Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010

Transcription

1 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Jon Hughes Jessica Wadd Mark Webb with Alicia Faneuil

2 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

3 Contents 1 Summary of Findings About the Study Organising for SRM Process and Tools Deployed Approaches to Measuring SRM Value SRM Value and Benefits Building the Business Case for SRM...32

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5 Summary of Findings 1

6 Summary of Findings There is a common perception among procurement organisations that SRM is important, but something that may need to be deferred or paused during the current economic downturn while focus is placed on more traditional sourcing tactics. However, this study and consulting assignments undertaken by the authors have shown that SRM is an essential means for reducing costs, and the downturn is an opportunity to cement or accelerate preferred relationships with key suppliers. Leaders in the field see SRM as having broad applicability across the supply base, though SRM objectives and practices vary significantly by supplier segment. Below are ten key findings from the study 1 Programme objectives SRM leaders had multi-faceted objectives for their SRM programmes. Cost reduction was a piece of the proposition, but not the whole picture. SRM was seen as a means for driving innovation while reducing costs and also better managing supply chain risks not a decision to prioritize innovation over cost reduction. 2 Procurement roles Generally, the head of Supply Chain or Procurement owned overall programme accountability for SRM, with category managers playing a central commercial relationship management role and business stakeholders managing relationships on an operational basis. 3 Programme structure Mature SRM programmes involved the management of suppliers. Most often, a central team was responsible for developing tools, training stakeholders, coordinating scorecards, organising summits, and coordinating relationships across business units and geographies. 4 Key change management activities Launching SRM required substantial change management efforts including: active engagement of executives, suppliers, and business stakeholders; building the collaborative skills of supplier management teams; and delivering a wide range of benefits that demonstrate the strategic value of SRM. 5 Key tools used Leading SRM programmes utilized tools such as supplier segmentation, relationship governance and roles, performance scorecards, structured review meetings, supply chain redesign, process redesign, and relationship strategies. Technology based tools were seen as less important than cultural and mindset changes. 6 Common SRM measurement practices Scorecards were frequently used to track supplier and overall programme performance. In addition, some leading programmes used the existing procurement benefit tracking system to capture SRM value, worked with Finance to build a new SRM focused framework, and used narrative case studies to demonstrate the power of SRM. 7 Formality of value measurement Measurement of SRM benefits was relatively unsystematic even amongst leaders. Reasons given for this included: executives did not require it; the inherent difficulty in measuring the value from benefits such as incremental innovation, adverse events avoided, and smoother working relations; and, the risk that measurement would encourage focusing exclusively on cost reduction activities. 8 Variety of SRM value SRM provided a broad range of value including reduced costs, increased revenues, and reduced risk exposure, as well as more internally focused business benefits such as process efficiency and reduced inventory. 2 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

7 9 SRM ROI Respondents shared stories of many specific improvements yielded by their SRM programmes, however few companies aggregated or tracked all SRM-related benefits though they remained convinced that the ROI was quite high. One company that did attempt to quantify benefits reported annualised cost savings of $350m and incremental revenue of $1b. 10 Building an SRM business case Given the broad range of benefits achievable, the business case for SRM often depended on the culture of the company and senior executives. Approaches included: calculating the impact of historic adverse events, running a small pilot programme to demonstrate value delivery, analysing reported savings to see the quantity that came from SRM, and defining an SRM specific benefit system with Finance Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 3

