2020 Global SRM Research Report - SM at speed

State of Flux 2020 Global Supplier Relationship Management Research Report focuses on supplier management at speed. 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.

INTRODUCTION

INTRODUCTION / FOREWORD

54 People

The time is now

Contents

64 Technology

Time is now

Accelerate your transformation

I t’s been a strange and challenging year, to say the least. If ever there was an event to demonstrate the interconnectivity of our global supply chains – and the vital work done by procurement to keep them running – it’s Covid-19. The pandemic has also highlighted just how much organisations depend upon their suppliers. Those who will have fared best will be the ones with strong relationships, who are viewed as a ‘customer of choice’ by their partners. It is they who have had access to goods in short supply, negotiated arrangements to free up cash, flexed their logistics and adapted their offering to mitigate risk or even seize an opportunity. With the support of their suppliers they’ve quickly adapted, pivoted and responded to this crisis. The pages of this year’s State of Flux report, the 12th we have published, are rich with examples of buyers who were able to call on their suppliers for help – and fast. From Melbourne City’s ability to source much-needed hand sanitiser, to Uber’s vendors helping with costs to get it through a tight time for the travel industry. Now, more than ever before, procurement has the opportunity to make the case for SRM to ensure organisations don’t just survive, but thrive.

We currently have a ‘just do it’ culture and we need to retain it. We must reinvent the whole profession as an agile business coach, focused on opportunity and risk: The opportunity to move at speed reinventing supplier relations for a new era and creating more value, or the risking being left behind. As we contend in these pages, business leaders should keep ‘supply chain’ on their daily dashboard in future – not because it’s in crisis but because it’s delivering strategic advantage. If the global economy is to recover and move forward, procurement and supply chain needs to renew supplier relationships to be more collaborative at all levels. Now, more than ever before, procurement has the opportunity to make the case for SRM to ensure organisations don’t just survive but thrive. It should grab that chance with both hands. And finally, I want to thank all those who took part in this year’s survey. Despite it being a particularly busy and uncertain time, we experienced one of the highest responses yet, for which we are very grateful.

Everyone from Dutch telecoms company KPN, to Hitachi Rail, to sailing Olympian Sir Ben Ainslie articulate instances of close working links with key suppliers making a positive impact. In each case it’s not the contractual stipulations that have made it happen, but the collaborative relationships between the people in those businesses. And while there are some indications of progress – such as a higher proportion of companies meeting the Leader criteria of our maturity model (17% this year, up from 10% in 2019) – it remains clear that too few companies are good at supplier management. The good news is the current spotlight placed on supply chain has provided the world’s biggest business case for investment in supplier management. The time is now to make that case. Cynics often argue that organisations cannot change. But they can, and do – sometimes surprisingly quickly and speed is the theme we focus on this year. As the world’s fastest female motorcyclist Leslie Porterfield tells us (on page 8) business needs and demands change. The pandemic has shown that organisations are, in fact, capable of rapid operational change should it be required. What’s more, there is also now the will to do it. Our latest study reveals an increase in executive support and buy-in for supplier relationship management – an indicator that had previously been in decline. Procurement and supply chain currently has the ear of the entire organisation and it must capitalise on that and move quickly on things that were previously hard and slow to achieve.

Speed takes time

Bringing business together

74 Collaboration

About SRM, State of Flux and our research

Six Pillars of SRM

Summary of key findings

Value

Engagement

20 Value

Access the best to beat the rest

Governance

Relationships are rooted in values

People

Technology

30 Engagement

Collaboration

The power of teamwork

Covid

Alan Day Chairman & Founder State of Flux

Summary

44 Governance

Call to action

About State of Flux

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SPEED

the business will respond and ensure those suppliers can deliver some value.

Get a group of suppliers and stakeholders together that are

representative of the business, where any benefits will be widely recognised. Plough fertile ground where there’s an opportunity to explore or a business challenge to overcome. While procurement will want the SRM programme to work for all tiers, the business will be focused on the top 1-10% of suppliers who can help them delight their own customers. Start small and prove your case. Once suppliers and relevant stakeholders are onboard, we use an approach that tackles relationship challenges and the quest for increased value in parallel. Leveraging senior executive sponsorship, both parties are rapidly engaged in a 360-degree relationship review and a Value Release ideation process. The two activities are inextricably linked. The 360 review will reveal strengths and weaknesses in the relationship that will potentially help or hinder the creation and delivery of value. Companies report that the very process of examining their relationship generates value because it starts to lay the foundations of increased trust and openness that are necessary to improve. We then start a facilitated engagement with stakeholders and subject matter experts known as Value Release. This is a high-tempo approach that rapidly validates and prioritises ideas to put to senior stakeholders at a joint workshop. It culminates with a Joint Account Plan consisting of initiatives to both improve the relationship and deliver key value opportunities. While SRM is a business-wide change programme, our experience with many clients is that this can be perceived as too big a challenge because it’s often happening alongside other transformation programmes. The Value Accelerator limits the initial engagement to fewer stakeholders, proves the concept, and sets up the longer term change programme for success.

