2019 Global SRM Research Report - grow supplier innovation

State of Flux 2019 Global Supplier Relationship Management Research Report focuses on harnessing and growing supplier innovation. 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.

Harnessing and growing supplier innovation

2019 GLOBAL SRM RESEARCH REPORT 11 TH EDITION

INTRODUCTION

58 People

Contents

70 Technology

M ethod sparks supplier innovation – not magic B uilding a pipeline through innovation blockers L earning from the history of supplier innovation T oyota looks to supplier innovation to build on global success

80 Collaboration

B usiness leadership hungry for supplier innovation W inning relationships support Olympic success

About SRM, State of Flux and our research

Summary of key findings

20 Value

Six Pillars of SRM

Value

Engagement

Governance

Innovation feature

28 Engagement

People

Technology

Collaboration

Summary and Call to action

40 Governance

Our partners

About State of Flux

STATE OF FLUX

INTRODUCTION / FOREWORD

Method sparks supplier innovation – not magic E veryone knows it when they see it, yet innovation is slippery when you try to define it. Nonetheless, any organisation trying to

beating CRM platform, discusses how software has helped improve customer management, and how the lessons can be applied to SRM. But supplier innovation is not all about suppliers. On pages 6-7, North Carolina State University supply chain management professor Robert Handfield, who has literally written the book on supplier innovation, says internal business leaders hold the keys to successful collaboration with suppliers – but can be prone to slamming the door if not managed carefully. The US Postal Service, Lloyds Banking Group and Premier Oil also lend their experience of improving business performance with SRM, as do Australian firms Narta and Stanwell. In addition we provide our own perspective on the many and varied attributes of successful SRM programmes. As new technologies and economic challenges threaten businesses around the world, there has never been a greater need for supplier innovation to help secure the opportunities that come with the territory. In such a world, procurement should not be known only for running RFPs and administering contracts. We can all learn from the experience of the companies we have brought together in this report. Now is the time to start applying the lessons.

innovation. Now in its 11th year, the report is based on a survey of 402 companies, a 32% increase on the previous year. It is also crammed with insight from leading researchers and business executives in the field. Company directors now have an appetite for supplier innovation, says Sir John Hood, who has sat on the board of global companies, as well as serving as vice-chancellor of Oxford University. Procurement teams will no-longer impress with the savings narrative alone, he says. State of Flux has found that companies which engage suppliers pro-actively and work with them on innovation will be regarded as customers of choice. Equally being a customer of choice and a supplier relationship management leader means you are 3 times more likely to receive innovation from your suppliers. relationship management. On pages 8-9 Europe purchasing director Jean- Christophe Deville describes how the world’s largest automotive firm is striving to accelerate innovation with new sets of suppliers. Organisations should not simply wait for supplier innovation to magically appear out of thin air. They must develop a method for creating a Toyota has been recognised as a standard-bearer for supplier pipeline, just as sales and marketing departments create a funnel for sales leads (see State of Flux analysis, p4). Then supplier innovation can be captured using business technologies, in the same way CRM has been used to manage customer accounts. On pages 76-78, Hubspot, the creator of a world-

innovate needs to agree on a definition before they can achieve their goals. If they cannot say what they want, they don’t have much hope in getting it. The problem in defining innovation is we are drawn towards shiny objects: new products that dazzle consumers; start-up companies that transform markets; technologies that change lives. While these are examples of innovation, they only represent a small set of circumstances in which innovation is necessary: businesses need new thinking in risk management and efficiency, as well as a way to accelerate growth. Established suppliers can help fulfil all of these needs, but only if you manage them in the right way. Welcome to State of Flux’s 2019 SRM report, which focuses on supplier Organisations should not simply wait for supplier innovation to magically appear out of thin air. They must develop a method for creating a pipeline, just as sales and marketing departments create a funnel for sales leads.

Alan Day Chairman & Founder State of Flux

2019 GLOBAL SRM RESEARCH REPORT

INNOVATION

The rewards are clear: research shows that firms who collaborate systematically with suppliers record an EBIT growth rate double that of their peers 3 . But our research shows only 15% of organisations have systematic collaboration with their suppliers in place. The fact remains that “the first overriding result in almost every research report is that there is a significant gap between innovation expectations and performance”. 4 In this years’ State of Flux SRM report, we provide data and a detailed analysis of organisations’ efforts at supplier innovation [p54] as well as, detailing how Toyota [p8] approach the subject. Olympic sprint cycling coach Justin Grace and former Oxford University vice-chancellor Sir John Hood also offer their perspectives on the subject [p12 and 10] Many forms of innovation At State of Flux, we have been measuring organisations’ effectiveness in nurturing supplier innovation for more than 10 years. In that time, we have seen that innovation is not one thing. Focus tends to be drawn to product innovation when there are many other forms of innovation across a spectrum of organisational activity. It could be changing accounting processes to increase working capital. It could be operational efficiency to reduce costs and improve margins.

