State of Flux 2016 Global Supplier Relationship Management Research Report focuses on the supplier relationships in the new technology landscape. 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.
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DIGITALSRM: SUPPLIER RELATIONSHIPS INTHENEW TECHNOLOGY LANDSCAPE 2016GLOBAL SRMRESEARCHREPORT
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INTRODUCTION
CONTENTS
CONTRIBUTORS
FOREWORD
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DIGITAL SRM: SUPPLIER RELATIONSHIPS IN THE NEW TECHNOLOGY LANDSCAPE
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TECHNOLOGY FEATURE: TECHNOLOGY USHERS IN A NEWERA FOR SRM
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ARTICLE 01: TIME TOWELCOME THE NEXT GENERATION ARTICLE 02: CAN TECHNOLOGY BE A CATALYST FOR CHANGE? ARTICLE 03: WHAT ELEMENTS OF SRMCAN BE AUTOMATED? ARTICLE 04: CROWD-SOURCING SUPPLIER INNOVATION
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CURRENT STATE OF SRM: ABOUT SRM, STATE OF FLUX AND OUR RESEARCH
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MELSHUTES HEADOF SRM
SIX PILLARS OF SRM
01 VALUE
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CUSTOMERS OF CHOICE CANPUNCHABOVE THEIRWEIGHT
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02 ENGAGEMENT
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CASE STUDY: TELSTRA
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03 GOVERNANCE
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CASE STUDY: MARS
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ALANDAY CHAIRMANAND FOUNDER
INTERMISSION -WHATMAKES A LEADER
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04 PEOPLE
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CASE STUDY: AIB
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05 TECHNOLOGY
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CASE STUDY: LADBROKES
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06 COLLABORATION
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HARNESSING SUPPLIER INNOVATION -WHIRLPOOL
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SUMMARY AND CALL TO ACTION
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ABOUT STATE OF FLUX
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OUR PARTNERS
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INTRODUCTION
FOREWORD
COMPANIES CAN WEATHERTHEPERFECT STORMWITHSRMAT THEHELM
Competition, disruption and market turbulence set the stage for commerce in the 21st century. Companies can thrive in the new environment by collaborating with suppliers to innovate and boost efficiency. But only if the relationship is right. A wave of new technologies is here to help.
who see them as a customer of choice: no vendor wants to collaborate with customers who are ‘high maintenance’, who pay late, change orders and constantly quibble over costs. Simply beating up suppliers on price no longer offers value. This shift also means performance in many senior roles – from CIO to CMO – relies heavily on how well relevant suppliers are managed. Big data means business can trawl many external sources for information about suppliers, as well as bring together internal data in a single dashboard. Linked to that, software tools that support SRM have become cheaper, more adaptable, easier to deploy and easier to connect with other applications – largely down to the advent of cloud computing and converging standards. And this is happening at a time when social media has made the public much more conscious about supply chain ethics. All of these factors together mean the time is right for SRM. Read on to learn how your peers are rising to the challenge and discover where you can gain a competitive edge – before your rivals do it to you.
It’s 2.35am and the phone rings. You’re informed that an essential supplier has filed for bankruptcy. Suddenly everyone wants to know: “Which of our products depend on them? Which business units buy from them? Howmuch is spent with them? What are the alternatives?” After 48 hours spent scrabbling for data – in accounting records, in ERP data, on spreadsheets and in emails – a bad situation gets worse. The receivers double the supplier’s prices in a desperate attempt to restore cash flow and pay off creditors. There is little chance of switching suppliers in the short termand the business is forced to absorb the costs. I’ve seen this happen question is asked: “How do we ensure it does not happen again?” The answer is supplier relationship management. SRM is a philosophy, a set of processes and behaviours combined with improved information management that allows businesses to better understand their supply base. But much more than this it helps you decide which suppliers to invest more time in and discover how to create relationships with important suppliers to and no one comes out of it well. Not long after the dust settles, the
reduce risk and create more value. It is a subject State of Flux has made its own. There are many reasons for practising SRM and the scenario I’ve just described is among the most extreme. But, ultimately, it’s better to own the process than be owned by it and more businesses are seeking to manage the critical supply side of their business with SRM. It enables them to manage risk more effectively, to increase innovation and improve efficiency. Whatever the reason, there has never been a better time, because a confluence of technological, social and economic currents is pushing businesses into the perfect storm. SRM can guide them through it and towards success. Businesses are increasingly aware that to grow they need to innovate and, as technologies and processes become more specialised, few can keep abreast of all relevant developments. This is why there is so much talk of the networked economy – businesses teaming up to offer a combined package of products and services to consumers, or other businesses. They need to collaborate with suppliers to remain competitive. But they can only do this with suppliers
Alan Day Chairman and founder
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INTRODUCTION
DIGITALSRM
SUPPLIERRELATIONSHIPS INTHENEWTECHNOLOGY LANDSCAPE
Companies are now able to exploit popular technologies in social media, big data and cloud computing to understand and improve their relationships with suppliers. It has never been more necessary for them to do so.