Accelerate your transformation

Feature

Changing the culture of any business takes time, to pick up the pace start small and use technology to support you on the journey. T here were already a myriad of reasons why businesses should invest time and effort into managing their suppliers – value,

Never waste a good crisis: Procurement has a place at the table now and it can use that position to drive the change that needs to happen. State of Flux 2020

And it is possible to capitalise on this in so many ways. For procurement’s part, the spotlight on supply chains, risk and resilience means the time is now to make long-awaited change a reality. Never waste a good crisis, is essentially the advice. Procurement often bemoans the lack of a place at the decision- making table, well it has one now. The time for jumping through hoops is gone. It is imperative organisations have supplier management in place and that they don’t view it as a procurement initiative, but a business initiative led by procurement. The challenge is to demonstrate success quickly. Businesses are typically hungry for results but when it comes to change, some things are easier than others to do quickly. Cultural change takes time, yet any procrastination or delay means lost momentum. Here we explore how you can overcome these obstacles by injecting pace in to the development and implementation of improved capability via process, technology and people – and start seeing results at your company in a matter of weeks.

innovation, growth and continuity among them. Then, 2020 handed us the clearest evidence yet that without strong supplier relationships and risk management in place, organisations face potential collapse. Covid-19 is not a ‘typical’ business continuity risk, it has characteristics that make it far more serious. It was sudden and escalated quickly, has had universal impact and a far-reaching effect on national and global infrastructure. As Lenin said: “There are decades where nothing happens; and there are weeks where decades happen.” The outbreak and rapid spread of the pandemic highlighted weaknesses in readiness and planning, with only 7% of organisations having considered such a risk. On the positive side, it has forced businesses and individuals to quickly adapt to new ways of working, with increased virtual interactions and the need for more automated processes.

8 WEEKSTOCOMPLETE A ‘VOICEOFTHE SUPPLIER’ SURVEY CANBEDONE 1216 WEEKSFORASRM PROGRAMMETOBESETUP 68 WEEKSFORCLOUDBASED TECHNOLOGYTOBE IMPLEMENTED

programme that goes beyond only procurement and incorporates all parts of the business that interact with suppliers. The selection of those first few suppliers is key. Pick those with a strong performance record to avoid conversations around value getting derailed by concerns over performance. Next challenge: If you pick partners you’ve been working with closely for some time you may struggle to generate fresh ideas; while suppliers with whom you’re very unfamiliar may take longer to bring on board. Organisations are populated with cynics. Pick anything too easy and people won’t believe the results will be replicated with more challenging relationships; too hard and you’ll get tripped up along the way. You’ve got to anticipate how

Process – get to value faster

To counter the argument that getting a company-wide programme underway takes too long, start small and demonstrate swift and significant success. State of Flux has developed the ‘Value Accelerator’ approach, which operates like a live proof of concept and rests on the selection of a few key suppliers. Working more closely with them should generate demonstrable benefits within weeks and provide the momentum and leverage required to expand any pilot. Once value is demonstrated in one area, it’s much easier to get the broader business on board. You start to feel them pull, rather than push- back. This is vital, because for supplier management to do well you need a

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visibility of any SRM programme. The system acts like ‘air traffic control’ for procurement, enabling them to look across it to see who is doing what when. Redirecting as required and enabling ‘safe landings’ when problems occur. Both the supplier and buyer have a clearer idea of what each other is doing, which helps to provide clarity and prevents over-reliance on a sole individual looking after a relationship and keeping everyone informed. Having a clear, structured approach ensures consistency for all, and from that point collaboration starts to grow, which helps businesses identify opportunities as well as issues. If you have information that’s updated in real time you respond more quickly. Organisations that implement or improve supplier management and then come to technology later tend to resist further changes, so it’s best done concurrently. There is also otherwise a risk that technology designed for a small number of suppliers may fail to support the larger number, which puts the whole programme in jeopardy. One State of Flux point of difference is that our technology looks at everything through an account management lens to get the best out of that supplier relationship. It reflects the supplier management treatment strategies that a good segmentation approach should generate. It allows you to switch on more collaborative functionality for strategic suppliers while automating data collection and reporting for those at the more transactional level.

