compared to peers? We believe it’s somewhere inbetween.
Initially, the Australasian data appears overly optimistic when leading procurement organisations regularly tell us they feel they are behind the global SRM development curve. Many are just getting to grips with defining how they will roll out SRM; others don’t feel in a position start the SRM journey. Common things we hear from our clients are:
“We have still to get the foundations of sourcing and P2P right before being anywhere close to considering SRM.”
“We are still embedding sourcing and category management across the team, and need to complete this before we ask them to consider SRM.”
“In certain parts of the organisation we just don’t have the relationship yet to start to operate SRM.”
“We have started to consider SRM in the IT category, but we are not ready to embed it.”
So what’s the story behind the disconnect?
Pockets of activity
While conversations are generally about what is not happening, the survey suggests that a significant number (just over 85%) believe there will be an increase in importance and activity in the next 12 months.
Importance of SRM in the next 12 months – rest of world (ROW) and Australasia
It is possible businesses could be on the cusp of change, or like the Qantas example below, there are pockets of SRM happening but it is not yet embedded across the organisation.
“Without recognising it as SRM at the time, Qantas and Telstra recently adopted good ‘SRM behaviours’ to help turn around a challenging situation for both sides. The key now will be adopting these practices across the business.”
– PETER MCDONNELL, HEAD OF SRM AT QANTAS
This is a good example of where, in a specific instance, elements of the framework were adopted. Stakeholder engagement increased out of necessity, some improved governance was implemented and people with the right skills were engaged.
Cultural shift
While the sourcing process pits two businesses against each other constantly manoeuvring to get the best outcome for their business (or their own personal performance targets), if the behaviour continues post contract it often results in failing supplier relationships due to an inability to find common ground. Once the terms of the contract have been agreed, we need to transition into defining the ‘relationship characteristics’. When these are collaboration and trust, we see the highest return for people’s investment.
The data shows that 40% of Australasian respondents primarily focus on collaborating with their key suppliers. This is only slightly behind the circa 50% who are doing it globally. Whether it’s the need to compete on a global level with bigger businesses or nationally in a smaller supplier pool, culturally businesses are recognising the need to collaborate to generate greater value from their supply base.
Primary focus of SRM programmes – ROW and Australasia
Getting it culturally right is something that has certainly been taken on by NBN Co:
“Our company values form the foundation of our SRM framework. This was a very deliberate step in aligning the expectations of SRM participation with the principles of good behaviour that every NBN Co employee commits to by signing their employment contract. I believe this is a critical first step in building any SRM programme, as the creation of value from SRM relies heavily on people’s behaviours and attitudes towards each other from day one”.
– MARK SAINT, HEAD OF SRM AT NBN CO .
So while potentially not recognising the changing behaviour towards collaboration as SRM in discussions, the survey shows that businesses understand collaboration will bring greater reward.
Definition of SRM
‘The executives catch up on the golf course / at the footy’ or ‘we have regular meetings but there’s no agenda and no actions captured’ are definitions we hear of SRM. While these are extreme examples, it does underline the fact that SRM can take on different guises for different people.
The survey results show that Australasia considers
contract management and
supplier performance management activities, such as monitoring SLAs and KPIs, as the main SRM drivers, to a greater extent than the rest of the world. This would support our idea that SRM is not necessarily defined as a separate entity to performance and contract management locally. Global companies where SRM is more established, are twice as likely to have robust performance management (1) as Australia and New Zealand, and three times more likely to have robust contract management (2). This indicates they have defined, and to a greater extent, dealt with the building blocks for SRM.
Potentially respondents recognise the need to have in place strong foundations of contract management and performance management to enable SRM to deliver improvements. Or perhaps businesses are misunderstanding contract and performance management to be SRM. Either way, the good news is there is a focus to get the foundations right and once these have been dealt with there is more value to come through SRM that businesses are not yet aware of.
Financial benefit
Cost avoidance, profit and loss impact or budget reduction can be the measures of financial success from the sourcing process and easy to present in discussions to the CFO. However, with SRM we are regularly approached by businesses to help them define the value proposition of SRM, yet survey respondents say they are already seeing the benefit of SRM.
While fewer respondents in Australasia have a specific SRM value proposition, 74% of survey respondents from the Australasian market see themselves delivering financial benefit through SRM, which is 11% higher than their global counterparts.
While people could be attributing sourcing financial benefit to SRM, the positive take away is businesses feel comfortable there is bottom line benefit to pursuing SRM. As defined in the first pillar of SRM, ‘business drivers and value’, understanding the drivers and the benefit SRM will deliver on, will help you communicate the benefit to stakeholders.
Customer of choice benefit
Do I get the best account team and other resource? Do we get access to the latest innovation? Are they pricing in the challenge of doing business with us? Do we openly and transparently discuss challenges with our account team? These are all attributes associated with being a
customer of choice. The below chart indicates that already businesses feel they are benefiting from preferred pricing and better account management through their relationships with their vendors. So it appears some customer of choice benefits are evident despite the fact they believe less than 15% of their key suppliers are fully engaged in working with them.
There is recognition that positioning businesses correctly with their suppliers reaps rewards. This will surely lead to those who improve capability generating the quickest and largest benefits.