85% of respondents reported progress on SRM in 2016 22% of respondents reported significant progress on SRM in 2016
The right relationships sow the seeds of success; the wrong ones wreak havoc. It is true in life and it is true in business, now more than ever before. Every market is in the grip of change. In the 10 years to 2013, 712 firms fell out of the Fortune 1000 list of top global companies. This unprecedented level of churn has been driven partly by technology and the transformative effects that the internet, newmedia and computing technologies have had as they have swept through business over the past 15 years. It is also a result of significant geopolitical and demographic change. To survive, companies have sought innovation: in products and services; in their relationships with customers; and in their processes and business models. It shouldn’t be forgotten that innovation also comes from suppliers. We surveyed 275 global businesses representing more than 25 industry sectors and spending billions on third-party goods and services. Three out of four say they are actively seeking innovation from suppliers. While suppliers can spur success,
can bring a halt to production; and a supplier who bribes officials can bring litigation to its customers. Businesses need to manage these risks, but if that’s all they do, they can miss the competitive advantage that comes from harnessing suppliers’ knowledge and expertise. Whether they gain this edge or not will depend on the relationship. Every contract, every invoice, every meeting, every inspection and every tender can alter your relationship with suppliers: for good or ill. Employees from across the business, at different levels of seniority, will work with a single supplier. Bringing together all the information and all the people influencing a relationship is tough, but possible. It takes a focus and effort. Winning supplier relationships don’t just happen. They are carefully developed and managed. Supplier relationship management has been on the corporate agenda for a long time. In 2009, State of Flux started its SRM research by building a maturity model and in 2013 created an index of SRM performance. Since then, we have seen companies of all kinds making headway. This year, 85% of respondents reported progress on SRM, significant progress in the case of 22%.
many companies treat them primarily as a source of risk.
It is true that working practices in the supply chain can damage corporate reputations; an outage at a single vendor
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But the tools that accelerate SRM are all too often left in the workshop. While companies recognise suppliers as significant creators of business opportunities and risks, they manage relationships with themusing technology that emerged in the last century. Documents on shared drives, email and standard portal technology power SRM in more than half of the businesses we spoke to. Sixty-three percent of businesses report activity relating to SRM being carried out manually, in Excel, software first introduced 29 years ago. Since then, the world has changed, to say the least. Themajority of companies do have systems in place for managing supplier contracts (63%), but this is only one of several supplier management activities where the latest software tools canmake a big difference. Less than half of companies use software tools for the other key post- contract supplier management activities and nearly one in five use no tools at all for SRM. Where businesses use existing software for managing some aspects of information flow to and from suppliers, it is ineffective. Just over half of businesses say its performance is poor. Systems lack the required functionality and features, according to 59% of companies, while 63% say systems are disparate and not integrated. Leaders in SRM are now able to exploit software that is far superior to ageing desktop tools. Crowdsourcing, social media and big data can build better supplier relationships. Companies can exploit these tools in the cloud — a method of hosting computing power remotely, accessed over the internet, requiring little upfront investment. The cloud accelerates deployment frommonths to days and it promises to transform SRM. Cloud-based applications can be accessed from anywhere online, on many types of device. It makes them particularly effective for managing SRM activity, which relies on multiple players, across multiple geographies, within the business and outside of it. Historically, SRM programmes struggle to achieve effective oversight. After the initial launch, momentum can be lost. Compliance with original processes trickles away and they become inconsistent, fragmented and
sometimes forgotten altogether. SRM should take place in the business, as well as in procurement or supply management teams. But it often fails to achieve the prominence of other processes supporting sales, operations and productivity. SRM applications hosted in the cloud are easy, quick to deploy and are accessed via a user-friendly interface familiar from consumer-facing social media and ecommerce websites. They can also help prevent the gradual atrophy of the original SRM vision by providing a ‘control tower’ view of SRM activity enabling support or intervention when milestones are missed. Our last report demonstrated a direct correlation between companies achieving a leading performance in SRM and those where SRM gets strong backing from the senior management team: 64% of leading companies said SRM had support from top executives. In the 2015 State of Flux SRM report, we show how C-suite executives can bolster their chances of corporate success by recognising the vital role technology plays in improving supplier relationship management — and investing accordingly. Leadership, planning and execution will, of course, remain vital, but those companies exploiting modern, flexible cloud-based applications to support SRM will gain a crucial advantage. They can rapidly roll-out programmes to extract innovation and efficiency from suppliers, while at the same time reducing risk. As a result, they will be better placed to thrive in the disrupted global economy than those who do not.