Technology – speed up data gathering and information management The Value Accelerator method gets companies started, but to make it as efficient as possible, technology is required to support the process from the get-go. One of the challenges with any new company-wide programme is cultural and behavioural change. Technology can provide a catalyst for change and if you use it from the start, people only need get used to a new way of doing things once. And testing out a new platform with a small number of suppliers and stakeholders during the Value Accelerator phase will help ease a wider roll-out. So, put in the technology and use it as an enabler. It’s especially useful in the current restricted global environment because the connectivity it provides and the sharing of information enables us to move quickly. Once success has been achieved with the initial cohort of suppliers, it will be necessary to regroup and decide how to tackle the next half dozen and so on. It won’t be manageable to rely on spreadsheets going forward, so it makes sense to adopt technology early on. You need to keep incorporating new suppliers and stakeholders, and draw in more commodities or categories. That way, every few weeks you are delivering another six plans. To ramp up progress, you’ll need to make the case for investment in technology and training. You may begin your SRM programme with four or five key suppliers in the first 12-16 weeks; but by investing in resources you may be able to do 15 or so more in the following 16 weeks. Once the case is made, work can happen simultaneously rather than sequentially. If you invest in training, technology and support you’ll get more people to work this way more quickly. State of Flux has a software platform that hosts contracts and manages supplier relationships. It enables businesses to capture and share information about suppliers internally. It’s also used to report on and manage risk, performance, contracts and more, acting as a repository, innovation portal and search tool, and giving overall

The case for speed

Adam Fridman, entrepreneur founder of US-based digital branding agency Mabbly, says speed is everything in business. Making the case in Inc magazine, Fridman says it’s difficult to overstate its importance, because: > If you’re not fast, your competitors will be; > Audiences have come to expect near instant gratification; > The faster you learn, the quicker you evolve; > Moving at pace creates a culture of speed. “No company in any industry can expect to get ahead with a slow culture; by design, entrepreneurship is all about moving forward and pushing innovation forward.”

State of Flux procurement training curriculum State of Flux has developed a training curriculum for all aspects of procurement and supplier management.

TECHNICAL

BEHAVIOURAL

R A

training, businesses can apply ‘nudge theory’. This is about making the desired action an easy, obvious, natural thing to do. Popularised by the authors of Nudge, Richard Thaler and Cass Sunstein argue that, for instance, more people might succeed in achieving a desired weight loss if they made a financial and public commitment to do so. And that more of us would give to charity or become organ donors if we had to opt out of doing it, rather than being required to opt in. It’s about helping to change behaviour – like encouraging people to wash their hands more often – by not only telling them why but by ensuring there are adequate hand washing facilities available. In the case of SRM, you can encourage people to be more collaborative and open by showing them the value of it, but to make the change easier it’s important to also give them an effective process, the technology and training to make it simple. Ultimately, people want to do the right thing, all it takes is a nudge.

People – skills need to keep pace with change

Segmentation enables organisations to deploy people where they will make the most difference – working with the strategic end of the supplier base. Technology ensures the lower value work they leave behind can be largely automated. To maximise the effectiveness of people redeployed to spend more time with strategic suppliers, State of Flux has developed a training curriculum for all aspects of supplier management. When the delivery of this curriculum in a single physical location was disrupted by Covid-19 we rapidly switched to a virtual classroom. Progress need not be halted. In fact, it can be expedited because it avoids the delays that can occur in obtaining venues or getting groups of people together in one place.

Contact log

The Covid-19 pandemic has served to highlight an added benefit of supplier management systems – the ability to track interactions with suppliers. Knowing who and where your suppliers are helps businesses react quickly and make informed decisions. And tools like the platform offered by State of Flux, can also effectively provide a contact-tracing log. If there’s an outbreak or issue you know who at your organisation suppliers have been in contact with.

Success with supplier management is when it’s no longer seen as a separate business change, but just the way you do business. State of Flux 2020

The time for making a business case for supplier management should be in the past: It’s now imperative organisations just do it. State of Flux 2020

Sometimes all it takes is a nudge

By putting an effective process in place and supporting it with technology and

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WORLD RECORD BREAKER / LESLIE PORTERFIELD

Speed takes time

Feature

How the world’s fastest female motorcyclist applies patience and adaptability – and came back from an horrific 110mph crash – to achieve success.

Image credit: Scooter Grubb Photography

L eslie Porterfield knows a thing or two about acceleration. She holds four land speed records and in 2008 she entered the Guinness World Records as the fastest woman in the world on a motorcycle. Raised in Dallas, Texas, she has been riding motorcycles since she was 16 years old and has been using challenges to drive her forward from an early age.“The first motorcycle I got was an old one I bought from a neighbour. Most of the bike was in a box. So I rebuilt the carburettors, put it back together and rode it for years – mostly because everyone I knew said I would never be able to ride it.” She went on to earn a degree in accounting and has applied her business acumen, passion for bikes and knowledge of mechanics at various motorcycle shops during her career. She first worked for a Yamaha shop, then

latest trends, technology and products are crucial to success. They provide much needed support to any business.” But despite her obvious attraction to speed, she says not everything can be done in double-quick time. “Success in business and racing requires much patience. It takes mistakes, learning from them, looking at the errors of others in similar situations and trying to learn from their mistakes too. It is always a learning process.” Business needs and demands change, she adds, as do racing conditions and technology – and they need people to be able to flex with them. “It takes patience and a willingness to adapt and learn.”Speed is possible only after applying focus, attention and due diligence, without which it can actually take longer to achieve success. Sometimes it really is a case of ‘less haste, more speed’.