Building a pipeline through innovation blockers Supplier innovation improves efficiency, reduces cost and risk, and accelerates growth. But when organisations put plans into action, they often hit barriers. Here, we discuss these challenges and how to overcome them.

A rtificial intelligence is set to transform how organisations offer products and services, potentially adding $13 trillion to global economic output by 2030 1 . But to benefit from AI, organisations will depend heavily on their suppliers. As well as technology suppliers, vendors from a breadth of buying categories will provide the data necessary to ensure AI achieves business value. Manufacturing machinery will come with Internet of Things (IoT) sensors, and the supplier will build predictive maintenance models. AI will help drug discovery in the pharma industry, relying on data from research institutes and ingredients suppliers. Marketing suppliers will use consumer data to help model and predict the effectiveness of future campaigns.

Organisations can create an innovation funnel and pipeline: a metaphor describing a sequence of steps to develop initial ideas into successfully implemented projects that deliver value to both the organisation and the supplier.

Suppliers support the innovation endgame

AI is just one example of the changes sweeping through industries, but it shows how dependent organisations are on their supply chains to innovate at the pace they will require. Kasper Rørsted, CEO Adidas is quoted as saying: “We recognise that we need to complement the inspiration and creativity of our people with external innovation… you have to open yourself up to ideas that you might not have been open to in the past.” 2

STATE OF FLUX

INNOVATION

creating and managing ideas, similar to the marketing funnel (see State of Flux whitepaper SRM: Stimulating and managing supplier innovation 6 ) Regardless of the blockers, interest in supplier innovation is unquestionable, and it is a logical outcome of effective SRM. It is nearly always part of the value proposition for SRM and is moving higher up the list: the majority of organisations say it is among their ambitions. From CEOs, we see that the old vision of procurement is fading: the idea that the department will continually reduce costs is taken as a given, and they want to hear something more interesting from its leaders (see global business board member Sir John Hood’s comments, p10). CEOs are hungry for innovation to keep pace with changes in technology and digital transformation. SRM is a way of harnessing supplier innovation and satisfying their appetite.

But organisations are often unsure where to start with broad-based supplier innovation. They ask, “How do we expand the definition of innovation and understand where suppliers can help? Where are the other examples of innovation in marketing, IT, finance and sales? What does innovation look like for these departments, and how can we express supplier innovation in a language they will understand?” There are so many questions addressing innovation, and it is easy for thinking to become confused, and results difficult to come by. But State of Flux has been able demonstrate that organisations can develop a methodology for supplier innovation just as they can for sales and marketing. Building an innovation funnel Organisations face common barriers to supplier innovation (see box), but with a sense of purpose they can overcome them. As well as poor innovation management know-how, there are other factors contributing to a gap between expectations and delivery in supplier innovation. There can be disparate activity which sends suppliers mixed messages. Cultural blockers are also a factor: 78% of millennials believe that innovation is essential for business growth, but just 26% believe that their own organisation’s leadership encourages idea generation and sharing 5 . Some organisations lack consistent executive leadership and have low internal collaboration. Organisations that are risk-averse do not support innovation well. Suppliers can be a factor if they have become disengaged through too many bad experiences. Meanwhile, organisations can get tired of too many management buzzwords that promote innovation; consultants describing the problem without offering solutions; and projects starting without reaching a conclusion. Supplier innovation becomes just another item on the list of failed initiatives. State of Flux has shown that through SRM, organisations can create an innovation funnel and pipeline: a metaphor describing a sequence of steps to develop initial ideas into successfully implemented projects that deliver value to both the organisation and the supplier. It is a framework for

1 https://www.mckinsey.com/practice-clients/operations/ the-power-of-successful-supplier-collaboration 2 PWC 22nd Annual Global CEO Survey https://www.pwc. com/gx/en/ceo-survey/2019/report/pwc-22nd-annual- global-ceo-survey.pdf 3 https://www.mckinsey.com/practice-clients/operations/ the-power-of-successful-supplier-collaboration 4 https://innovationmanagement.se/2011/05/27/the- innovation-gap/ 5 https://www2.deloitte.com/content/dam/Deloitte/global/ Documents/About-Deloitte/dttl-millennial-innovation- survey.pdf 6 https://www.stateofflux.co.uk/ideas-and-insights/reports- and-publications/stimulating-and-managing-supplier- innovation-white 7 https://www.stateofflux.co.uk/ideas-and-insights/reports- and-publications/collaborative-supplier-innovation-1

