Supplier relationship management challenges

supplier relationship management best practice ppt and supplier relationship management maturity model
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Dr.JesperHunt,United States,Researcher
Published Date:16-07-2017
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Supplier Relationship Management How key suppliers drive your company’s competitive advantageExecutive summary Ensuring the best prices through strategic sourcing is no longer perceived as a strategic capability of the procurement function. As a result of further outsourcing of non-core competencies, organisations are starting to realise that they have become more reliant on suppliers in terms of innovative power, security of supply, corporate social responsibility, and on-going cost savings. Strategic partnerships are at the top of the corporate agenda of many global organisations and Supplier Relationship Management (SRM) is seen as one of the few remaining procurement topics that can still make a significant difference. But many organisations encounter difficulties in initiating, developing and managing partnerships. In particular, leadership and soft skills are mentioned as primary reasons for failure, alongside technical & functional competencies. We initiated a study on SRM to gain a better understanding of the typical challenges involved and to determine how supplier capabilities drive competitive advantage. A CPO roundtable, desk research, an 4. The top-three challenges respondents 8. Innovation, sustainability, leagility online survey and expert interviews encounter are an overemphasis on and resilience are seen as the key were input for our research. Below, we cost reduction, a lack of specific drivers for SRM value creation. summarise the ten key findings of our SRM competences and insufficient study report: alignment between the business, 9. Current SRM programmes procurement and supplier. already contribute to performance 1. The most important SRM objectives management and risk exposure are leveraging supplier capabilities, 5. Typical best practices are reduction. delivering cost savings and reducing quantification of benefits and costs supply risk exposure. (ROI), proactive and two-way 10. The respondents indicate that there performance management, and is a positive correlation between the 2. Approximately 60% of the respondents documented supplier strategies per presence of SRM and an increase have a formal segmentation process segment. in market share, responsiveness to in place, with spend size, product/ market changes, increased return service importance and risk exposure 6. Benefits measurement, executive on investment and shortening order as the most important segmentation sponsorship and strategic coherence fulfilment lead times. dimensions. are indicated as the most critical success factors. 3. While the benefits of SRM are acknowledged, the average SRM 7. Technical/functional, relational and maturity level is still low. developmental competencies must be balanced and continuously developed. 6Introduction Procurement becomes Business strategic More value driven Strategy More cost driven The role of the procurement function is drastically changing in today’s challenging Accelerate innovation Drive Maximise world. In the past, procurement was through partnerships Run efficient market and company tax benefits expected to ensure the timely availability processes standardization Reduce carbon footprint and of products and services while also being realise sustainable sourcing Reduce Manage risks and Optimise spend on direct and comply to regulations working capital responsible for accurately processing Improve indirect categories transactions. Economic developments availability of Encourage visibility in products & services during the 1980s and 1990s prompted the supply chain companies to recognise the potential contribution of procurement to A Procurement Strategy is developed with the objective of impacting and supporting the meeting cost-out targets. Through the Business Strategy and is, therefore, fully business driven. implementation of category management and running strategic sourcing initiatives, procurement was able to rationalise the supply base and consolidate volumes, resulting in price reductions. Global As stated previously, ensuring the best External integration: next prices through strategic sourcing is no sourcing and outsourcing of non-core step towards procurement longer perceived as a strategic capability activities became popular as well. excellence of the procurement function. As a result However, the procurement function was of further outsourcing of non-core still functionally organised, with little Companies are now aware that they must competencies, the procurement costs as collaboration and alignment with other integrate and collaborate with suppliers a percentage of total cost is 50-80% for business functions, which kept the price- to remain competitive and take the next companies that develop, manufacture, orientation alive. step towards procurement excellence. trade and/or distribute goods. Besides Supplier management is not a new topic, this financial impact, organisations are During the advent of the Total Cost of but it has always been the ‘stepchild’ starting to realise that they have become Ownership (TCO) concept, organisations of the procurement function. KPIs like more reliant on suppliers in terms of started to realise that a change from a spend reduction were an important innovative power, security of supply, functional orientation towards processes culprit here. Companies became rather corporate