63% of companies have systems in place for managing supplier contracts
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TECHNOLOGYFEATURE
TECHNOLOGY USHERS INANEW ERAFORSRM
CEOs obsess over sales data. And rightly so. They are also continuously curious about customers. As they should be. But when it comes to suppliers, there is a blind spot. It’s surprising because organisations are outsourcing more, and looking to their suppliers for help in boosting performance, efficiency and innovation.
Themost common reason C-suite executives are reluctant tomake supplier relationships a strategic priority is the paucity of data and difficulty inmaking it meaningful. But change is afoot in the world of data. The following pages discuss how the new technology landscape helps automate onerous SRM processes, capture supplier innovation and be a catalyst for a change in the business’ attitude towardsmanaging suppliers. But first, the important changes taking place in IT and what they mean for SRM.
Article 01: Time to welcome the next generation
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Article 02: Can technology be a catalyst for change?
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Article 03: What elements of SRM can be automated?
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Article 04: Crowd-sourcing supplier innovation
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Time to welcome the next generation ARTICLE 01/04
SRMmeans data, difficult data. It’s locked in spreadsheets and squirrelled away. Even if management can get hold of supplier data, it is often inconsistent and hard to normalise, making it difficult to compare one supplier with another, across the business and across categories.
The problem of getting meaningful, consistent data is one of the main reasons SRM can seem too tough to tackle. But rapid change in the tech world mean these barriers are becoming easier to overcome. Business people who grew up with behemoth corporate IT systems should take a look at the start-up scene to get a sense of what is possible. Emily Forbes founded crowd-sourcing video company Seenit in 2014. Two years later it boasts Unilever, Vodafone and the BBC among its clients and it analyses many terabytes of data every year. How? Seenit did not buy or build its main computer system; that would have wasted precious time and capital. Instead, it exploits cloud computing, specifically, the Google Cloud Platform. On a pay-as- you-go basis, businesses get access to the near limitless capacity of the cloud, a way of providing computing resources over the internet. Seenit helps clients analyse thousands of video clips to get the right snippets for their content by using a combination of Google's machine learning and the leading edge database technology. Both are also hosted in the cloud. The supply chain management side of businesses can take advantage of these technologies to forecast demand, measure supplier performance and understand supply chain risk. But it is not only these business benefits that will drive adoption; the younger generation of procurement and supply side management professionals will expect it. As Mars supplier performance relationship management programme lead Mark
Phillips says, businesses are now hiring graduates who are getting their first email account with the job. Sifting through an inbox is unknown to them. Snapchat, WhatsApp, Facebook and Instagram are where they share information. They will expect business applications to work like the consumer services they grew up with, not like the spreadsheets familiar to most people in procurement. Meeting these expectations will not only get the most out of talented young people, it will help prevent them leaving for a more up-to- date company. It’s time SRM technology moved on. The good news is, these consumer- like tools and services for SRM are within reach. They use the same technologies and ways of working exploited by start-ups (see box on page 06 for more detail). But it's not just about the technology platform. Great technology solutions need to mirror and deliver best practice processes. For example, State of Flux’s Statess software builds on 12 years of SRM consulting in global organisations. Businesses are already taking advantage of these tools (see case studies on pages 30, 36, 48, 58). The question is how to apply technology to supplier relationship management. Data and the tools can help buyers and suppliers share information in real time to cut out waste, improve operations and innovate.
Management teams should ask themselves if they are ready to adopt a newmind-set and use transformative technologies to push the SRM agenda forward. Those who do not keep up are in danger of being left behind.
Businesses are now hiring graduates who are getting their first email account with the job. Sifting through an inbox is unknown to them. Snapchat, WhatsApp, Facebook and Instagramare where they share information. They will expect business applications to work like the consumer services they grew up with, not like the spreadsheets familiar tomost people in procurement.
Mark Phillips Mars supplier performance relationship management and programme lead
ARTICLE CONTINUED OVERLEAF
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TECHNOLOGYFEATURE
TECHNOLOGY TRENDS AFFECTING SRM
CLOUD It is fundamental to modern
BIG DATA The term applies to a raft of technologies designed to store
COLLABORATION AND SOCIAL MEDIA Businesses think of social media as a consumer trend – a way of sharing life events, trivia and gossip. But the building blocks for social media can be used to share information and ideas between multiple businesses from anywhere in the world, on multiple devices. Either for collaborating on specific projects, sharing useful insight on technical problems, or crowd-sourcing new ideas, social tools can help businesses harness the power of their suppliers. ARTIFICIAL INTELLIGENCE Once the stuff of sci-fi, artificial intelligence means business. Both IBM and Google now offer AI services via the cloud. An army of start-ups are doing the same. Machine learning can quickly draw inferences and connection between data sets that could take years to tease out. Think about supplier financials: which events are indicative of serious trouble and which are just a blip? Combining financial data with return on assets, supplier performance data, and data from the wider world could reveal hidden patterns and ultimately predict opportunities and risks.
