Businesses miss $550 billion SRM opportunity

Better understanding of suppliers leads to post-contract benefits State of Flux study finds. Fortune global 500 businesses are losing out on a $550-billion opportunity because of ineffective management of their supplier relationships.

Our study of 276 businesses reveals that 80% were not able to achieve on-going benefits from supplier relationship management of more than 4% of the company’s external spending. Well executed SRM can achieve 4-6% post contract benefits. This result has been consistent over the 8 years which State of Flux has conducted this research, with more than +1500 organisations. As a result, Fortune global 500 businesses are missing out on potential savings, increased revenue and improved efficiencies worth an estimated $550 billion or approximately a third increase in profit.

Businesses put a lot of effort into getting what they believe is the best price when they negotiate contracts with their large suppliers, but they don’t always think about how they can manage suppliers afterwards

In our work with clients, we’ve repeatedly demonstrated that by collecting information on all of the business’ interaction with suppliers, from contract, performance, risk, relationship and innovation, they can start to achieve greater benefits beyond the contract price. This might be through further savings, more efficient processes and even drawing on supplier innovation which can help boost sales. At the moment the majority of businesses are not taking these opportunities.

This eighth report includes case studies from businesses including confectionary giant Mars, Australia’s leading telco Telstra, Irish Bank AIB and UK gaming firm Ladbrokes which demonstrate how a systematic approach to SRM can save money and foster innovation.

Although 85% of the businesses surveyed said they had made some progress on SRM, significant barriers to success remain. Technology support for SRM remains poor. Nearly one in five use no software tools at all for SRM.

Where businesses use software for managing some aspects of information flow to and from suppliers, it is ineffective. Just over half of businesses say its performance is poor. Systems lack the required functionality and features, according to 59% of companies, while 63% say systems are disparate and not integrated.

The 2016 global SRM research report, Digital SRM: supplier relationships in the new technology landscape, also finds:

• the number of businesses failing to invest in SRM training rose from 26% in 2015 to 39% in 2016
• only 36% of firms have contract management in place for more than three-quarters of their key suppliers
• 54% of businesses do not collect feedback from their suppliers
• half of businesses don’t have, or don’t know if they have, a value proposition for the activity
• 87% of firms use Excel as their primary tool for working with SRM data
• 33% of organisations have an effective innovation management process in place