Common challenges in developing supplier innovation

Process to receive and review innovations

Definition of innovation Often, it is not clear what the

Many organisations have a haphazard approach to developing new ideas. Crucial to benefiting from innovation is having a process that supports the evaluation of suppliers’ ideas and acts on their suggested solutions. Supplier feedback process A supplier feedback process is vital to managing both proactive and reactive innovation. Nothing frustrates suppliers more than submitting ideas, only to hear nothing for months. Benefit-sharing Our SRM research has shown that most organisations still struggle with sharing benefits with suppliers, both in concept and in practice. Contracts Large organisations often fall into the trap of having an intellectual property clause within the supplier contract, stating that they own any good idea or innovation the supplier brings to them – hardly an incentive for suppliers.

organisation means by innovation. It can be a major step change or continuous improvement. It can be a product or process or service. Handling good ideas appropriately Good ideas from suppliers are like gold and should be treated as such. Some suppliers care enough to offer their thoughts and ideas. However, these are often under-valued and are either turned down without proper consideration or disappear into a ‘black hole’ of confused roles and responsibilities. True innovation or a supplier sales pitch? Innovation is often confused with sales pitches (by both parties). Companies can fear suppliers will use the process to simply try to sell more and sometimes this is borne out by supplier behaviour. Guided innovation Many businesses fail to communicate business challenges to stimulate innovation.

INNOVATION

A few years ago, I was working with a global manufacturer of tractors and agricultural machinery. When I spoke to its suppliers, they said something which underscores why supplier innovation is so tough. I found out that suppliers of fittings and accessories were quite often small and medium-sized businesses. Although they thought the large manufacturer was extremely ethical, they still did not trust it. They didn’t trust the manufacturer’s ability to communicate effectively. They knew it didn’t understand their true costs. They knew it didn’t have the ability to speak in one voice in terms of product planning. They said, “We really don’t get any feedback, we’re not able to talk to your end customers, so we don’t really know if the products we’re producing are good, or if customers like them or not, we’re running blind.” I’ve been studying topics related to supplier innovation for more than twenty years, and this example shows you have to have so many elements in line, internally and externally, to make it work. Twenty-five years of study One of my first studies was in the 1990s at Michigan State University, where I worked with a global procurement benchmarking initiative, which ran for about eight years. From that, I worked for the Global Electronic Benchmarking Network (GEBN), a consortium of 200 companies. And we were talking to them about best practices, and I wrote a number of technical reports about category strategy and ecommerce, supplier development, a lot of the concepts that were just starting to emerge in the mid-1990s. I think of supplier innovation as an extension of supplier performance management and supplier relationship management: it is the top of the pyramid. Once you get your performance in line, and can measure it, and you’re developing suppliers, it creates opportunities for suppliers to start to innovate and start getting involved in product, process and service, and design integration.

Rob Handfield Is the Bank of America University distinguished professor of supply chain management at North Carolina State University, and director of the Supply Chain Resource Cooperative (http:// scm.ncsu.edu). He also serves as an Adjunct Professor with the Supply Chain Management Research Group at the Manchester Business School.

Learning from the history of supplier innovation

Dating back to the 1990s, the ideas behind supplier innovation are nothing new. So why do so many organisations still struggle to get the concept embedded across the business? Robert Handfield, professor of supply chain management at North Carolina State University, delves into history for some clues.

STATE OF FLUX

INNOVATION

Shifts in buyer-seller relationships: A retrospective on Handfield and Bechtel (2002)

There’s a lot of internal resistance to supplier innovation. It is almost as if you are telling engineers they are not good enough, and they are worried their role is going to be outsourced.

One of the most highly cited papers in the Industrial Marketing Management journal was published 17 years ago and proposed a strong linkage in the elements of buyer-seller trust, asset specificity, contracts, and supply chain performance. In this paper, Handfileld and Betchel explore the question of “what has changed”? Highlights include: • Velocity is the new value outcome in supply chains, due to the need for quicker decision-making • Shifts to “big data” and AI have created a “real-time” shift in buyer-seller exchanges of analytics and data • Buyer-seller relationships spanning multiple enterprises is increasing complexity in networked models • Increased reliance on suppliers for analytics as a service will introduce new players into existing supply chains • Industrial buyer-seller relationships will need to align with these major shifts in marketing ecosystems

outsourced. They can get so personal, those kinds of situations.

All these roles will vary in terms of what the supplier does for the buyer as you move along that scale. That’s where it gets tricky: the supplier starts saying: “Look, this is my idea, I want to own the intellectual property.” Well, that doesn’t sit well with a lot of buying organisations that are stuck in the traditional way of thinking. One company we worked with had in its contract that if a supplier shares an idea, the company owned it. But the supplier will say that retaining that IP will be the only way they can cover their costs associated with developing the technology. Then there is the problem of aligning internally. We have found often suppliers will come and say, “This is great, I’m excited about this idea, and I’m going to attend your design team meeting”, and that does not always go well. I remember one time, I had an engineer at a buying company who pointed his finger in my face and said, “There will be a cold day in hell before any supplier tells me how to design my product.” There’s a lot of internal resistance to supplier innovation. It is almost as if you are telling engineers they are not good enough, and they are worried their role is going to be

The work with the GEBN led to a grant from the National Science Foundation, which led to our work being published in the California Management Review and eventually several books. The lessons we found for organisations embarking on supplier innovation are that it requires a lot of alignment inside the buying company and some complex negotiations around intellectual property. Defining the roles and responsibilities is important too. Understanding the supplier’s role On top of that, it is not the same for every supplier. It depends on who they are and how they work with you. We came up with the white box, grey box, black box idea. In the white box, the buyer develops the design, hands it over to the supplier, which produces it exactly to those specifications. In the grey box, you may have the supplier involved in developing those specifications for the product as well, or they may be sitting on the design team. And then the black box is a complete outsource idea, where the supplier designs, produces and ships the product completely.