social responsibility, and optimisation was required, with cross- proficient and mature in running delivering on-going cost savings. Together functional collaboration. As a result, strategic sourcing initiatives and created with sustainability, strategic partnering is procurement became the responsibility “money on the table”. After realising at the top of the corporate agenda of many of cross-functional teams while its the contracted savings, category teams global organisations and is seen as one of strategic importance and recognition and buyers jumped on the following few remaining procurement topics that increased. The procurement function not sourcing initiative while neglecting can still make a significant difference. only contributed to price reductions, but the implementation and management also played a crucial role in optimising total lifecycle costs. The next step towards procurement excellence is to adopt a value-driven orientation with external/supplier collaboration as a key cornerstone. “Besides risks, we need to financially materialize the contribution of innovation and sustainability” 7of contracts. Delivering “money in the In our definition, Supplier Relationship 1. Become ‘customer of choice’: pocket” reflected as savings in the P&L Management (SRM) is a systematic preferential treatment regarding appeared to be another story. Research approach for developing and managing availability, costs, access to indicates that there is an average of 25% partnerships. It is focused on joint growth technology, innovation and risk contract value leakage (“money in the and value creation with a limited number reduction air”). Formalising contract management of key suppliers based on trust, open 2. Focus on value: increased market and delivering “performance to contract” communication, empathy and a win- competitiveness through consideration is a challenge for many organisations. win orientation. Non-partnerships are of all relevant elements that determine managed by means of other measures stakeholder value Not every supplier is qualified as a partner: like contract administration, contract 3. Leverage on supplier capabilities: supplier segmentation is necessary to management and vendor rating. In our advantageous position through early differentiate supplier strategies. If a supplier opinion, Monczka e.a. (CAPS Research, involvement in the innovation and is qualified as strategic, an organisation can 2011) described the SRM objectives and product & process development decide to initiate a partnership. benefits very concisely: processes 4. Share growth, profits, risks and investments: joint objectives, efforts and resource commitments resulting Value in a healthy culture for continuous SRM driven by innovation, growth “Value creation: sustainability beyond and leagility traditional cost cutting” Breakthrough in operational & financial performance “Money in the air” Impact of Contract “Money in the Management pocket” No contract “Money on the management table” Time Impact of Strategic Sourcing Impact of Supplier Relationship Management 8 Value Orientation: Value Orientation: Internal ExternalResearch objectives and • Which best practices can be adopted to This report is structured in three chapters. achieve world-class SRM? Chapter 1 presents current SRM practices, approach • Which supplier capabilities drive including SRM objectives, current With more than 500 sourcing & competitive advantage? maturity level, typical key challenges, procurement practitioners worldwide, • How can organisations successfully unique supplier capabilities, and benefits we have broad and deep expertise implement SRM? achieved by organisations. Chapter 2 to support organisations in solving describes best practices for achieving supply-related issues. We have noticed The research team deployed several world-class SRM. Finally, chapter 3 that many organisations encounter research methods to collect observations, provides a framework for implementing difficulties in initiating, developing draw conclusions and define and deploying world-class SRM. We wish and managing partnerships. And as we recommendations. After several initial you much reading pleasure and we hope mentioned, besides technical & functional interviews with business executives and to offer you and your organisation ‘food competencies, leadership and soft skills professors, we decided to organise a for thought’ to further enhance Supplier CPO Round Table to further elaborate on were mentioned as main reasons for Relationship Management. SRM. We also took this opportunity to failure. We initiated this study on SRM to define hypotheses. Next, we performed get a better understanding of the typical extensive desk research (PwC and challenges and to determine how supplier non-PwC sources), which we used as capabilities drive competitive advantage. a basis for developing and launching Our research focused on private an online survey. The results of the companies that develop, manufacture, online survey and case studies served trade and/or deliver goods. The majority to validate the hypotheses. This report of the participating companies are presents our observations, conclusions headquartered in the Netherlands. To and recommendations. It is important to achieve our goal, we wanted answers to note that our database is growing because the following research questions: organisations are still contributing by • How is SRM currently structured at means of the online survey. private sector organisations? • Which key challenges do organisations encounter in building strategic partnerships? Phase II: Phase IV: Desk Research Expert