computing. The advantage of reaching any computing resource quickly with no capital outlay is phenomenal. Off-the-peg ERP? Yes. Limitless storage? Sure. Social media platform? Certainly. From established business applications to the latest experimental technology, anyone can get it. Today. On a credit card.
and analyse data in greater volume, velocity and variety than possible with conventional techniques. The data is everywhere: smartphone locations, video content, web data, weather data, customer data, machine data. The list goes on and on. In SRM, big data techniques can allow businesses to collate and understand supplier KPIs, which they have always found difficult. These technologies can also be used to predict supplier risk, using internal sources, combined with external feeds from social and conventional media. BLUETOOTH ORWI-FI, AND TRACKED VIA APPLICATIONS Supply chain managers can also monitor temperature, humidity and vibration to assess risk to goods in transit. The concept extends to factories and operations inside suppliers organisations. Connecting to suppliers' in this way can help relationship managers achieve more detailed KPIs in more or less real time. Data can also be stored to help identify ongoing problems and solve them.
DEV-OPS Related to cloud, DevOps is the new model for making software. In the old days, developers created software, then handed it over to operations. There were endless rows and turf wars between the two sides. Development wanted the latest technology; operations wanted stability. With DevOps, that’s gone. DevOps teams build in short sprints and test and deploy to a tightly controlled environment, in the cloud. It transforms speed and agility.
THE INTERNET OF THINGS Putting computers and smart phones online is only half the story. Anything in the supply chain can be connected to the internet, located via RFID.
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ARTICLE 02/04
Can technology be a catalyst for change? Once the path to business change was clear: get the leadership, build new processes, do the training, win people’s commitment and, last of all, roll out the technology. Leading business change with technology was tantamount to project management suicide. But business leaders are beginning to rethink this assumption. They see technology inspiring business change.
68% 20% of companies would choose to implement technology in parallel with their process development. Using SRM tools saved 20 percent of procurement staff’s time compared with the previous methods of collecting data.
The world of business applications has been transformed. They are far easier to build and deploy than ever before, largely because of cloud computing. Meanwhile, modern user-friendly interfaces developed for consumer facing social media and ecommerce are finding their way into workplace technology. Younger entrants to procurement, as well as seasoned tech-savvy professionals, will be used to exploiting consumer technology to save time and effort in their lives outside work. Given the right tools, they can be inspired to do the same to achieve their professional goals. Where they lead, others will follow. Because new SRM applications can be deployed easily and rapidly in the cloud, but draw data from a range of enterprise applications and external sources, they can be made easier to use and accessible from anywhere. Suppliers can add their data to the system with a simple web-based log-in, avoiding collecting data on email or over the phone. Cloud-based software can even integrate directly with supplier systems. Those who choose not tomake themost of these new systems will fall behind in their performance. One large corporation using State of Flux’s Statess SRM application tracked the performance of 800 suppliers and estimated it saved 20% of procurement staff’s time compared with the previous methods of collecting data.
Understanding supplier performance is a vital element within SRM. But keeping track of the data, in the form of supplier KPIs, is difficult. Most often the data is kept in spreadsheets that continually need updating. It is difficult to cross-reference, normalise and merge between categories and corporate departments. It is not only supplier performance that can be recorded, analysed and rolled out on cloud-base systems. Once the tool has the data, it can create dashboards for specific stakeholders, account managers or suppliers. Free text, video and audio can be uploaded, but the process is structured to guide suppliers or internal users through the process. This way, a number of SRM processes, such as the capture of innovation, can be managed by the system, as the following sections describe. Of course, leadership from the top of an organisation will be necessary to set the tone and direction of travel. But with the right tool in place, technology can be the catalyst for change, not the last to arrive at the party. Keeping track of the data, in the formof supplier KPIs, is difficult. Most often it is kept in spreadsheets that continually need updating.
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TECHNOLOGYFEATURE
What elements of SRM can be automated? SRM is about relationships. Much of it will remain person-to-person: face-to- face or on the phone. But cloud-based software tools are making it easier to automate the repetitive, time-consuming tasks, making meetings more productive and data driven. ARTICLE 03/04
SUPPLIER RELATIONSHIPMANAGEMENT In the same way sales can specify an account manager to deal with a certain number of customers, so SRM can create relationship managers to deal with suppliers. The purpose is to ensure the supplier is viewed and treated in the same way across the business and that the management approach and communication is consistent with the supplier segmentation. SUPPLIER PERFORMANCE METRICS Tools can be configured so that suppliers are obliged to enter metrics in a certain way, at a certain time. Reminders can be automated, eliminating awkward phone calls to chase up data froma supplier. Once the system has the data, account managers and other business users can access and examine it to look at a specific suppliers performance across the business, specific categories, or business units, making measurement and, hence, treatment of suppliers more consistent and effective across the business.