became part owner, before opening a second. Porterfield sold both in 2002 and moved into construction, before returning to the motorcycle business to run the High Five Cycles dealership in Dallas in 2005. Her love of riding endured and she always wanted to set a world record at Bonneville Salt Flats in Utah. In 2007, she gave it her first shot. She told Guinness World Records: “I bought a used Hayabusa from a customer, made a number of modifications and made my first Land Speed Record runs in August 2007.” But it didn’t go smoothly. “I crashed at about 110mph, was taken to hospital by helicopter with seven broken ribs, a punctured lung and concussion.” She didn’t let that put her off, however. She was determined to return to Bonneville to make history, and a year later she did, setting her first record at 209mph on a naked (unfaired)

motorcycle. “This also earned me the honour of being the first woman in the Bonneville 200mph Club on a conventional motorcycle in its 61-year history,” she says. “I then set the fastest world record of any woman on a motor- cycle at 232mph. And at that same event, I set the 1000cc production class record.” Adamant to push herself yet further, she went back to Bonneville once again in 2009 and seized the ‘Top Speed of the Meet’ award (for a man or woman) with her 240.382mph pass against a record of 227mph. This was the first time in history a woman has taken the title. As both an accomplished businesswoman and racer, Porterfield is used to working closely with third party providers to get the best results. She tells State of Flux: “My relationships with suppliers are vital to business and racing. Their input on the

240 MPH 2009BONNEVILLE ‘TOPSPEED OFTHEMEET’ AWARD 232 MPH 2008 FASTESTWOMANWORLD MOTORCYCLERECORD 209 MPH 2008FIRSTWOMAN IN BONNEVILLE200MPHCLUB

Success in business and racing requires much patience. It takes mistakes, learning from them, looking at the errors of others in similar situations and trying to learn from their mistakes too. It is always a learning process.

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EXECUTIVE INTERVIEW: IAN SAYERS, INTERNATIONAL TRADE CENTRE

order from a reputable buyer under the scheme and the underpinning international guarantee.

factoring or leasing arrangements can free up cash, but curtail a business’s capacity to expand, take on more credit covenants or collateral requirements with new lenders. One way that many international buyers in low-interest-rate jurisdictions help is through supplier financing and ‘open- account’ contracting arrangements. However, many then demand deep discounts in return. In some commodity sectors, these discounts equate to the total profit. Suppliers feel locked in by these arrangements and deprived of flexibility to improve their business. What prevents these SME exporters getting lower cost financing? Short-term financing providers are held back by supply chain and payment risk. SRM advisory is now at the top of everyone’s agenda, as is assessment of traceability, relations with financing providers and buyers’ banks. All supply chain parties, including international buyers, can play a role in upgrading and pre-qualifying suppliers, reducing financing risks and thus, increasing the profitability of transactions and economic growth.

Adviser on access to financing for sustainability at the ITC, the UN agency responsible for sustainable trade and enterprise development. He says successful SMEs in poorer countries demonstrate four key traits that improve their agility: > Quick and highly collaborative decision-making that brings together financing, business owners, sales, marketing and procurement operators without regard to hierarchy; > Rapid adoption of local technologies that work in low bandwidth areas to build bridges and dialogue with suppliers and trading partners; > Rigorous analysis of even the smallest item that could stop business combined with respect and genuine empathy for key suppliers of essential parts, HR and services;

We ask him how the ITC is supporting these organisations, the challenges they face, and what higher income countries could learn. How have these businesses been hit by Covid and how did the ITC help? We have seen disasters turned into success. For example, textile and garment manufacturers from an ITC project in North Africa found their export shipments cancelled due to ‘force majeure’ by leading European buyers. ITC’s network helped find alternative buyers in Asia who, in turn, helped find suppliers of PPE materials so the exporters could substitute items for their local health sector. ITC facilitated connections, assisted with access to financing, and provided technical inputs on operational changes and compliance for new product lines. In another example ITC worked closely with SME exporters to switch from supplying European buyers with spices to comply with a different product/packaging mix and standards for Asian markets. These are not isolated cases. We’ve been impressed by the speed of decision- making and execution resulting from the same basic business foundations that we now call SRM. Consider how well your business could tolerate an overnight cancellation by a supplier. What can you change about your supplier relationship so both parties benefit?

Bringing businesses together

Is there a connection between sustainability, resilience and financing costs?