interviews CPO Round Table Extensive Online survey to Expert interviews: Individual reports Chemicals to explore topic literature review validate for participants FMCG and define to build hypothese (panel based on online Energy & Utilities hypothese foundation for of 30 respondents, survey Construction research see appendix A Final report and System integrator for population closing seminar profile) Phase III: Phase V: Phase I: Survey Report CPO Round Table 91. Key research findings Chapter 1 presents the main SRM Objectives as strong contributors to competitive Developments in the business advantage and were kept in-house (e.g. observations and conclusions of environment have become much product development, manufacturing, our SRM study. Our findings are more difficult to anticipate due to the services, etc.) are now qualified for structured around six elements, globalisation of demand and supply outsourcing. Gaining access to unique namely: markets, more demanding customers and knowledge, resources, capabilities, talent SRM objectives consumers, shorter product lifecycles, and ideas are an integral part of this key • continuous pressure on costs and objective. Typical SRM challenges • cash, and societal pressure regarding Current maturity level • corporate social responsibility. As a The second most important objective result of outsourcing, procurement and is reducing cost. This would appear Unique supplier capabilities • supplier management have become more to conflict with the focus on value Critical success factors • important and strategic. But what are creation, but cost-cutting is still one of the most important objectives of SRM? the key imperatives. The main difference • Potential benefits We asked the respondents to select three with traditional approaches is that objectives from a list of ten that are most benefits are now realised and shared relevant for their organisation. together with partners. This objective is also related to the low maturity level of SRM as a business process (see SRM is focused on joint value creation following paragraph): the business based on trust, open communication and perceives procurement, and therefore collaboration with a limited number of SRM, primarily as a contributor to cost key suppliers. Leveraging on supplier reduction. capabilities is mentioned as the most important objective of SRM. Organisations Security of supply is selected as the are aware that they don’t have the means number three objective of SRM. Due to the to finance all activities on their own. globalisation of supply chains, stronger Activities that were always perceived Figure 1. Objectives to initiate SRM Leverage on supplier capabilities Deliver on cost reduction targets Improve security of supply Become a 'customer of choice' Manage the supply risk profile Enhance supplier relationships Guarantee sustainable sourcing Increase the responsiveness of the supply chain Anticipate on volatile commodity prices Other 0% 5% 10% 15% 20% 25% 10customer. Furthermore, organisations can fluctuations in demand & supply, material The most severe challenge is the inherently have different orientations: scarcity, and preferential behaviour by dominant role of costs. Cost reduction some are farmers, while others are sellers or even countries, it has become is an essential part of value creation hunters and this will never change. difficult for companies to ensure product but too much focus on this aspect Expert interviews have taught us that a availability to customers. By means of discourages a long-term orientation. KPIs lack of executive sponsorship and business partnerships, buying companies aim are focused on short-term optimisation, case are the most important hurdles to for preferential treatment while driving provoke counterproductive behaviour overcome. Executive ownership ensures out strong volume and mix fluctuations & collaboration, and emphasise alignment with the corporate objectives, through integrated forecasting & procurement’s traditional role of getting sufficient resource allocation as well as planning, product substitution & the lowest prices. However, value drivers a mandate to change and solve issues. A simplification, and hedging. like innovation, sustainability and leagility business case creates appetite at the start, require a long-term orientation which is helps to track and trace progress and Other SRM objectives that are not conflicting with the short-term focus. translate the impact of benefits into the included in the above graph but were P&L and balance sheet. mentioned during expert interviews: So far, procurement has always been increase innovative power, reduce responsible for running sourcing projects. Other key challenges that are not working capital, prevent reputational Functional competencies like negotiation presented in the graph but were damage, enable closed-loop supply chain skills, market analyses, and cost & risk mentioned during expert interviews management, shorten time-to-market, management were perceived as the include a lack of training, no specific SRM increase supplier service, and improve key to success. However, SRM requires strategy & objectives, no harmonised way product quality. completely different skills like influencing, of working with a standard toolkit, the leadership and change management. fact that KPIs are focused on operational Typical SRM challenges Traditionally, buyers do not naturally have issues and a lack of rigorous programme Although organisations are aware and such skills or are not trained to develop management. convinced of the SRM benefits, many them. still encounter difficulties