Harnessing supplier product knowledge

But the fact is suppliers know their technology better than the buying organisation, and it knows its products and market better too. It just makes a lot more sense to exploit that expertise. Earlier this year, I reviewed progress from one of our most cited papers, Handfield & Bechtel (2002). The study helped me understand where supplier relationships are heading, considering the impact of technology on the economy (see box). But there is still naivete from CFOs: they look at purchasing and still see the role as reducing costs and running RFPs and it cannot do anything beyond that. For supplier innovation to work the understanding has to reach across the entire business. I think 85% of it is internal alignment, not external alignment. It is getting everyone in your organisation to understand who the supplier is, what their role is, what the strategy is, and what we’re pursuing together. That’s when innovation can reap rewards.

2019 GLOBAL SRM RESEARCH REPORT

INNOVATION

Toyota looks to supplier innovation to build on global success SRM has helped propel Toyota on its journey to become the world’s largest automotive manufacturer. But to meet the challenges in the next leap forward in mobility, the company is striving to accelerate innovation with new sets of suppliers, says Toyota Motor Europe purchasing director Jean-Christophe Deville. I n 2018, influential automotive Jean- Christophe Deville

challenges the industry faces in the coming years. Like all automotive manufacturers, Toyota is looking to succeed in a transforming industry. Not only do we have to shift to electrified vehicles to play our role in a low-carbon economy, we also need to build connected cars, develop mobility as a service, and adopt increasing automation. Toyota is already leading in these areas. In Japan, the Toyota Motor Corporation has launched a Mobility Services Platform (MSPF), a cloud- based digital ecosystem that provides the tools necessary to bring to market mobility services including ride sharing, car sharing and remote delivery. Meanwhile, Toyota Connected works with telematics, big data and mobility services in partnership with companies such as Avis Budget Group and Uber.

consultancy Planning Perspectives confirmed again the importance of strong relationships with suppliers and their positive impact on both side bottom-lines. The importance of supplier relationships is not news to Toyota. We have long focused on supplier relationships to boost our performance, and the hard work has paid off. For 10 years, Toyota has been named the top original equipment manufacturer by suppliers in Planning Perspective’s industry survey in the US. Our philosophy applies globally and we also behave in the same way in Europe. Our suppliers play a huge role in determining our performance and our costs. But even though our approach to managing relationships has been successful, it must adapt to meet the

STATE OF FLUX

INNOVATION

and functions, rather than on a given drawing, offer them opportunity to bring in innovation resulting from their R&D. They take responsibility for innovation and, although our profitability remains high, the supplier is capturing more value by working closely with us. The approach we have adopted helps us make advances in powertrains such as hybrid, electric and hydrogen- powered cars; in contrast, in the field of connectivity and digitalisation, we need to stretch ourselves to also open our doors to disruptors and non- automotive players. This is a major challenge for us to onboard these new partners. Many of them are a different size, work to different timescales, and have a different mindset to our existing automotive partners. It’s a very good stimulus for us to adapt our ways of working. New approaches to onboarding small innovative suppliers As said, our onboarding process is a challenge for the smallest partners. Even though we need them to guarantee efficient and top quality product development, both our terms and conditions, as well as our concrete requests during development, can be perceived as intimidating for start- ups and small companies. We need to work to make that onboarding easier and change our mindset to build relationships that create trust more rapidly. We need to understand that mutual trust developed through historical partnerships cannot be given overnight to companies we don’t know. We need to speed up the pace at which we build trust with partners. Over the next decades, we’re going to see the way people travel transformed. The automotive industry needs to lead this transformation or risk being side- lined. While Toyota has become a world leader in supplier relationships in our industry – and these relationships have boosted our innovation – the techniques we have built in the past will not be enough to maintain our position in the future. By finding new ways of working with our smallest suppliers and high-tech start-ups, we can ensure our history of world-leading innovation continues long into the future.

We are looking to technology firms to help us, as a host of in-car services becomes possible. To ensure success, we need to work with them very differently to the way we do with incumbent suppliers.

