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SRM

Published: 15 Nov 2011 Average Rating: unrated Print
 
This article appeared in Contracting Excellence magazine on 15 Nov 2011 view edition
 

Despite continuing economic uncertainty, or possibly because of it, interest and engagement in supplier relationship management (SRM) continues to increase. This is evident in the findings of State of Flux’s 2011 SRM survey – the third year running we have conducted in-depth global research of this kind.  

By Geraint John, Executive Consultant, State of Flux

18 November 2011

Despite continuing economic uncertainty, or possibly because of it, interest and engagement in supplier relationship management (SRM) continues to increase. This is evident in the findings of State of Flux’s 2011 SRM survey – the third year running we have conducted in-depth global research of this kind.  

 
Just over three-quarters of respondents from 274 private and public sector organisations in Europe, North America, Asia and Australasia reported moderate or significant progress in SRM during the past 12 months. And more than 80% expect SRM to become more important in the year ahead. As in 2010, the biggest areas of progress have been in gaining senior executive sponsorship, internal stakeholder support and supplier engagement.
 
Half of “SRM leaders” (those placing their overall maturity in implementation and benefits realisation in the top half of State of Flux’s scale – just under a quarter of the total sample) say they have “strong and active” executive support and just over 60% have broad functional and business unit support. Among “SRM followers” (those in the bottom half of the scale) the figures are 14% and 18% respectively.
 
Meanwhile, 73% of leaders say they have either all of their strategic suppliers or a group of at least 15 engaged in their SRM programmes, compared with a fifth of followers who say the same. The main barriers to engaging suppliers in SRM programmes are imprecise benefits tracking, a lack of shared benefits and insufficient information sharing. 
 
For a majority of organisations, therefore, there is plenty of work still to do to win the hearts and minds of key stakeholders on both sides of the relationship.
 
The biggest challenge for those running SRM programmes, according to our survey, is finding enough people with the right mix of commercial, technical and interpersonal skills to conduct relationship management work effectively. More than 6 out of 10 organisations say this is an issue. Communication, influencing and trust building are seen as the most important skills for SRM roles – and also the areas where there are the biggest gaps in capability, particularly within procurement and supply chain functions.
 
Our analysis found that SRM leaders report lower barriers, both internally and externally, and greater benefits achieved so far than SRM followers. The message is that investing in SRM capabilities and activities pays dividends over and above those achieved by traditional procurement approaches.
 
Drivers and benefits
 
Cost reduction continues to be the number one driver of SRM activity among both leaders and followers, although the proportion rating it as “very important” fell from 72% in 2010 to 64% this year. Second spot is again held by risk reduction, although in the financial services sector regulatory pressure has propelled this into first place in the space of 12 months.
 
Among the SRM leaders, the third most important driver is a tie between cost avoidance, innovation, supply chain efficiency, and access to the supplier’s “A” team. But when asked about the primary source of value in the next 12 months, over a fifth of leaders say innovation, compared with just 12% who pick cost reduction. SRM followers say the reverse.
 
To date, cost reduction has delivered the biggest benefits from SRM for both groups. More than half of the leaders and over 40% of the followers say financial savings have been achieved. These are typically in the region of 2-6% of annual spend with a supplier, although more than a fifth of SRM leaders say it’s been 8% or more.
 
The leaders are also more likely to report benefits through having “customer of choice” status with key suppliers. Senior management support, preferential pricing and continuous improvement ideas are the top three benefits. However, in the past 12 months less than half of organisations say they have achieved these. Fewer still cite access to the best people, scarce materials or capacity, or first refusal on innovations – suggesting significant value improvement potential in the future. 
 
Asked what benefits their suppliers have gained as a result of engaging in their programmes, survey respondents cite access to new business, revenue growth and faster decision making as the major wins. However, although the proportion that say they share financial benefits arising from SRM activities with their suppliers has grown year on year, only 14% of leaders and 8% of followers say these are “always” shared. In State of Flux’s view this is an area of concern, since SRM can only be truly successful if deeper collaboration produces benefits for both parties. 
 