CONTRACT MANAGEMENT Typically, contracts are signed and sit in a draw. Even if they are stored in a computer filing system, it is rare the data they contain is accessible to the wider business. But by extracting data from contracts and exporting it to an SRM system, supplier relationship managers can share contract data and make sure KPIs are aligned with contracts. Procurement managers can also make sure they are aware of contract end-dates, to ensure the maximum leverage with the supply market when it comes to tendering or renewing. Meanwhile, legal teams can see whether contracts comply with regulations and codes of conduct. ON-BOARDING, GOVERNANCE AND RISK MANAGEMENT An enterprise-wide SRM system can enforce consistent and complete supplier on-boarding by ensuring suppliers complete a structured questionnaire. This keeps due diligence up to scratch on every supplier. It will also help with governance of supplier management. Procurement and stakeholders can create a regular ‘drum beat’ of supplier meetings, each of which can draw from data, consistent and accessible to both suppliers, procurement and business stakeholders.
CORPORATE SOCIAL RESPONSIBILITY SRM systems can act as a central repository for CSR data. Not only can they require suppliers to input their data in a consistent way, they can also integrate data from third party CSR specialists such as EcoVadis. This way businesses can create supplier score cards for responsible sourcing, including criteria addressing environmental concerns and working practices. Leading businesses know that suppliers are a great source of innovation, introducing new ways of working, new technologies and products to the purchasing business. SRM systems can also capture supplier innovation, as the next piece shows.
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Crowd-sourcing supplier innovation Far from being a secret ingredient to success, supplier innovation can be captured, cultivated and measured. But only by businesses who use the right tools. ARTICLE 04/04
When a business asks suppliers for new ideas, they have little influence over what they will receive. A contract requirement for five new ideas every year might result in five off-the-peg sales pitches and a dispute between the supplier, who feels it has met the brief, and the buyer who has got nothing of value. But SRM applications can guide innovation and specify how it will meet business requirements, in effect, generating a business case, rather than a sales pitch from the supplier. The first problem is defining innovation. The State of Flux SRM application Statess enables procurement or stakeholders to upload content, including video and presentations, to offer suppliers a clear idea of what innovation means to them. They only need to do that once and all suppliers, who are invited to innovate, can view it. In the tool, buyers can set innovation challenges and invite certain suppliers to respond. It could be suppliers of a certain category, or it could be all the suppliers contributing to a particular product or service on the buyer side. The tool restricts their responses; it’s not the same as sending an email. They can only put in information buyers asked for, not junk or sales pitches. Each section can be designed by procurement to feed directly into a business case. Procurement can also open the system up to prospective suppliers to assess their capacity for innovation before awarding themwork.
INNOVATIONCANBE DIVIDED INTO TWOCATEGORIES. 01 02 GUIDED INNOVATION
OPEN INNOVATION
First is guided innovation, where suppliers are provided with a brief via the SRM tool based on specific challenges defined by the customer. Suppliers are invited to suggest improvements to processes and products that already exist. Procurement can work with stakeholders to clearly define the processes they want to improve. Buyers can set innovation challenges and invite certain suppliers to respond. They can only put in information buyers asked for, not junk or sales pitches. Each section can be designed by procurement to feed directly into a business case.
Next is open innovation. Sometimes suppliers can come up with solutions that the business are not aware they need. The process can also be controlled by SRM tools, but it should not be a free-for-all. Responses from suppliers can still be controlled to ensure they form a business case for developing new ideas.
Using an SRM tool to manage supplier innovation is akin to internet crowd-sourcing for ideas and funding. It becomes a social platformwhere procurement and stakeholders can control the input. Innovations that were once hard to define and capture can be controlled and nurtured. Hard work will lay ahead before new ideas benefit the business, but SRM tools can industrialise the initial process, making it more effective and efficient.
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ABOUTSRM, STATEOF FLUXANDOURRESEARCH
ABOUTSRM Supplier relationship management is a concept that combines a change to people (skills and behaviours), process and technology to develop better relationships with the ones we think are the most important. Procurement has developed many ways to look at suppliers – from aggregating and leveraging spend in category management, to figuring out supply chain risk. SRM is different. It examines every interaction that can affect the relationship with a supplier, from the transactional to the strategic and, arguably most important, behaviours.