Most certainly. Beyond saving the environment, ample research evidence shows that certified sustainable businesses have better business management, resilience and reliability as suppliers. Enterprises with sustainability and fair labour credentials generally have lower default rates (around 0.38% 2 ) than others (around 1.4%) according to a July report by the ICC. However, the cost to SMEs of obtaining and maintaining certification audits is disproportionate to profits. ITC and industry stakeholders are developing trade financing incentives to accelerate sustainability practices and clean trade. The scope is broad, including renewable energy for production, reduction in packaging pollution or expansion of organic certification of supply chain farmers. I’d welcome contact from buyers and banks interested in joining us to pilot these arrangements this year.

It’s time to learn from suppliers in less prosperous countries, where strong relationships have always been the key to business survival, agility and success, says Ian Sayers

> Full engagement of financing functions – accountants, legal and financing providers.

“For these entrepreneurs there’s nothing else to do to make things work than what we call ‘SRM’,” says Sayers. “Many of these enterprises will be your suppliers or the suppliers of your suppliers. The work we do is hugely important to ensure they comply with industry or international standards, are financially viable and contribute to a sustainable economy. We act as a sort of ‘relationship manager’ between financing providers, businesses and buyers, a process we call ‘intermediation’.”

T he Covid-19 crisis has highlighted why strong supplier-buyer relationships are essential. The verdict on agility and profitability is unequivocal: Good collaborations win hands-down 1 – particularly when rapid change is required. The thousands of SME exporters and importers that comprise the International Trade Centre’s (ITC) beneficiaries know all too well the importance of supplier relations. They are entrepreneurs and small to medium-sized companies in developing nations whose survival and success depends on strong links with their suppliers and support services. Their only certainties are crises and change, yet six months into the pandemic, financing default rates were still <2%, and trade into new markets is rising steadily. Most have lived SRM since founding their businesses. “They know they would not have progressed without strong engagements with their suppliers,” says Ian Sayers, Senior

How does the ITC help?

How can larger organisations help these SMEs help them?

Donor-funded field projects help the ITC to build the capacity of local business development services to help SME exporters upgrade their performance and review their entire supply chains for vulnerability, sustainability, fair employment practices and cash-flow efficiency. We’re also working with development financing institutions (DFIs), the International Chamber of Commerce (ICC) and local financing providers to provide a first-loss fund, improve the availability of short-term financing and reduce its cost for SMEs. When these schemes are in place, a buyers’ bank will be able to extend its own risk- sharing guarantee to the exporters’ bank – usually for up to 80% of transaction costs. This will enable an exporters’ local bank to advance payments to exporters at <10% cost based on the security of a purchase

Find out the challenges they face and how you can help overcome them. Arms- length supplier relations will be the death of your business, or at least prevent agile responses. It’s sink or swim together. Business is changing fast. It is time to rethink your entire business model and supply chain relations.

Arms-length supplier relations will be the death of your business.

What do exporting SMEs need most?

According to a 2020 ITC survey, 74% of our beneficiaries prioritise access to affordable short-term financing and business development advisory services. This includes market and financing information, technical know- how transfer and capacity building. The term ‘cash is king’ has never been more relevant. These exporters typically face prohibitive local interest rates on short-term loans and factoring of 20% to 34%. Average exporter margins are typically 10% or less so bank financing with costly letters of credit is often a last resort. Instruments, like letters of credit,

Image credit: ITC, Geneva Stock photo 2020

1 ITC enterprise profiling surveys in East Africa, South and Central Asia, The Pacific and West Africa May to August 2020, McKinsey & Company, the need for speed in the post- COVID-19 era 9 September 2020 2 According to the World Bank and Asian Development Bank surveys of 2019 and 2020.

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ABOUT SRM, STATE OF FLUX AND OUR RESEARCH

About SRM, State of Flux and our research

Feature

our resources and establish great working relationships no matter where in the world our clients are based. Like many organisations in 2020 we have had to step up to the challenge of changing our delivery model and have embraced remote working without any detrimental impact on the quality of the services we provide. Throughout this difficult period we have continued to invest and add talent to our team, expand our consulting services, enhance our people development and training offer and further develop our technology solution. We are confident that State of Flux remains at the leading edge of supplier management thinking and action-centred consulting.

About SRM

29% in the number of companies responding compared to 2019. In addition, the proportion of respondents at CPO/EVP level or equivalent has increased to over 50%. 2020 has been an extraordinary year for businesses and in particular for procurement and supply chain functions. In recognition of this we have included a number of questions exploring the impact of Covid-19 and what it could mean for the future of supplier management. Our analysis of the feedback can be found on pages 86 to 91.

Supplier Relationship Management (SRM) is part of a broad approach to supplier management that protects and enhances value that will often go beyond the contract. Based on the segmentation of suppliers according to their importance to the business, it encompasses engagement and treatment strategies that not only enable the effective management of contracts, performance and risk at the operational level, but uses this as the foundation to create a step change in key supplier relationships. This step change should result in better strategic alignment with common goals and objectives and drive additional value for both parties. There are multiple definitions of SRM but we’ve chosen to adopt that shown to the right as its key words provide a useful reminder of what SRM is all about.

