Lloyds Banking Group

As a large and complex financial services company operating in a tough business environment, Lloyds Banking Group has had to position SRM as part of a wider change programme and focus clearly on the value that can be delivered by engaging its suppliers more effectively. 

Here’s how the group procurement team led by CPO Michael Whitby has approached the task.
 
Lloyds Banking Group has a heritage dating back to 1695, but the group as we know it today was created in 2009 when Lloyds TSB Group acquired HBOS. This made it the largest retail bank in the UK with strong positions in a number of sectors and over 30 million customers.
 
The scope and scale of the new company – which includes Lloyds TSB, Halifax and Bank of Scotland, plus other brands such as Clerical Medical and Scottish Widows – presents both exciting opportunities and also many tough challenges. One of these is the integration and harmonisation of working practices across business units and functions.
 

The transformation challenge

When Michael Whitby was appointed chief procurement officer in early 2011 he was faced with this challenge for the group procurement function. He took some time to evaluate the situation before initiating a major transformation and simplification programme to achieve a step change in the effectiveness and efficiency of all aspects of procurement and supply chain management across the group.
 
The programme is made up of several work streams, one of which is SRM. A member of Whitby’s leadership team, George Booth, head of marketing procurement, was appointed to lead the SRM work stream. This case study explains the approach that Booth and his team have adopted to mobilise the project.  
                      
Implementing change in any large organisation is always a big challenge. However, the scale and complexity of Lloyds Banking Group makes it a huge task. Lloyds TSB and HBOS had each grown through mergers and acquisitions over a period of more than 300 years before they came together in 2009. Trying to introduce standardisation and consistency in such an environment is difficult, but even more so for SRM when much of the change required is behavioural.
 
Making the case for change was the first challenge faced by Booth and the small team he assembled to shape and drive this initiative. “It’s a familiar story,” he says. “You won’t find many people who would disagree that we should be managing suppliers more effectively. It’s what that management entails and what value can be derived from it where opinions differ. We thought it was really important to gather as much information as possible to build a compelling case for change and get everybody (especially the senior executive team) on the same page.”
 

Diagnostic study

As part of this exercise, Lloyds commissioned an SRM diagnostic study to gain an understanding of how SRM or similar practices were being performed across the group. This involved structured interviews with SRM practitioners, senior stakeholders and suppliers; a review of tools, techniques and systems; an understanding of the resources engaged; and benchmarking against best practice and peer group financial services companies.
 
The study made a number of observations about the current state of SRM across the group. In summary, these revealed an organisation where pockets of good SRM practice existed, but where a consistent understanding of, and approach to, SRM was lacking. The report also included a number of recommendations that would go on to influence the team’s approach.
 
“When we received the report we were not surprised at the findings,” says Booth. “We had drawn similar conclusions ourselves, but wanted to validate these with an external perspective. It’s clear we have some great people working really hard, but without senior stakeholder support and a best-in-class framework, including tools, techniques and training, they will not be able to achieve the real potential of SRM.”
 
Armed with the diagnostic report, the team set about building the case for change that would convince senior executives from across the group that investment in a single, consistent approach to SRM was in the best interests of the whole business.
 
“The most compelling aspect of the case for change has to be the value,” Booth says. “If you can’t articulate that in a way that is easily understood, you can forget it.”
 

Defining the framework

Before it could be sure of the value, Lloyds had to decide what it really meant by SRM. The conclusion was that SRM forms part of a wider supplier management approach – one in which all components have to be in place for real value to be delivered. These components are supplier contract management, supplier performance management and supplier relationship management.
 
“We felt it was important that everybody understood what these components of supplier management were and that each had a clear definition,” Booth explains. “It was clear from the diagnostic work that what some people described as SRM was in fact performance management. We felt it was important that SRM was differentiated from performance management and contract management, and that its focus on driving value beyond cost was recognised.”
 