ABOUTSTATEOFFLUX State of Flux is a specialist procurement and supply chain consultancy with global clients. Among themwe have prominent representatives from the FTSE100, 250 and Fortune500. Over the past 12 years we have combined our research findings and practical experience to develop a deep understanding of the subject and helped many large businesses to improve their supplier relationships. We understand it can be tough. With thousands of suppliers across hundreds of categories, it can be difficult know where to start. To help businesses navigate SRM we have created a six-pillar model to act as a road map to build improved SRM capability and achieve better outcomes.
ABOUTOURRESEARCH This research is now in its eighth year and this document shows how businesses are performing on each of our pillars. We also use our experience and expertise to say where and how businesses can do better. Case studies from global confectionery, food and pet care giant Mars, one of Ireland's biggest banks AIB, leading British gaming company Ladbrokes, and Australian telecoms leader Telstra add real-world experience. We can show you what these firms are achieving and how they are progressing on their SRM journey. We also have a guest article from Karen Blackett OBE, chairwoman of MediaCom, one of the world’s largest media agencies. She describes a supplier’s perspective on how customers can get more from them, if theymanage the relationship in the right way.
LEADERSANDFOLLOWERS
In our research, we break down the sample into leaders, followers and others according to how they performon key SRM criteria.
LEADERS Leaders are companies that we believe are implementing more successful SRM programmes. This year we have identified 29 companies as leaders. They represent 10.5% of the total respondents (Fig 1) .
FOLLOWERS Followers are in a group of 101 companies (36.7%) that in previous years might have been considered leaders. As SRM practice matures and the bar is raised, they don’t quite reach that level (Fig 1) . 101 Followers are in a group of 101 companies
29 This year we have identified 29 companies as leaders.
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SIXPILLARSOFSRM The State of Flux six pillars of SRM is a model for SRM excellence, developed and refined over the past 10 years. Many of the global businesses we have helped get value from SRM have adopted this approach. While there is the suggestion of a sequential approach, fundamentally each pillar is linked and dependent on the other so they are best approached in parallel and must all be tackled to get the most out of SRM.
COLLABORATION 6
TECHNOLOGY 5
PEOPLE 4
GOVERNANCE 3
VALUE
2
ENGAGEMENT
VALUE 1
1. VALUE
2. ENGAGEMENT
3. GOVERNANCE
How do suppliers help your business reach its strategic goals? And what more could they do? That’s the value proposition. Then it’s a question of measuring both the financial and non-financial value created. Maintaining a clear line of sight between the business drivers (your company’s strategic objectives) and the value that SRM is creating is crucial.
How do you get the C-level team behind SRM? 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.
Business cannot invest time inmanaging all their suppliers in a strategic fashion. How they decide which ones are worth investing in is part of the governance process that underpins SRM. This in turn will drive the approach to creating value, level of engagement, meetings etc. It will also put in place a structure that ensures relationships are sustained over the long term.
Readmore about the Value pillar on p14
Readmore about the Engagement pillar on p24
Readmore about the Governance pillar on p32
4. PEOPLE
5. TECHNOLOGY
6. COLLABORATION
People in all areas of the business, as well as in procurement and supply chain management, will contribute to SRM. Businesses need to make sure that the necessary skills are developed and maintained to deliver successful SRM outcomes.
Successful SRM will be built on reliable, accurate, up-to-date information and working effectively, efficiently and in collaboration with internal stakeholders and suppliers. Getting information and managing collaboration using legacy IT is tough, but new software tools can help. They are cheaper and quicker to roll out than many businesses think.
Value fromSRM does not flow automatically when suppliers, governance, people and tools are in place. Businesses need to decide how to develop the relationship to get themost out of it. Relationships need to be explored and developed and specific initiatives identified that will drive value. Both supply-side and buy-side businesses may need to adopt changed behaviours and collaboratemore to get there.
Readmore about the People pillar on p42
Readmore about the Technology pillar on p52
Readmore about the Collaboration pillar on p62
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STATEOFFLUXSRM INDEX The State of Flux SRM index is designed to make it easier for businesses to establish a baseline for their performance and set targets for improvement. The index score is calculated based on the responses received to specific questions within our 2016 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.
YOURSRM INDEX Participants in this year’s research have been able to view their SRM index when completing the survey. If you would like to discuss the factors that drove your SRM index calculation please contact: enquires@stateofflux.co.uk If you didn’t participate in this year’s research but would still be interested in receiving an SRM index rating, please contact: enquires@stateofflux.co.uk
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*Please note: the index can only be calculated if the survey was completed in full.
2016GLOBALSRMMATURITY
Fig 1. Assessment of 2016 global SRM maturity*
2016 SRM Index
Leader (+0.3) 29 companies (10.5%) Followers (+0.3) 101 companies (36.5%) Other (+0.2) 145 companies (52.7%)
Advanced
4.5
Established
3.1
Developing
1.6
Undeveloped
VALUE
ENGAGEMENT GOVERNANCE PEOPLE TECHNOLOGY COLLABORATION
*The model has four levels of maturity (undeveloped; developing; established; advanced). Maturity is assessed by examining responses to selected survey questions.