New challenges in automotive and supplier relationships But to continue to make progress in these areas, we need to work with some suppliers in new ways. Not only will automotive firms buy goods and services from technology suppliers, they will also become providers of data which could become part of services involved with navigation, fuel saving, maintenance, insurance and so on. It fundamentally shifts the relationship between these suppliers and OEMs. These companies will not simply be suppliers, but partners in the way we both serve customers. We are looking to technology firms to help us in this transition, as a host of in- car services becomes possible as mobile internet is boosted by 5G mobile data. To ensure success, we need to work with technology companies very differently to the way we do with incumbent suppliers.

Success stories with supplier innovation

But it’s tough to work in new ways because we’ve had years of success built on a deep working relationship with existing suppliers. Our work with them is almost intrusive – in a good way. We are in their factories nearly every day. We support the development of their manufacturing processes and if there’s a problem. If a supplier has a crisis, we often help. We also make sure that, after deep negotiations, we sustain our word and pay our partners on-time. Late payment is not an option for us. In return, we need our supplier to focus on cost, quality, delivery and innovation. Over the last 20 years, we have helped suppliers become more involved with projects. The latitude for them to work on our generic specifications

2019 GLOBAL SRM RESEARCH REPORT

Business leadership hungry for supplier innovation Sir John Hood was the first vice-chancellor of Oxford University to be elected from outside the academic body in 900 years, but he also has vast experience in industry. As a director of several global companies, he says business leaders are keen to see suppliers create more value. Y ou hear a lot of management talk about how to persuade the board of this or that. Senior Sir John Hood

The CEO’s reading list

Board-level leaders have to keep abreast of trends affecting their business or department. They can do so by reading a range of publications. Anyone who wants to work closely with them should do the same. • Look for specialist features in the daily press, including the trade press and consultants’ publications. Always read the science and technology, business and finance sections in the Economist • Because we’re all busy, podcasts are a good way to stay on top of topics while travelling • Most of the major consulting firms, publish reports worth digesting. Also, read the Harvard Business Review and like publications • There are ever-frequent, interesting conferences and talks – you don’t have to attend; many of them are broadcast online • Lastly, look at business and technology best-seller lists. Skim read the most interesting ones: there are frequently 15-20 pages that are worth reading

managers seem to be looking for a secret recipe to ensure C-level executives invest in their pet projects. But my experience of modern CEOs is they don’t need persuading about supplier innovation. Anyone running a business of any scale knows that they have to see procurement as a channel for creating value and enhancing the cost side of the organisation. For this reason, the procurement team should now be deeply integrated with all the functions of the business, from operations to marketing to finance. I’m surprised people ask the question about influencing the board. Instead, procurement teams should be asking how to streamline their function. Digital automation offers the opportunity to eliminate many administrative tasks in procurement, while data analytics and machine learning can help with many of the judgement calls. These efficiencies can then create more time and resource to spend on innovation and customer value. Reasons for supplier innovation As the global economic landscape changes rapidly, organisations need innovation from suppliers now more than ever. It is expected that half of the globe’s top 500 companies will come from emerging regions by 2025. The global supply chains of companies from western economies that have been created in developing regions simply to find cheaper goods and services

STATE OF FLUX

INNOVATION

will become less competitive. An ongoing tariff war is also likely to have a distorting effect. While businesses are still looking for new low-cost regions from which to source, they are also looking to suppliers to create new value, rather than simply to help reduce costs. Secondly, the choice of suppliers is becoming more important because of pressure from consumers and ethical groups for companies to be more transparent and responsible for their supply chains. The environmental, social and economic impact of supply is becoming all the more apparent to consumers, and they understand and care about the ethical credentials of the goods and services they receive. But they still expect competitive prices. Building more ethical and sustainable supply chains while keeping costs down requires innovation. Thirdly, artificial intelligence, automation, and cloud computing create a manifest change in the way suppliers and the companies they supply can be integrated to create value. While these systems have been available for some time, this extraordinary set of tools has become cheaper, more accessible and easier to use in recent years. They are already having a profound effect on the way relationships develop and suppliers can integrate their data into the buyer’s systems. Consumer Goods Forum, which represents FMCG suppliers and global retailers, has been promoting technology-led innovation and collaboration. In one of its recent papers, Julie Hamilton, global chief customer and commercial leadership officer of The Coca-Cola Company, says: “Technology will… have millions of trickledown effects that we must understand. But we can’t do it alone. Successful evolution of this industry will only come through collaboration with our supply chain partners and retail customers.” For these three reasons, we are long past the time when procurement created functional relationships that simply drove down the cost for on- time delivery. Most CEOs now think relationships between companies and their most important suppliers should be focused on how they can create value for each other.