2020 global SRM maturity

Leaders 71 Companies (17%) Followers 259 Companies (60%)

Fast followers 93 Companies (23%)

Maturity and benchmark analysis

29% INCREASE INCOMPANY RESPONSES 400+ BENCHMARKS REQUESTED >50% RESPONSESFROM CPO/EVPOREQUIVALENT

This research enables us to provide each participating company with a unique insight into their own SRM practices against those companies identified as leaders in the field as well as their industry peers and regional comparisons. Based on the State of Flux model for SRM best practice – ‘The Six Pillars of SRM’ – the maturity and benchmark analysis aligns to four levels of maturity. At the time of writing we had received over 400 requests for benchmarks globally. If you are interested in receiving an SRM maturity and benchmark analysis – even if you didn’t participate in the original research please contact enquiries@stateofflux.co.uk

About our research

As we approached the start of this project in early 2020 we believed that the State of Flux annual SRM research would follow a similar pattern in that we’d be addressing challenges made familiar by 11 years of research. Like everyone else we were unaware of the turmoil to come. However, despite the challenges faced we are delighted and grateful that so many companies have responded to our invitation to take part and maintain the research continuity. This year has seen an increase of

About State of Flux

State of Flux was founded in London in 2004 by Alan Day. Since then it has established its reputation as a specialist procurement and supply chain consultancy and grown with offices in Europe, the US and Australasia. With this global footprint and genuine subject matter expertise we are able to deploy

Value Engagement Governance People Technology Collaboration

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ABOUT SRM, STATE OF FLUX AND OUR RESEARCH

VALUE / ADVERT

The SRM Journey

Is cost-driven supplier relationship management the right approach?

Value

Deliver

Collaboration

Value

Implement our capability

People

Process

Tech

Capability

Build our capability

Value Proposition

What do we want to achieve?

Discovery

Where are we starting from?

Understanding

Engagement

Time

The SRM Journey

People, Process, Technology – build our capability

To support companies in making the transition from traditional supplier management practice to SRM, State of Flux has developed a road map to describe the key activities to navigate. Our journey incorporates the ‘Six Pillars of SRM’. These are key to arriving at the destination with an SRM programme that is robust, sustainable and delivering value.

> Skills and competencies required > Skills and competency assessment > Training solutions > Segmentation and treatment strategies > Supplier management foundations (contract, performance, risk) > Governance models > Roles and responsibilities > Enabling technology

Discovery – where are we starting from?

Collaboration – implement our capability

> Internal stakeholder perceptions > Current process frameworks > Use of technology

> Pilot implementation > 360° relationship assessment > Value release > Joint business planning > Customer of choice

> Current relationships > Supplier perceptions

Covid-19 has exposed how fragile cost-driven supply chains and supplier relationships are. State of Flux can help you understand the different approaches possible and identify the most sustainable options for your business to ensure you get maximum value from your suppliers.

Engagement – involvement and support

Value – scale and deliver

> Senior stakeholders > Business colleagues > Suppliers

> Value and improvement work streams > Benefits capture and reporting > Maintaining focus and momentum

enquiries@stateofflux.co.uk srm.stateofflux.co.uk/2020-report

Value Proposition – what do we want to achieve?

Where are you on this journey?

> Create an overarching value proposition > Create the SRM ‘sales pitch’

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SIX PILLARS OF SRM

Six Pillars of SRM

One of the biggest challenges faced in changing the nature of supplier relationships to become more collaborative is developing the skills and competencies of the people involved. The skill set required to manage strategic supplier relationships is more akin to that of an account manager as opposed to the traditional procurement skill set. Companies that excel in SRM will have defined the various roles, gained a good understanding of the skills and competencies the roles require, assessed the current level of those skills and aligned training solutions. Read more about the approach that organisations are taking to develop the skills and competencies for SRM on pages 54 to 59.

The definition of SRM makes it clear that it’s not the same approach for all suppliers. An effective and efficient supplier management and governance approach is one that is differentiated based on the output from a segmentation process. Following segmentation the relationship with suppliers will be partly defined by the governance and oversight model that is adopted. This should include a proportional approach to contract, performance and risk management, as well as meeting and reporting structures. Read more about creating effective supplier management governance on pages 44 to 49.

State of Flux published its first SRM research report in 2009 under the title of ‘VALUE ADDED’ Supplier Relationship Management. The content referenced the building blocks of effective SRM namely, Segmentation, Accountability, Process and Governance and Value. Within a couple of years this initial thinking had been developed to create ‘The Six Pillars of SRM’ as a best practice model comprised of Value; Engagement; Governance; People; Technology and Collaboration. This has now become the standard for not only gathering information for this report, but also building broad SRM capability in companies seeking to drive more value from supplier relationships.