in developing, implementing and operating partnerships. The third key issue selected by the SRM requires a completely different mind- respondents is that the strategic set, which makes SRM a complicated objectives of the buyer and supplier exercise. But what are the key challenges are incompatible. This situation is the respondents encounter? We asked exacerbated if the buying organisation them to select three from a list of ten that wants to develop a partnership while are most relevant for their organisation. the supplier is focused on exploiting the Figure 2. Challenges & issues when implementing SRM Too much focus on costs instead of value Lack of specific SRM competencies and skills Strategic objectives that are not compatible No alignment between the business and procurement Open communication and information sharing is difficult Focus on fighting instead of collaborating Ignorance of soft skills to manage business relationships Lack of business involvement in managing the relationship Limited engagement and sponsorship from top-management Lack of mutual understanding and empathy Other 0% 5% 10% 15% 20% 25% 11Overall SRM maturity level 3. Established: SRM is a mature business Maturity models help organisations to process and fully integrated in the define the current state of affairs and operating model. All key suppliers provide the opportunity to facilitate a are covered by the SRM programme discussion on the ambition level. We and financial benefits are delivered distinguish four different levels: while risk exposure is significantly reduced. SRM starts to deliver top-line 1. No SRM: the organisation manages improvements as well and is seen as all suppliers by means of contracts a strong contributor to competitive without any differentiation in advantage. Joint improvement supplier strategies. The objective is initiatives are formalised with a clear to realise ‘performance to contract’. governance structure. Performance management is one- directional and rather directive. 4. World-class: SRM is at the heart of the Collaborative improvement initiatives business and fully incorporated in the are rather unstructured. corporate strategy. The organisation is “customer of choice” for a selected 2. Exploring: the organisation recognises number of strategic suppliers with the value potential of key suppliers which it is fully integrated. The and initiates a limited number of pilot organisation shows double-digit projects to build trust, experience improvement percentages year-on- and credibility. Joint initiatives now year and, as a result, stays ahead of its go beyond cost reduction and are competitors. Collaboration between both partners is a way of working: organised in a more structured way, procedures are no longer necessary. but are still rather operational/tactical by nature. Based on the respondents’ answers, we Figure 3. Current maturity level of SRM conclude that the current maturity level 70% of SRM is still relatively low. Almost a quarter of all respondents (23%) indicate 60% 64% they have no SRM programme at all. Collaboration with strategic suppliers is 50% unstructured, as are joint improvement 40% initiatives. Most organisations are at the ‘exploring’ stage (64%). They initiated 30% an SRM programme and are developing toolkits & templates, but only for a limited 20% 23% number of partners. A minority of the 10% respondents have fully “established” 13% 0% SRM programmes (13%) while none of 0% the respondents has a ‘world-class’ SRM No SRM Exploring Established World-Class programme in place. “SRM is from the entire organisation: procurement seduces, inspires and facilitates” 12SRM Maturity Model We asked each respondent to score their Based on desk research and expert organisation on the seven individual interviews, we developed an SRM enablers. The results are fully in line with Maturity Model to help organisations the overall SRM maturity level as presented determine their current maturity level and above. The average score per enabler define their future ambition level. This is between level 1 and level 2 whereby model recognises the four maturity levels ‘Strategy & Governance’ seems to be most as discussed above, and distinguishes developed enabler. This is hopeful because seven SRM enablers that are critical to a successful SRM programme starts success. Appendix 2 presents the maturity with a clear vision and objectives. The model in more detail. ‘People’ enabler is clearly lagging, which emphasises the importance of having a balanced set of the competencies in place. No SRM Exploring Established World-Class Focus on ‘performance to Focus on cost reduction SRM Partial focus on value creation Full focus on value creation SRM Strategy & contract’ strategy formulated but poorly SRM strategy known and fully strategy fully integrated with Governance No SRM strategy & objectives understood understood business strategies No SRM process in place with Documented SRM process with SRM process fully known and SRM process fully integrated Process specific toolkit basic toolkit advanced toolkit Advanced Partnership strategy jointly All suppliers treated the same Little differentiation supplier strategies developed and managed No formal SRM structure in place SRM initiatives are coordinated SRM through cross-functional SRM through centralised SRM through existing relationships teams from business and office, with SRM roles and Structure procurement responsibilities People are low skilled in SRM Level of SRM competence varies Key SRM stakeholders have All SRM stakeholders have deep People competencies with no training significantly across organisation