Sir John Hood’s career highlights

2009 – present. Chief executive officer of the Robertson Foundation, a private, family foundation which seeks to have a positive social impact. It awards grants in education, climate change and environment, and medical research. 2011 – 2019 Chairman of the Rhodes Trust, part of the University of Oxford, which has a mission to identify and develop leaders to achieve public good. 2018 – present. Director of Blackstone, a world leading alternative assets investment firm which seeks to create positive economic impact and long-term value for investors. 2015 – present. Chairman BMT Group, a leading international maritime design, engineering and risk management consultancy. 2017 – present. Director of Aurora Energy Research which offers data- driven analytics on European and global energy markets providing intelligence and consultancy services.

2007 – 2016.

Non-executive director, BG Group Limited, a British multinational oil and gas company which Royal Dutch Shell acquired in 2016. Vice chancellor of Oxford University, ranked the top university in the world by Times Higher Education in 2019.

2004 – 2009

Barriers to innovations Businesses know they should rid themselves of the tendency to neglect ideas that were ‘not invented here’. Business leaders are aware that if their organisation is not taking the best ideas from suppliers, then their competition probably will. No one can tolerate ‘not invented here’ for long. On the supply side, suppliers are hungry for change. They understand that to sustain market share and increase revenue with their current customers, they must show how they are creating value. With the connected technologies I’ve already mentioned, suppliers can be linked directly into their customers’ systems, and everything managed and tracked. The automation of certain aspects of work from supplier to buyer inevitably intensifies as they work together to create value for final customers.

Avoiding complacency Suppliers who have failed to see these opportunities need to get up to speed or buyers will transition away from them. There are many hooks in the supplier-buyer relationship in working in this way and buyers do not want to end up tied to the wrong vendors. It is a risk they will want to address through deeper understandings of, and partnership, with their suppliers. While those at the forefront of SRM might have some advantages as they try to harvest supplier innovation, they cannot rest on their laurels. Organisations can be fragile. You cannot make too many assumptions about the future based on the past. You have to be current and on your toes. As a company director, I keep abreast of what is happening in the supply market, geopolitics and technology (see reading list box). The trick is not to be complacent based on past success.

2019 GLOBAL SRM RESEARCH REPORT

INNOVATION

Justin Grace A

ll suppliers are supposed to work to exacting standards and to tight deadlines, but in elite track cycling, the

to a race in Poland on Thursday. The significance of these deadlines and what they mean to our ultimate goal is something we need to share with our supplier partners. New technology, new suppliers Cycling technology and training have advanced dramatically over the last 20 years. As such, our team now employs materials developed in Formula One motor racing and other high- performance sports. To understand why getting supplies to events and training sessions on time is so important to the team, it helps to get to grips with the minutia of detailed planning that goes into developing athletes, bikes and surrounding technology to be at the absolute peak for the big events. The team might enter an event to test the performances of the equipment, knowing that riders are not physically ready because they have been training for another event later in the season. If suppliers do not get equipment to the team on time, the effort might be wasted. Suppliers also need to understand the purpose of such events and not become focused on that specific outcome: they need to understand the big picture. Suppliers can need reassurance that there are specific boxes to tick, and anything that sits outside of them is irrelevant. If they buy into that, it’s easier to debrief them afterwards. But sometimes there are the suppliers who haven’t really understood the big picture, and they can go to a debrief and are fairly vocal if they feel the work they’ve done has been compromised. Experts manage relationships British Cycling has recruited from a number of industries, including automotive and aerospace, to help it develop the technologies it needs to win top events. These are the individuals under my management who form relationships with the most important and innovative suppliers. We introduce these experts, who also manage relationships with suppliers, by educating them about the sport and tapping into their diverse experiences to think of ways that we could do things

pressure is at a different level. I can tell you, more or less to the minute, what time we’ll be racing at the Tokyo 2020 Olympics, just about a year from now: that’s an absolute deadline, no slippage, no-scheduling, if it’s missed it’s missed and four years of dreams and hard work are gone. While I can tell you when we’re racing, what I can’t tell you is the exact equipment we’ll be using: it will continue to be developed and refined up to the very last minute with the help and cooperation of our suppliers. In planning training and competition schedules for the Great Britain Team, which won six sprint medals in the 2016 Rio Olympics, I have to ensure riders, bikes, clothing and technology are all the best they can possibly be and at the track at the right time. These preparations rely heavily on a complex network of suppliers. When we’re asking a supplier for components to be ready on a Wednesday, and they do not arrive before Friday, then the whole reason we needed them might have passed, because they were supposed to go

Winning relationships support Olympic success Justin Grace has coached track sprint cycling for national teams in the UK, France and New Zealand, helping win a string of Olympic medals in the process. Here, the sprint coach of the Great Britain Cycling Team tells how innovation from suppliers is vital to remaining competitive.