SRMPROGRESS While an improving SRM index score for both leaders and followers is encouraging it shouldn’t be allowed to mask the fact that progress for most companies in the pillars of value, people and technology remains off the pace. In particular technology where the specific SRM index for this pillar has remained static for leaders and for followers has actually reduced.
BUSINESSESWANTSRMTOFOCUS ONRELATIONSHIPMANAGEMENT ANDDEVELOPMENT Creating the correct focus for your SRM programme is imperative. While the majority of companies focus on working collaboratively with key suppliers to drive more value, 40% of them still see it predominantly as a contract and performance management activity (Fig 2) .
It’s difficult to say if this represents a lack of appetite to extend into genuine relationship management or simply a failure to appreciate what more they could achieve. In either case, it represents a missed opportunity.
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PROGRESS INTHEFACEOF ACHALLENGINGECONOMIC ANDBUSINESSENVIRONMENT Our measure of SRMmaturity matches with how businesses view their own performance. This year, 85% of respondents reportedmaking progress, and 22% described it as significant. Only around 4% of respondents report some decline in their SRM activity (Fig 3) .
REDUCINGCOSTANDRISK REMAINPRIMARYDRIVERSFORSRM
EIGHTOUTOFTENBUSINESSES REPORTSRMPROGRESS
Fig 3. Overall, what change have you seen in your SRM programme in the past 12 months?
Fig 2. What is the primary focus of SRM in your organisation?
15 %
22 %
Significant progress
25 %
60 %
63 %
Some progress
Managing key supplier relationships to deliver value that may go beyond contractual obligations Managing key performance indicators (KPIs) to ensure suppliers deliver products and services as per the contract Managing supplier contractual obligations to ensure negotiated terms are adhered to
10 %
No progress
Some decline 3 % Significant decline 1 %
Note: due to rounding, percentages do not sum to 100.
BARRIERSREMAIN
1. 2. 3. 4. 5.
Barriers to SRMmight be consistent but they are not immovable. Each of the following six sectionswill explore progress, trends, and developments on each of the Six Pillars of SRM and suggest howbusinesses canmake significant progress.
The research shows where businesses struggle to get value from SRM and where the barriers remain. These barriers have stayed stubbornly consistent over the years. The top three barriers remain the same as in 2015, with around the same proportion of respondents reporting them.
RESOURCE Lack of budget and resources available to support SRM activities CHANGE Organisational, senior management and changes to business priorities SKILLS Shortage of people with the required skills and competencies
TECHNOLOGY Perceived poor functionality of IT systems
METRICS Inability to measure benefits
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VALUE 01 VALUE
THE VALUEPROPOSITIONSHOULD BE THE STARTINGPOINT FORANY SRMPROGRAMME. ITWILL SET THE STRATEGY; INFLUENCE THE DESIGNANDFOCUSOFACTIVITIES; AND IT IS THEPRIMARYMESSAGE FORENGAGINGSTAKEHOLDERS.
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95% of SRM leaders create a value proposition 65% of leaders canmeasure post-contract benefits of SRM 47% of respondents never share benefits with suppliers
VALUE
SUMMARY
Whilemost businesses are seeing benefits fromSRM in operations, costs and risk, there is a worrying lack of focus about what it can do for broader strategic objectives. Nearly half of businesses don’t have, or don’t know if they have, a value proposition for the activity. This is where SRM leaders and followers differ from the rest: nearly all of the leaders andmore than two thirds of followers have created a value proposition for the activity. The approach works. More than 20% of leaders and followers canmeasure post-contract financial benefits of more than 4%. Well over half of themare also able to capture the non-financial benefits.
No matter how broad the benefits of SRM, every business has its own goals and priorities. To secure support from the leadership team and the wider business, every programme should tally with strategic objectives. It needs a promise of value in the areas that matter most to the business. State of Flux’s 2016 survey illustrates the range of drivers motivating businesses to establish, develop and improve SRM. Not unexpectedly, we see a strong cluster around two particular goals (see Fig 4). Cost reduction and cost avoidance remain the highest ranking, with 69% of respondents classing them as important or very important. These are closely followed by risk management and reduction with 67%. Both of these figures have fallen slightly since last year’s survey. This year, innovation shows a slight increase, up from 47% to 50%, establishing itself as the third most important business driver for SRM.
Capturingandreporting SRMbenefitshasbeen aperennial problem, according tooursurvey respondents. Aquarter arecurrentlyunable to identifyandreport eitherfinancial ornon- financial benefits.