moderate SRM competences with SRM competences and there is with some basic training standard training program tailored SRM training No SRM support systems and Some SRM support systems Integrated systems with suppliers Real time exchange of Technology tools and tools in place, but limited for sharing and reporting operational, tactical and strategic integration information information SRM performance is not being Some basic performance Critical performance measures Performance measures are jointly Performance tracked measures are tracked and are developed and periodically developed with suppliers and management reported (one-way) reported (two-way) cover all SRM aspects No risk management approach Risks are mapped, but concrete Full visibility on relevant risks, Full visibility on relevant risks, Risk in place actions to mitigate these risks are approach to mitigate risks mitigation approach developed management lagging developed internally with suppliers Figure 4. Current maturity level on SRM enablers Strategy & Governance Process Risk Management Technology Performance management Structure People No SRM Exploring Established World-Class 13Supplier Relationship Management will 2. Relational competencies: envisioning, not be successful simply by implementing leadership style, project & programme these seven enablers. Expert interviews management, change management, and desk research taught us that process & organisational design, appropriate competencies make the real influencing, issue solving, personal difference. We asked the respondents to relationships and emphatic behaviour. score their own organisation on three different SRM competencies: 3. Developmental competencies: innovation power, sustainability, 1. Technical/functional competencies: continuous improvement, lean and/or sourcing, negotiating & contract agile operations, production capacity management, supply market and information management. analyses, spend analyses, operational excellence, cost management, On average, none of the competencies risk management and supplier score higher than level 2, which again is in management. line with the overall SRM maturity level. We expected that the technical/functional competencies would score relatively higher because these cover the traditional Figure 5. Current maturity level on SRM competencies activities of procurement. Based on the questions asked, we cannot explain why World-Class this is not the case. Finally, we asked the respondents at what Established level they currently collaborate with key suppliers. Once more, the results are Exploring consistent with the previous observations: collaboration with key suppliers is in the ‘Exploring’ phase with joint continuous No SRM improvement programmes and product Development Relationship Operational & technical development as the frontrunners. capabilities capabilities capabilities Figure 6. Current buyer-seller interactions with key suppliers World-Class Established Exploring No SRM Continuous Joint Focus on Real-time Open-book Integrated Shared improvement product value data contracts planning investments development creation exchange cycles 14Supplier competencies Figure 7. Supplier operational & technical competencies The success of SRM is also highly dependent on the competencies of the 70% supplier. Supplier competencies are the resources, processes and measures a 60% supplier can offer the buying firm, and 50% which are needed to develop and manage partnerships. One overall conclusion from 40% the study is that most organisations score 30% the competencies of their key suppliers significantly higher than their own 20% competencies. 10% Operational & Technical 0% competencies Delivery Efficient Flexibility Quality of Ability to production products integrate with Almost 70% of the respondents indicated process information that their key suppliers deliver their systems products/services on time in full and Agree according to specifications. They also Neither agree, nor disagree perceive the production process of their Disagree key suppliers as efficient. The ability to integrate with information systems is scored relatively low. Relationship competencies SRM is based on building relationships Almost all respondents (90%) indicated and trust is an important enabler. that their key suppliers are willing and However, 50% of the respondents able to collaborate. Top management indicated that their relationship with key support is guaranteed at the majority of suppliers is not based on trust. the suppliers. Figure 8. Supplier relationship competencies 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Willingness Top Commiment Willingness Empathy Easy to deal Relationship and ability management to share with on based on to relationship to collaborate information day-to-day trust operations Agree Neither agree, nor disagree Disagree 15Developmental competencies Figure 9. Supplier developmental competencies The respondents gave the developmental competencies of their key suppliers 70% relatively low scores compared to the other two capabilities, while 60% the respondents scored their own 50% developmental competencies as highest. The ability to develop new products or 40% realise product improvements was the 30% only supplier competency with an average score of over 50%. 