STATE OF FLUX

INNOVATION

Keeping egos out of it I started as a competitive rider, representing New Zealand at the Commonwealth Games and World Championships. I was an okay bike rider: good enough to be there, but not good enough to win. I was very lucky to be able to get to travel the world and live out my dream as a semi- professional cyclist. At the same time, I also developed a career in the engineering industry and helped other riders with their training plans. Somehow, I caught the eye of the New Zealand Team, which invited me to be their sprint coach. A spell in French cycling followed before I joined Team GB. In developing high-performance teams, which includes supplier’s, being open and honest about performance is critical. We’re in an industry where everybody’s passionate about what they are doing. So sometimes, when people receive constructive criticism, it can be easy, when under pressure, for big egos to kick in and turn it in to a personal criticism. Managing relationships across the whole team is a challenge that is important to step up to. Generally, our relationships with suppliers are really good. We’ve tried hard to learn how to manage them well because they can help give us a competitive advantage. We’ll see if the effort pays off on the track in Tokyo 2020.

not just differently but also things that have never been done before. For example, the team’s head of research and innovation used to be the team principal for Jaguar Formula One. That’s the person we use to make connections with new suppliers, to be able to do things ahead of other nations, like sourcing carbon fibre parts. An example from my time in New Zealand is using equipment to measure the distances between bikes traveling in close convoy, which involved attaching lasers to the back of each bike. The relationships that those guys brought to the party were pretty amazing. The team’s ‘supply managers’ must be in constant communication with suppliers to make sure materials and technology are ready for every staging post in the team’s development – and suppliers must be willing to go the extra mile. An example is our shoe supplier based in New York which has sent someone to look at the riders personally and gather relevant data, rather than subcontracting it out.

ensures suppliers – especially the ones relatively new to the industry – understand our deadlines and what our expectations are around the development, production and delivery of goods. As in any field it’s not perfect and occasionally things don’t always go to plan. When this happens, we are careful not to over-react and focus on learning and applying lessons to make things better next time. There are plenty of occasions when suppliers have pulled out all the stops to meet deadlines with their technology, including a supplier which delivered carbon fibre components to the Olympic Village while they were still warm out of the moulds. But suppliers do not only innovate to help with the performance of the bike and the rider. They can also boost efficiency across the whole team. When I was a coach with the New Zealand cycle team, it struggled to get its bikes shipped around the world because of the country’s remoteness. The team might require 50 or 60 items of luggage between six riders and staff. We found shipping suppliers who were prepared to form a partnership with the team. To ease logistical problems, the company developed new fibreglass cases that were specifically designed to pack equipment more effectively and fit into the small aircraft and shipping containers. It helped keep equipment safe and costs down.

Suppliers in constant contact With suppliers in such a high-

pressure sport, developing personal relationships is essential. There is an understanding that they are at the other end of the phone and we’re talking to humans, not robots, which

2019 GLOBAL SRM RESEARCH REPORT

ABOUT SRM, STATE OF FLUX AND OUR RESEARCH

Six Pillars of SRM model for excellence and helping organisations navigate the SRM Journey. About our research Following the 10th anniversary of our research last year, we have seen renewed interest and enthusiasm to take part this year with an increase of 32% in the number of companies responding and an increase in requests for maturity and benchmark feedback. Maturity and benchmark analysis We provide research into participants with individual insights in to the maturity of their SRM programme and how it rates across each of the Six Pillars of SRM and aligns to four levels of maturity. We also differentiate between leaders – those companies that we believe have developed more mature and successful SRM programmes; fast followers, who show strong evidence of SRM development; and followers – companies who have limited SRM ambition or are at the start of their journey. State of Flux SRM Index The State of Flux SRM Index is designed to make it easier for businesses to establish a baseline for their SRM performance and set targets for improvement. The Index score is calculated based on the responses received to specific questions within our 2019 SRM survey. These questions are selected to reflect what organisations are actually doing and experiencing, and are weighted to reflect their importance to an effective overall approach to SRM. The index is based on a range of 0 to 6 and this year the average SRM index achieved by leaders is 4.3 and for fast followers 3.3.

About SRM, State of Flux and our research

About SRM Many people now equate SRM with all forms of supplier management. While it’s true that the management of contracts, performance and risk at the operational level are vital, SRM applies to the additional layer of engagement with those suppliers that can contribute most to achieving an organisation’s strategic goals. So, in State of Flux’s 11th annual publication of SRM research, we re-visit and refresh the definition of SRM that will build value beyond the contract. While SRM remains part of the entire supplier management landscape, it must be recognised as a differentiated approach for critical and strategic supplier partners. About State of Flux Founded 15 years ago, State of Flux continues its total focus on clients and works globally on a range of consulting support, supplier management technology and training solutions. With offices in Europe, the US and Australasia, we are able to deploy our resources and establish great working relationships no matter where in the world our clients reside. We have added talent to our team and invested in our technology solution. Our approach remains routed in the

Leaders

Fast followers

STATE OF FLUX

ABOUT SRM, STATE OF FLUX AND OUR RESEARCH

2019 global SRM maturity

Leaders 39 Companies (10%) Followers 309 Companies (77%)

Fast followers 54 Companies (13%)