Successful companies excel at achieving and maintaining strong internal alignment and engagement – very successful companies extend this engagement to their key suppliers. To be an effective vehicle for delivering value, SRM requires strong and active support from three main stakeholder constituencies. Firstly the executive leadership team to secure sponsorship, strategic direction, role model behaviours and resources. Secondly your business and operational colleagues who interact with suppliers on a daily basis to implement changed ways of working and behaviours. Thirdly suppliers, whom you need to respond positively and work with you to achieve the necessary change.

A clear appreciation of the benefits that more collaborative supplier relationships can bring is fundamental to building the value proposition for SRM. Leading SRM programmes will explore value beyond the traditional remit of procurement savings and be looking to align strategic objectives and drive collaborative initiatives that capitalise on innovation, improve performance and reduce risk, culminating in tangible benefits. It’s important not to judge these benefits in purely direct financial terms. Value is what can also be achieved indirectly in the way that it serves as an enabler for the business to achieve its goals. Read more about how organisations

As management and decision making becomes more data driven organisations are becoming increasingly reliant on technology to support and enable their most important business processes. Supplier management is no exception and leading organisations are expanding their suite of IT tools to cover more of the contract and supplier management lifecycle. While these tools have existed in various forms for some time they are often fragmented and standalone. Integration and a wraparound of relationship management and collaboration technology is the future. Read more about how current technology solutions measure up to business needs on pages 64 to 69.

Execute the previous five pillars effectively and the chance that improved and more productive

relationships will emerge is relatively high. However, this outcome takes time and requires a helping hand. Leading organisations will invest more time and effort in reaching out to suppliers to build trust, exchange information, share plans and work together on common business challenges. The goal is become a customer of choice for your suppliers of choice. Read more about what organisations are doing increase collaboration and what benefits are being gained on pages 74 to 79. And how to improve on pages 80-83.

Read more about how effectively companies are engaging with stakeholders on pages 30 to 35.

define value and what they’ve achieved on pages 20 to 25.

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2020 GLOBAL SRM RESEARCH REPORT

SUMMARY OF KEY FINDINGS

Summary of key findings Headline feedback for each of the Six Pillars of SRM

81% of supply chains were affected 1% believed their supplier management technology was a strength 63% of respondents reported that communication and information sharing worked well

47% of organisations said their risk management was insufficient 53% indicated their problems were beyond first tier suppliers’ 72% of companies believe they’ve been treated as a Customer of Choice

Covid-19 The emergence of Covid-19 in early 2020 and the measures that have had to be taken to protect people have had a profound impact on economies and revealed the strengths and weaknesses in global and domestic supply chains.

Value

Engagement Senior stakeholder support 69% Companies report that senior stakeholders are generally supportive of SRM in 69% of cases Leaders and senior stakeholder engagement 52% For 52% of Leaders senior stakeholder support is strong and active Support from the business 58% Support from business and operational teams is 58% overall Leaders and supplier feedback 75% ‘Voice of the Supplier’ type feedback has been gathered by 75% of Leaders

Governance Treatment strategies 69% Treatment strategies have been developed by 69% of companies that have segmented suppliers Behaviours 9 in 10 More than 9 in 10 Leaders have behaviours as part of their treatment strategies to manage suppliers

People

Technology Desktop tools 52% Desktop tools such as spreadsheets are predominantly used by 52% to manage suppliers

Collaboration

Risk as a business driver 58% Risk is a key business driver for SRM for 58% of respondents

Training 86%

Improved collaboration 98% Leaders are almost all benefitting from improved collaboration

An investment in training has been a priority for 86% of SRM Leaders

More innovation 44%

Role definitions 50% SRM roles have been defined by just over 50% of companies

Collaboration results 63%

Contract management 63%

Unlocking more supplier innovation is a target benefit for 44% of companies

Improved trust in relationships is reported by 63% of respondents

Contract management technology is available to 63% of respondents

Financial gains 49% Of SRM Leaders 49% report financial gains in excess of 4% Non-financial benefits 59% Reduced supply chain risk is a benefit reported by 59% of respondents

Skills framework 30%

Shared goals and objectives 53%

Technology dissatisfaction level 1 in 3 Around 1 in 3 respondents say their supplier management technology is inadequate Managing innovation 7% Just 7% of respondents have technology to help them manage supplier innovation

Governance models 90%

An SRM skills and competency framework has been developed by under 30%

Shared goals and objectives have been established by 53% of Leaders

Effective governance is at the heart of supplier relationships for 90% of Leaders

Customer of Choice 79%

Capability assessment 17%

Contract and performance 56%

Around of 79% Leaders estimate they are the Customer of Choice for more than half of their key suppliers

Just 17% of organisations have conducted an SRM capability assessment

Contract and performance management is a foundation of SRM for 56% of Leaders

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2020 GLOBAL SRM RESEARCH REPORT

VALUE

Value

Value is now being discussed and explored in its broadest sense: from innovation to sustainability, and from quality improvement to customer experience. It is a key business driver for SRM.