20% Agree Neither agree, 10% Critical Success Factors nor disagree To successfully achieve the SRM Disagree 0% objectives, organisations need to meet Ability to Offer Actively share Continuous develop new sustainable innovative improvement several prerequisites. We asked the products or business ideas of processes respondents to select three critical success product solutions factors out of a list of ten that are most improvements relevant to their organisation. It is vital to track the progress of the intended benefits. Positive results build cost leadership strategy of a buying firm Other success factors critical to SRM that credibility and ensure focus. The second does not really match with a supplier’s are not presented in the graph but were important critical success factor is strategy focused on differentiation by mentioned during expert interviews strategic coherence. First, the business innovation. The third-ranked critical are: get the supplier data right, full- and procurement should be internally success factor is sponsorship by top time dedicated supplier relationship aligned so that SRM fully contributes to management. It ensures that the right managers, cross-functional teams, business objectives. Once that is realised, priorities are set and that sufficient/ supply market & supplier intelligence, a partnership will only succeed if there is appropriate resources are allocated. and clear understanding of SRM by the a strategic coherence between the buying organisation. firm and key supplier. For example, the Figure 10. Critical succes factors for SRM Benefits measurement Strategic coherence internally and with supplier Top management support Governance structure is in place Relationship governance Control & compliance with standardized Continuous people development Dedicated budget and resources Enabling technologies Initial business case and ROI Other 0% 5% 10% 15% 20% 16Benefits of SRM Other SRM benefits that are not presented Performance improvement and risk in the graph but were mentioned during exposure reduction are communicating expert interviews are: higher contract vessels. Taking more risk could result compliance rates, more successful in short-term advantages but threatens outsource deals, increased supplier long-term financial and operational service percentages, strengthened performance. In our research, we asked relationships, higher speed-to-market and respondents to indicate which benefits less waste in the supply chain. have already been realised with current SRM initiatives. The figures do not reflect This chapter described current SRM the level of performance improvement but practices. Chapter 2 will elaborate on how often a benefit was mentioned by a best practices that provide guidance to respondent. establish and/or enhance SRM at your organisation. Figure 11. Performance benefits of SRM More efficient processes Reduction of inventory Improved customer satisfaction More sustainable products or processes Better access to technological innovations Higher responsiveness to customer demand Improved on-time delivery by our suppliers Better quality of our end product Better access to new products/markets 0% 10% 20% 30% 40% 50% 60% Figure 12. Risk benefits of SRM Quality issues Scarcity of materrials Currency & price flutuations Disruptive events in the supply chain Reputation damage 0% 10% 20% 30% 40% 50% 60% “The nature of the relationship determines the required capabilities” 172. Towards world-class SRM This chapter presents typical best practices 4. People: which unique competencies to successfully establish and enhance does your organisation need to an SRM programme or to develop and establish and manage SRM? manage partnerships. We will use the seven enablers from the Procurement 5. Technology: which support systems Framework of PwC which are: does your organisation deploy? 1. Strategy & Governance: what does 6. Performance Management: how your organisation want to achieve does your organisation measure and with SRM and how are these improve partnership performance? objectives secured? 7. Risk Management: how does your 2. Process: which activities does your organisation identify and mitigate organisation perform and how is SRM risks at key suppliers? supported by a standard toolkit? This chapter concludes with a short 3. Structure: how does your organisation description of four key capabilities that, in structure SRM and which roles & our view, drive SRM value creation. responsibilities are established? Figure 13. Procurement Framework of PwC Enablers: The review and alignment of the enablers is topic of the total procurement transformation. Direction setting: The procurement strategy is the heart of procurement and should be aligned to company and business strategy and objectives. Strategy & Governance Processes: The operational side of procurement: from determining needs to payment of invoices while managing contracts and suppliers. 18Strategy & Governance Issue BestPractice 1 TraditionalviewonProcurementresultsina Letthebusinessdefinewhatvaluemeanstothemthrough strongemphasizesoncostreduction astructuredapproachofvaluemapping 2 TheobjectivesandwayofworkingoftheSRM MaketheSRMstrategy&objectivesexplicit:internal actorsarenotsynchronised alignmentprecedesexternalalignment 3 Thereisalackofexecutivecommitmentand DevelopthebusinesscaseincollaborationwithFinance noburningplatform tobuildtrust&credibilityandperformbenefitstracking 1. Business drives value the business defines what value means mapping and how SRM can contribute. A discussion Procurement is still primarily seen as a on the organisation’s key capabilities contributor to cost-cutting initiatives. and what the organisation expects from This perception is often reflected in the partners should precede the SRM value way companies establish and manage discussion. their SRM programme: a focus on cost reduction and accompanying performance 2. Internal and external indicators. alignment Unfortunately, supplier management