SRM is a structured and disciplined approach to working collaboratively with those suppliers that are vital to our success, to build trust, develop healthy relationships with a shared purpose to create value. State of Flux 2019

Value Engagement Governance People Technology Collaboration

Industry sector perspective This year’s research findings include feedback from over 25 industry sectors. The analysis of maturity shown here is for the SRM leaders in the five sectors that provided the most company/ organisation responses accounting for over 50% and therefore provide a more representative view of that sector. Whereas in 2018 it was the IT & Telecoms sector that led the way, this year industry sector leadership has been attained by FMCG compared with its third place last year. Your SRM benchmark and index Participants of our SRM research are able to request a complimentary maturity and benchmark analysis including your SRM index score. The analysis will enable you to benchmark your organisations SRM activities against best practice and your industry peer group. If you would like to obtain a benchmark and index score, please contact: enquiries@stateofflux.co.uk

SRM leader maturity by industry sector

Financial Services

FMCG

IT & Telcoms

Public Sector

Manufacturing & Automotive

Value Engagement Governance People Technology Collaboration

2019 GLOBAL SRM RESEARCH REPORT

SUMMARY OF KEY FINDINGS

Summary of key findings

Headline feedback for each of the Six Pillars of SRM

Value

Engagement Support from the leadership team 56% 56% of SRM Leaders can rely on strong and active support from the leadership team Support from the front line 50% Business and operational support stands at just over 50% Suppliers are engaged 70% Suppliers remain ready to go with over 70% said to be supportive of SRM

Governance Segmentation is almost done 98% 98% of companies now segment for supplier management 2 in 3 Around 2 in 3 have also created treatment strategies to match Governance is half and half 50% Just over 50% of companies have effective governance in place for over 50% of key suppliers Getting the basics right 1 in 3 More than 1 in 3 companies are failing to implement adequate contract, performance and risk management for up to half of their key suppliers

Understanding value 90% Over 90% of SRM Leaders have documented their SRM value proposition

Benefits being realised 55%

Of the companies identified as SRM Leaders 55% report financial gains in excess of 4% 90% Reduced risk is the most often reported non-financial gain

STATE OF FLUX

SUMMARY OF KEY FINDINGS

Innovation Not a pillar of SRM in its own right but the headline feedback is as follows:

What’s the problem? Insufficient time and resources to engage suppliers on innovation is the biggest barrier

Is it important? More than 1 in 4 companies see supplier innovation as a critical business driver for SRM Are we any good? 50% of companies rate themselves as less than 5 out of 10 for supplier innovation

What is innovation for you? 40% of companies have broad definition of innovation that covers continuous improvement bringing incremental

advances to transformational improvement that is genuinely disruptive and new

People The job to be done 58%

Technology A post contract technology vacuum 64% Technology to help manage contracts is used by 64% of companies 21% Technology to help manage relationships is used by 21% of companies 6% Technology to manage supplier innovation is used by 6% of companies

Collaboration

For some its early days 42% For 42% it’s too early to say if

The main SRM role is now defined by 58% of companies but for SRM Leaders its 90% Investing in people 25% The SRM skill set has been defined by 25% of companies 1/2 Only just over half of companies have invested in SRM training

collaboration is on the up, but for over 90% of SRM Leaders its positive feedback

Broad based collaboration 27% 27% of companies are building more trust and 23% are driving more continuous improvement Working together with real purpose 50% SRM Leaders are making increased use of joint business plans: over 50% are using them to drive value

Somethings not working 50%

Over 50% say that their current technology solutions are failing

2019 GLOBAL SRM RESEARCH REPORT

SIX PILLARS OF SRM

Value

A clear value proposition aligned to strategic objectives driving collaborative initiatives and culminating in measured financial and non-financial benefits.

What are your strategic objectives? To what extent are you dependent on the contribution of third-party suppliers to achieve them? What more could you be doing with your most important and strategic suppliers to help achieve those goals? These are among the questions which help establish an SRM value proposition. Then, it’s a question of working with the supplier to understand

exactly what you can do together, both within existing contracts and beyond. Read more on page 20.

Engagement Achieving and maintaining strong internal and supplier engagement and support throughout the SRM lifecycle. Is your SRM programme a business change programme with a large footprint outside procurement? How engaged and supportive of SRM is the C-level team? How do you get buy-in from business and operational managers who deal with suppliers day-to-day? How will you engage suppliers more in the process? The answer to all three questions lies in a strategy for stakeholder engagement and support. Read more on page 28.

Six Pillars of SRM

Governance An effective and efficient supplier management and governance approach that is differentiated based on the output from a segmentation process. How do you decide which suppliers are truly strategic?

What decision making criteria should you be using? What are the best process, governance and engagement models to apply? Are roles and responsibilities properly defined? Is contract, performance and risk management sufficiently robust? These questions help create strong SRM governance. Read more on page 40.

STATE OF FLUX

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96