The team developed specific definitions for each of the activities and aligned the value to be derived from each, as follows:

 

Component

Definition

Value

Supplier relationship management (SRM)

Is a discipline of working collaboratively with those suppliers that are vital to the success of an organisation to maximise the mutual value of those relationships.

Driving value beyond cost.

Joint strategic planning & objective setting.
Preferential access scarce resources.
Shared risk & reward culture.
Innovation focus.
Relentless focus on ‘bad cost’ to drive incremental savings.

Supplier performance management (SPM)

 

Ensures that the contracted service or product is being delivered as agreed, to the required level of performance and quality.

Ensures service quality SLAs  / KPIs delivered.
Optimised allocation of resources.
Reduces risk.

 

Supplier contract
management
(SCM)

 

Is the formal governance of the contract.

Assures confirmed savings delivery.
Risk mitigation and regulator confidence.

 

 

To drive home the 'value' message, the team decided they had to make the generic value proposition more relevant to the group strategic agenda at this point in time. Says Booth: “We would only get one shot at this and if the senior executives couldn’t see a direct correlation between what supplier management can deliver and the current business strategy we would lose our opportunity. We therefore made it clear how supplier management value relates to their current priorities.”
 
Examples of this include:
 
  • Savings – Best in class supplier management has the potential to deliver a significant proportion of the current cost saving challenge, and when linked with strategic sourcing supports supplier base rationalisation.
  • Risk – Effective supplier management mitigates risks relating to legal liability, regulatory compliance and damage to the group’s commercial interests and reputation.
  • Competition – Lloyds shares many common suppliers with its competitors. Effective supplier management will help to secure preferential access to value generation, innovation, top talent and scarce resources. In other words, position the group as a 'customer of choice'.
  • Simplification – The supplier management programme will drive consistency and adoption across the group.

Shaping the programme

Having defined what Lloyds now refers to as supplier management, and aligned the value proposition, the team moved on to frame the programme. Firstly, a realistic vision for the end state was developed – namely, to be the benchmark for SRM in global financial services.
 
Secondly, the terms of reference for the programme were agreed – “working across Lloyds Banking Group with business clients and senior stakeholders, group procurement will lead the baselining, design and embedding of best-in-class SRM that is applied consistently to deliver sustainable value from our supply base”.
 
Using the diagnostic report recommendations as a template, and engaging an extended team from business areas where SRM is a key enabler, a set of high level programme deliverables have been defined:
 
  • Stakeholder engagement and business support – supplier management solution built with the businesses, endorsed by the executive steering group with supplier management business leaders driving adoption within their teams.
  • Effective governance – Group procurement proactively leading a credible and consistent group-wide supplier management programme. Segmented supply base with correct treatment strategies applied.
  • Skilled people – Retrained / recruited and optimised supplier management resource pool clearly understanding their roles and obligations. Clear career paths are in place and training provided through a central resource.
  • Tools and systems – Enables cross-business information sharing on suppliers and enhanced direct supplier interaction. 
  • Business drivers, value and metrics – 'Hard' and 'soft' supplier management value tracked and reported to evidence ROI. Enhanced KPI performance, increased innovation and a reduced risk environment. 
  • Relationship characteristics – Trust and collaboration evident, with Lloyds considered a customer of choice by our key suppliers.
Lloyds Banking Group is now at the point of kicking off its supplier management implementation project as part of the wider group procurement transformation and simplification programme. George Booth is optimistic about its prospects of success, but doesn’t underestimate the challenges that lie ahead. “We have invested significant time and effort in understanding the current state and making the case for change,” he says. “This investment has been necessary to secure senior stakeholder support.
 
“Supplier management is one of the most multi-functional activities and sustainable success can only be achieved by working closely with the business at each stage.”
 
CPO Michael Whitby adds: “We are faced with some of the most challenging business conditions any of us have ever experienced. We must use all of our resources and capability to meet these challenges and succeed. As a major brand and spend in our chosen supply markets, I am convinced as to the value and benefit of adopting best practice in supplier performance and relationship management to optimise our supplier relationships, assure performance, mitigate risk  and drive value beyond price.”

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