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2020 GLOBAL SRM RESEARCH REPORT

VALUE

The most important business drivers for investment in implementing/developing SRM in the next 12 months (all respondents)

In reality the initial business case for SRM is about establishing a confidence level amongst key stakeholders that the investment in time, effort, training, technology and so on will be worth it. Therefore the value proposition plays a vital role in broadening the definition of value and getting SRM off the ground to start the journey. This year the proportion of all companies having documented a value proposition has increased compared with 2019 (47%) to 54%. Not surprisingly Leaders are strong advocates of the value proposition as the basis for the SRM business case. A total of 88% have one documented compared with 68% of Fast Followers and just 36% of Followers. The Leaders figure is slightly lower than 2019 (90%) partially explaining why Leader performance in the Value pillar has dipped slightly this year. When asked about the barriers encountered trying to roll out SRM, one in three companies indicated that slow implementation and realisation of benefits was a challenge. Almost the same proportion said that an inability to quantify and measure benefits was a problem. This points to the complexity of tracking benefits across such a wide range of potential value. This is supported by the fact that more than 40% of companies running SRM programmes remain unable to quantify the value being delivered.

The procurement conversation with the business has been transitioning from a focus on savings to a conversation about value for some time. As suppliers have been increasingly recognised as an asset capable of creating competitive advantage, the C-suite and wider business have become more tuned in to the conversation. While this might vary value is now being discussed and explored in its broadest sense: from innovation to sustainability, and from quality improvement to customer experience, value is the business driver for SRM. The changing definition of value is illustrated by the emergence of risk management as a primary business driver for 58% of respondents. Supply chain value has been re-examined in the light of the Covid-19 pandemic, with the value of supply chain resilience recognised as key to many companies’ ability to navigate the crisis. Supplier innovation continues to feature as a key driver for 44%. An SRM value proposition is developed by 54% of companies. Difficulty tracking benefits is clear as around 40% of respondents are unable to quantify them. Financial benefits in excess of 4% are estimated by 41%. Non-financial benefits remain strong with the top one being reduced supply chain risk. Summary

Helping achieve your responsible business and sustainability goals

Risk management/reduction

58%

14%

Cost reduction/avoidance

Improving your end customer experience

50%

More supplier innovation and continuous improvement

14%

Improving your internal customer experience

44%

Supply chain resilience

13%

32%

Faster speed to market

Quality and service level improvement

25%

Other

Improving supply chain efficiency

14%

Regulatory compliance

14%

the Financial Services sector, where we know that risk management is a key SRM business driver. The second marked finding is the keen interest companies in North America have in driving more supplier innovation. This focus appears to bring a dividend in that 16% of North American respondents report increased supplier innovation as a benefit compared with just 11% in Europe.

Business drivers

For the past few years we have seen the emergence of risk management to become regarded as an aspect of SRM value equal to, if not greater than, cost reduction. Given the circumstances that prevailed in 2020 it’s unsurprising that risk management and supply chain resilience have consolidated their position as important business drivers for SRM. Some regional variation in business drivers Some interesting regional variations emerge when looking at what companies in Europe, North America, and Australasia and believe to be their most important business drivers for SRM. The two most significant takeaways from this analysis reveal risk management being seen as more of a priority in Europe. We can only speculate as to whether Brexit considerations by UK companies play a part in this figure. There was also a higher proportion of respondents in

SRM business drivers – regional variation (all respondents)

58% INCLUDERISKMANAGEMENT ASATOPTHREEBUSINESS DRIVEROFSRM 32% STATESUPPLYCHAIN RESILIENCE ISONEOFTHEIR THREEKEYMOTIVATORS 50% STILLPRIORITISECOST REDUCTIONASADESIRED OUTCOMEOFSRMASLIGHT

Risk Management

Cost Reduction

Supplier Innovation

Supply Chain Resilience

Quality & Service Improvement

80%

The Value Proposition

Snapshot analysis

Any discussion about investing in an SRM programme will very quickly get to the ‘value proposition’, or as many see it, the basis for creating a business case to secure executive buy-in and therefore access to required resources.

60%

The problem with cost reduction within the context of SRM is that for so long the term has had two definitions. One being tactical market and negotiation-driven price reduction, and the other a more collaborative approach to reducing ‘bad cost’. Both are valid approaches to reducing spend with third parties although it’s the latter that is more compatible with SRM and more sustainable over the long term.

40%

20%

53% of North American companies rank supplier innovation as a top three business driver for SRM.

DROPONTHE56% RECORDED IN2019

Global

Europe

North America

Australasia

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