Leaders in Supplier Relationship Management Reap Benefits of Their Investments, Survey Finds

State of Flux

Organisations with more developed supplier relationship management (SRM) programmes are getting tangible cost, risk, innovation and other benefits from collaborating more intensively with key suppliers, according to the latest State of Flux SRM report.

State of Flux is a procurement and supply chain consultancy, headquartered in London.

More than 80 percent of "SRM leaders" (organisations that place their SRM initiatives in the top half of State of Flux's maturity scale) say they have reaped cost reduction benefits. Post-contract financial savings are typically in the region of 2 percent to 6 percent of annual spend with a supplier, although a fifth say they have achieved 8 percent or more.

Risk reduction is the second-most common benefit, with 70 percent of SRM leaders reporting this, followed by cost avoidance (66 percent), supply chain efficiency (64 percent) and innovation (58 percent). Among the "SRM followers" (organisations that rate their SRM initiatives in the bottom half of the maturity scale), the comparable figures are 20 to 30 percentage points lower.

Twice as many SRM leaders - who comprise just under a quarter of the survey sample - say they have received "customer of choice" benefits such as access to the supplier's best people, priority allocation of scarce materials or production capacity, and first refusal on innovations during the past year.

Innovation is seen by the leaders as the biggest potential source of value from SRM activity in the next 12 months, whereas for the followers it's cost reduction.

A majority of SRM leaders also believe that greater collaboration has paid off during negotiations. More than 6 out of 10 say their strategic suppliers have brought more value to the table and taken a longer-term perspective, and that the outcomes have been better for both parties.

Two-thirds of respondents believe their suppliers have benefited from access to new business opportunities as a result of participating in their SRM programmes. More than half of the SRM leaders also highlight revenue growth and faster decision making as tangible supplier benefits.

However, although the proportion of customers who say they share financial savings from improvement projects with their suppliers has increased since 2010, only 14 percent of SRM leaders and 8 percent of SRM followers say they "always" share these benefits.

A lack of benefit sharing is ranked by survey respondents as one of the main barriers to getting suppliers engaged in SRM programmes.

Other findings of the 2011 survey include:

• Skills shortages - particularly communication and influencing skills - are the main internal barrier to progress in SRM.
• SRM leaders are twice as likely as followers to have both full-time, dedicated supplier relationship managers and cross-functional teams assigned to key suppliers.
• Three times as many leaders have SRM goals built into individuals' personal objectives and development plans to a significant extent (36 percent versus 12 percent among the followers).
• Only about half of organisations believe they are good at attracting, evaluating and implementing suppliers' innovation proposals; a third say their understanding of key suppliers' capabilities and expertise is poor.
• Just 4 percent of leaders and 1 percent of followers think that existing IT systems strongly support information sharing and collaboration with suppliers.

Commenting on the survey findings, Alan Day, managing director of State of Flux, said: "SRM leaders are ably demonstrating that their investment pays off in terms of business benefits.

"In particular, they are getting greater value as a result of being seen as a 'customer of choice' by their key suppliers. The major benefits of this include senior management support, preferential pricing and a regular flow of innovations and continuous improvement ideas."

He added: "But to position your company as a 'customer of choice', you need to think carefully about how you deal with suppliers. Individual behaviours and organisational practices need to be fair, open and honest, so that they build trust and create an environment in which mutually beneficial collaboration can take place."