Value mapping encourages companies and partnerships are often a concern to think beyond cost cutting and allows of the procurement function and sales them to incorporate value drivers that function, with little involvement of the also contribute to revenue growth, asset business. Our research indicated that utilisation and risk reduction. Although the internal objectives (of the business procurement can facilitate the process of and procurement) are not aligned and SRM value mapping, it is essential that that there is a lack of strategic coherence between buyer and seller. Value mapping facilitates the discussion Figure 14. Alignment between the business and procurement, and defines the exact business objectives Performance leadership is all about craftsmanship, as input for the SRM programme. We you will never achieve this without on boarding your people recommend that organisations document the objectives in an SRM charter to make Clueless them explicit and easy to share within Performance …rigorous focus on the strategic leadership the organisation. Following this internal value drivers delivering your objectives handshake, the supplier’s objectives should be aligned or other candidates should be sought if objectives or cultures …full alignment of strategy with do not match. As a ground rule, it is Going structure, processes, people and tools our opinion that internal alignment nowhere Individual always precedes external alignment with low high suppliers. Focus 19 low Alignment high3. Positive ROI creates a case for as starting point, calculate or at least change estimate the business case for each of the Many of the respondents and PwC main SRM stakeholders. SRM benefits can clients experience difficulties in getting be ‘calculated’ by estimating the impact appropriate commitment and funding for of preventing risky events, value leakage an SRM programme. One reason we often due to a lack of contract compliance, hear is that those involved are not capable benefits achieved in the past, and by of convincing or ‘seducing’ the leadership telling compelling success stories based on team because it is hard to build a business case studies. We recommend involving the case that presents the financial benefits of finance function from day one, because it SRM. can provide support in defining the impact of SRM on the P&L account and balance A positive ROI attracts the attention sheet. of executives and creates the required case for change. Using the value map Figure 15. Traditional supplier management vs. supplier relationship management Traditional Supplier Management Towards Supplier Relationship Management Marketing Marketing Marketing Marketing Research & Research & Research & Research & Development Development Development Development Competition Partnering on focused on value Price Operations Operations Operations creation Operations Sales Procurement Sales Procurement Logistics Logistics Logistics Logistics Information Information Information Information Technology Technology Technology Technology Finance Finance Finance Finance Supplier Buyer Supplier Buyer “I want to introduce the NPS for suppliers as part of the supplier service concept” 20Process Issue BestPractice 1 Lackofformalbusinessprocessresultingin HarmonisetheSRMprocessanddevelopaccompanying inefficienciesanddifferent‘languages’ toolkitsandtemplatestomakeSRMexplicit 2 Onesizefitsallstrategytomanagesuppliers Developasegmentationprocessthatisdrivenbythe withlittledifferentiation selectedvaluedriversandisfuture-oriented 3 SRMisastand-aloneprogrammewithlittle IncorporateSRMintothetargetoperatingmodelsothat integration integrationwithotherprocessesisensured 1. Formal business process starts as a project aimed at developing a The majority of respondents and foundation and establishing SRM. interviewees have initiated an SRM programme and operated partnerships. To encourage one SRM language across Their situation is often characterised by partnerships and business entities, a diffuse approach whereby no standard organisations need to develop a way of working is applied and there is a harmonised and formalised SRM business lack of supporting tools and templates. process, including appropriate tools and Furthermore, SRM is often seen as a templates, such as (but not limited to): project driven by milestones. The latter • Supplier segmentation tool is not per se wrong because SRM often • Customer/supplier perception surveys • Supplier account plans & alliance charter • Performance scorecards Figure 16. SRM as a formalised business process • Improvement charters • Structured meeting templates • Benefits tracking tool Supplier Segmentation, Rationalisation, Selection and Qualification Assess As a result, SRM becomes more cost- Partnership effective while knowledge sharing and collaboration across the organisation is Manage Performance encouraged. & Risks Review On-going Define value creation Strategy & 2. Multi-dimensional supplier Objectives segmentation Approximately 60% of the respondents Develop & indicated that they have a formal Deliver Plans Build & supplier segmentation process. The Manage Partnership respondents and interviewees also told us that spend size and, to a lesser extent operational risks, are still the main drivers for segmentation. Supplier strategies per segment are often lacking or not documented. 