Key success factors
 
As they did last year, respondents rated communication and level of trust as the two most important success factors for SRM. These are followed by relationship continuity and the level of investment in the relationship. Respondents believe that these factors translate into better outcomes from negotiations with strategic suppliers – 6 out of 10 SRM leaders, for example, say that suppliers have brought more value to the table as a result.
 
Collaboration – a key tenet of SRM – is currently focused largely on joint improvement projects, with 40% saying it involves some form of product or service co-development. However, fewer organisations believe they are adept at attracting, evaluating and implementing innovative ideas from their suppliers, blaming organisational complexity and a lack of time and resources, among other barriers.
 
In terms of the most important relationship characteristics, survey participants believe their top suppliers care most about account profitability, revenue and strategic alignment. Other “softer” factors, including openness to ideas, a willingness to listen and trustworthiness are ranked much lower. Separate research by State of Flux among key suppliers to large companies, however, suggests that shortcomings in these areas are among the main contributors to value leakage – and that improving practices and behaviours here can have a positive impact on the way customers are viewed and treated by suppliers.
 
Only a third of SRM leaders, and less than 10% of followers, reckon that three-quarters or more of their strategic suppliers currently regard them as a “customer of choice” – in other words, consistently give them preferential treatment.
 
Discipline and consistency
 
SRM is about more than just developing good personal relationships, important as these are. It is a discipline of establishing – and maintaining – consistent ways of working between often complex organisations. A clear governance structure and set of SRM processes is a key enabler of this.
 
Segmentation of the supply base is a necessary early step in deciding where to focus limited resources. Most organisations have conducted such an exercise and more than three-quarters have concluded that they have up to 50 strategic suppliers. The most popular segmentation criteria applied by both SRM leaders and followers are criticality of products and services and volume of spend. However, the leaders are more likely to weigh in additional factors such as innovation capability and competitive advantage when assessing the contributions made by suppliers.
 
The SRM leaders, as might be expected, also have more developed governance frameworks. Almost half, for example, say that their organisational models and roles and responsibilities are fully implemented, compared with around 10% of the followers.
 
Regular review meetings – the most widely used governance mechanism – still tend to be dominated by discussions about supplier performance and other operational issues. Business strategy and plans are a regular agenda item for only 60% of SRM leaders and 40% of followers, for instance. 
 
Ensuring that strategic, forward-looking and collaborative issues are adequately discussed between senior executives and managers on both the customer and supplier sides are vital – and another area where there is plenty of room for improvement.
 
As part of their governance models, leading organisations are twice as likely to have full-time SRM managers (the equivalent of key account managers on the sales side) in place. These individuals generally sit in the central procurement team and are responsible for several supplier relationships. 
 
Two-thirds of SRM leaders also say they have cross-functional teams to manage relations with their key suppliers, compared with a just third of followers. And 86% of the leaders say SRM goals are built into individuals’ objectives and development plans to at least some extent, versus less than half of the followers. Analysis of the survey data indicates that those organisations that have each of these two elements in place report higher cost, risk and innovation benefits from SRM than those that don’t.
 
System failure
 
Our previous surveys in 2009 and 2010 found that IT systems provided poor support for SRM programmes and that this was the weakest area of progress overall. It’s the same story in 2011. Just 4% of SRM leaders and 1% of SRM followers believe that ERP, supplier performance management and other IT systems “very strongly” support SRM activities. A lack of both integration between disparate systems and required functionality are seen as the main barriers.
 
Progress in developing SRM metrics has also been relatively weak. The most popular key performance indicators (KPIs) for tracking the success of SRM programmes are financial savings, quality and on-time delivery – classic measures of supplier performance – rather than broader and more two-way indicators. Only 18% of leaders and 5% of followers say they are using joint customer-supplier KPIs to any significant extent.
 
Operational performance scorecards and standard meeting agendas are the most widely used non-IT tools. SRM leaders are twice as likely as SRM followers to use joint account plans, 360-degree feedback and “Voice of the Supplier” surveys – key ingredients in building and improving collaborative, mutually beneficial business relationships.
 
To request a copy of the full survey report, The SRM Dividend: Developing Collaborative Relationships for Competitive Advantage, visit srm.stateofflux.co.uk/research/survey

 
 
 

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