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VALUE
CAPTURINGANDREPORTINGVALUE Business leaders supporting SRM want to see evidence that the money is being well spent once the project is underway. This might be financial returns in terms of savings. It might be increased revenues, as Australian telecoms giant Telstra has shown (see case study page 30). It might even be non-financial benefits, addressing the wider goals of the business, such as collaboration or sustainability. Yet capturing and reporting SRM benefits has been a perennial problem, according to our survey respondents. A quarter are currently unable to identify and report either financial or non-financial benefits. Of those able to capture their benefits picture, just 40% are able to report both financial and non-financial benefits (Fig 7) . It is one of the barriers that SRM needs to overcome if it is to earn increased confidence among C-level executives.
REDUCINGCOSTANDRISK REMAINPRIMARYDRIVERSFORSRM
Fig 4. Which business drivers will be the most important when it comes to implementing/developing SRM in the next 12 months?
%
69
Cost reduction /avoidance
67
Risk management /reduction
50
More supplier innovation
40 39
Improving supply chain efficiency Gaining competitive advantage in your market
THEVALUEPROPOSITION Related to business drivers is the value proposition – making a case for the value, financial or otherwise, that an SRM programme will bring to the business. Here, our survey shows businesses are less sure of what SRM offers. Only half have created an explicit value proposition (see Fig 5) . The value proposition should be the starting point for any SRM programme. It will set the strategy, influence the design and focus of activities. It is also the primary message for engaging stakeholders. Leaders in the field demonstrate its importance: While only just over half of all respondents have created an SRM value proposition for leaders it is 95% and 65% of followers.
It is not enough to have a value proposition for SRM. You also have to get it out there. It can bring SRM to life for business stakeholders and, in particular, C-suite executives, but only if they are aware of it. Communication is important in winning their backing, which in turn is critical to SRM success. Creating a concise SRM ‘sales pitch’ using the value proposition is essential to gaining more buy-in and support. Nearly three-quarters of respondents who created a value proposition used it to build a sales pitch (Fig 6) .
AQUARTEROFORGANISATIONSARE UNABLETOSPECIFICALLY IDENTIFY ANDREPORTTHEBENEFITSOFSRM
Fig 7. Are you able to identify and report the financial and non-financial benefits of your SRM programme?
ONLY JUSTOVERHALFHAVE CREATEDACLEARSRMVALUE PROPOSITION
THREEQUARTERSHAVEUSED THEVALUEPROPOSITIONTO WINSUPPORTFORSRM
Both financial and non-financial benefits
40 %
Fig 6. Have you used the value proposition to create an SRM sales pitch?
Fig 5. Have you developed and documented a clear value proposition for SRM?
Financial benefits only
13 %
Yes 74 %
Yes 52 %
Non-financial benefits only
23 %
No 40 %
Neither financial nor non-financial benefits
No 23 %
25 %
Don’t know 3 %
Don’t know 8 %
Note: due to rounding, percentages do not sum to 100.
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VALUE
95% of SRM leaders create a value proposition
COSTREDUCTIONANDCOSTAVOIDANCEARE THEMOSTWIDELYREPORTEDSRMBENEFIT
Fig 8. In which of these areas have you seen benefits from your SRM activities so far?
%
62
Cost reduction /avoidance
57
Of thoseable tocapture theirbenefitspicturejust 40%areable toreport bothfinancial andnon- financial benefits
Improved risk management
56
Operational improvements
49
More collaboration
46
Continuous improvement and innovation
43
Improved account management
33
Improved internal or end customer experience
32
Supplier discretionary support
26
Best practice insights
24
Access to market intelligence
23
Improved supply continuity Increased joint product /service development
20
18
Gaining competitive advantage in your market
15
Help achieving your sustainability and CSR goals
11
Improved speed to market
The list of specific, tangible value benefits reported over the past 12 months by businesses is broad. The proportion reporting cost reduction and cost avoidance has remained the same as 2015 and is the leading measured benefit. Risk reduction is in second place. Although the number of respondents reporting continuous improvement and innovation as a benefit has increased 6% since 2015, it remains disappointingly low at 46% (Fig 8) Naturally it's the leaders that are more likely to cite innovation among the measurable benefits of the activity.
HOWDOTANGIBLEBENEFITS TRANSLATETOFINANCIALVALUE? Measuring and reporting SRM benefits remains a challenge. To go a step further, by assigning a financial worth to reduced risk, supply continuity, retaining the best project manager or creative talent is almost impossible. Yet there are financial outcomes that SRM teams point to as a demonstration of their value. Some 20% of respondents who are leaders say that, as a result of their SRM activity, they have achieved post-contract financial benefits equating to more than 4% (Fig 9) .
Most businessesmanagingsupplier relationshipsbenefit frombetter risk management, cost reduction, cost avoidance andservice-level improvement
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