212. Competitive advantage and business Figure 17. Supplier segmentation fit: to what extent do unique supplier capabilities contribute to competitive Contract Supplier Relationship Management Management advantage in the future? Examples Focus costs and Focus on value and include innovation, sustainability compliance joint growth and leagility. And do organisational structures and DNA match? These Preferred Strategic suppliers suppliers might include strategic coherence, corporate cultures, and organisation size. Transactional Development The position on the grid automatically suppliers suppliers corresponds to the appropriate supplier strategy. Each organisation should customise its supplier segmentation Competitive advantage and business fit process and grid based on sector and company-specific requirements. 3. Integrated in operating model The SRM value map provides a starting As presented in the PwC Procurement point and defines which dimensions Framework, SRM is one of the five main should be applied − during supplier procurement processes. Besides product segmentation as well as during other development, these five processes indicate stages of the supplier lifecycle − to how buying companies and suppliers rationalisation, selection, collaboration actually collaborate. The position and (dis)qualification. Based on several in the supplier grid determines how existing models and our research insights, intensely each process is executed and we developed a segmentation process, managed between the buying company tool and grid based on two axes: and relevant supplier. It will indicate, for example, whether the organisation 1. Performance at risk: what is the will deploy other contract types with financial and operational impact of strategic suppliers (e.g. open book) than the supplier (now and in the future)? it does with preferred suppliers (e.g. Examples include costs, revenues, framework contracts). We recommend quality, availability, supplier risks, and that organisations always consider supply market risks. SRM in relation to other (procurement) processes so that important process and IT interfaces are not missed. “SRM should also deliver value for the supplier, otherwise you will never become a customer of choice” 22 Performance at riskStructure Issue BestPractice 1 SRMisperceivedasaPocurementtopic ProcurementmanagestheSRMProgrammebutthebusiness resultinginalackofbusinessownership ownsthepartnership:cross-functionalteamsasfoundation 2 SRMismispositionedandseenasan AssignanexecutivesponsorthatownstheSRM operational/tacticalactivity Programmewithappropiatetargets 3 Unclearroles&responsibilities,lackof Developandimplementadedicatedgovernancestructure capacityanddiffusecommunication fortheSRMProgrammeandindividualpartnerships 1. The business owns As stated previously, procurement will partnerships play a key role in facilitating the SRM We have experienced situations in process and establishing a cross-functional which SRM is completely ‘outsourced’ to team so that the interests of all relevant procurement. As a result, procurement stakeholders are served. However, the develops the partnership in complete business owns the relationship and isolation, which means that business directly collaborates with the supplier so objectives are not met and the business that business objectives are achieved. does not show any ownership or commitment. Furthermore, the 2. Executive sponsorship and partnership will keep a focus on involvement commercial aspects and solving Due to the traditional view on operational issues. procurement (see point 1 of ‘Strategy & Governance’), SRM is often perceived as an operational/tactical process that will solve issues and reduce costs. Figure 18. Example of a governance structure Considering the enormous value potential and the fact that SRM is only Executive Sponsorship Supplier deployed for key suppliers, such a view CxO (sponsor) CxO (sponsor) hinders a breakthrough in performance CxO CxO Customer improvement and risk reduction. Steering Committee We recommend that companies assign Key Account Manager Key Relationship Manager an executive sponsor from the Board in R&D Director R&D Director any case. Such sponsorship emphasises Sales & Marketing Director Sales & Marketing Director the importance of partnerships within Supply Chain Director Supply Chain Director the organisation while this type of sponsor ensures the alignment with Other Cross-functional Team Other corporate/business objectives, sets the Procurement Procurement Other stakeholder/ Other stakeholder/ Subject matter experts Subject matter experts right priorities and can take appropriate Research & Development Research & Development Marketing Marketing decisions. Personal targets are set and Supply Chain Supply Chain linked to a bonus remuneration as Operations Operations incentive. 233. Dedicated governance To fully benefit from the SRM value structure potential, organisations should develop Building and managing a partnership and manage partnerships in a similar way is like building and managing a new to (new) departments. We recommend department or business entity. It involves a full organisational design approach, an extra difficulty, however, because including the following elements covered it requires dealing with third-party in an alliance charter (not exhaustive): personnel. Partnerships are often not • Organisational chart of partnership established in a structured way so that and reporting lines; reporting lines, roles & responsibilities • Description of roles & responsibilities and communication are unclear. In • Definition of objectives and targets addition, employees are only involved in • Indication of required capacity (FTE) partnerships part-time, which results in a and skills & competencies lack of focus. • Communication structure and planning & control cycle focus on continuous improvement. 24

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