8 4 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

9 Value Delivered By Strategic Supplier 23 About Relationship the Study Management in Major Organisations

10 About the Study Background and related research SRM has become a major focus within the Procurement community. As SRM efforts mature, many companies are grappling with whether and if so, how best to expand SRM efforts and investment. Meanwhile, the current economic downturn has added urgency to questions about the value of SRM and what kinds of benefits should be targeted. Executives wonder whether the benefits they are realising are in line with what others in the marketplace are achieving, and what additional value could be obtained by further investment in SRM. Recent studies highlight a tremendous need for SRM and a major opportunity. In a study of more than 100 companies, 70% self-reported having an SRM programme, but many of these were programmes in name only little had been done to change the way the enterprise interacted with its suppliers. 1 In the same study, sell-side respondents from more than 200 companies reported a far lower percentage of their key customers as having formal SRM programmes. In a study involving more than 500 companies, buyside participants reported realising, on average, only 54% of the potential value of their supplier contracts. 2 A 2007 global study involving more than 900 companies identified that companies with SRM consistently identified and realised incremental value in the range of 23% from strategic supplier relationships, across multiple value levers. 3 What business objectives led them to develop an SRM programme? What value they realised from SRM and how they measured that value? How their practices and results compare to broader marketplace? Participant demographics The study participants were progressive Procurement teams from Fortune 500 companies that have had an SRM programme in place for an average of 3-5 years. Twenty-two European and US companies from multiple sectors participated in the study. Structured interviews were held with the initiators and leaders of the SRM programmes. Each of the companies interviewed was a leader in their sector either domestically or globally. Participating industries included: Pharmaceuticals Financial Services Information Technology Consumer Packaged Goods Oil & Gas Air Transportation Telecommunications Methodology To provide further clarity around the business case for, and value of, SRM and to identify the characteristics of SRM leaders, Future Purchasing and Vantage Partners interviewed executives at companies with highly regarded SRM programmes to better understand: 1 Hughes, Jonathan et al Key Customer-Supplier Collaboration Study. Vantage Partners: Hughes, Jonathan et al Customer-Supplier Negotiation Study. Vantage Partners: Hughes, Jon and Webb, Mark. Business Relationship Management: The Four Faces of Building Value with Strategic Suppliers. Future Purchasing: Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

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12 Organising for SRM Timescales, ownership, and strategic objectives Participants in the survey had typically invested significant effort in SRM through a formal, enterprise level programme during the previous three to five years. Their programmes were generally an evolution of less coordinated efforts made over a number of years before that. Not every industry has approached SRM in the same way. A number of companies in the fast moving consumer goods (FMCG) sector actually had quite formal programmes in place for a longer period, on average seven to ten years. This may be due, in large part, to the highly competitive nature of the industry and the fact that for most FMCG companies, the goods supplied to them impact their end-product in a highly visible way. Respondents reported that their SRM programmes originated with one of three sources: A visionary Procurement or Supply Chain leader who saw SRM as the next step for their team (after embedding strategic sourcing); A CEO or CFO who realised that the organisation s strategy fundamentally required collaborative relationships with key suppliers; or Senior executives (representing end users who rely on suppliers) who saw suppliers as key partners that could drive competitive advantage. Given the breadth of benefits expected, and a perceived difficulty in measuring those benefits, objectives and targets for SRM programmes tended to be relatively high level. Specific objectives mentioned by several study participants included: Becoming a customer of choice to improve access to limited capacity, best talent and ideas, and new innovation; Improving collaboration and relationship quality to gain competitive advantage from joint product design and process improvement; Reducing costs through collaborative cost-out initiatives (going beyond the savings realised through using competitive tension to squeeze margins); and Reducing the overall risk in the supply chain. For some Procurement teams, a structured SRM programme provided a key opportunity to change stakeholders perception of Procurement transitioning from narrow sourcing and contracting to a more broadly orientated commercial function. Programme structure and accountability Top performers distinguished themselves by the high degree of cross-functional involvement in their SRM programmes. Although the programmes were often lead or coordinated by Procurement or Supply Chain, business units and functions that relied on supplier goods, services, expertise, or capabilities (e.g., Research & Development, IT, and Marketing) were heavily involved. In the early stages of SRM, many companies involved a change-management project team to plan and launch the initiative. The most common ongoing programme structure used was what many study participants referred to as center-led where a corporate level SRM team (part of Procurement or Supply Chain) reported to the Chief Procurement Officer (CPO) or SVP, Supply Chain. Accountability for delivery from the overall SRM programme generally rested with the CPO, but was sometimes vague or opaquely combined with other objectives. Key responsibilities of the central team included: Developing SRM tools; Training stakeholders in the application of SRM tools and approaches (including behaviour change); Coordinating the development of supplier scorecards, monitoring KPIs, and aggregating scorecard data; Organising and facilitating supplier summits and corporate SRM planning sessions; and Coordinating relationships across business units and geographies. 8 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

13 I firmly believe if we can get to the point where we are closer to our suppliers, we can create more value. I want to do more than just buy parts from them. VP, Supply Chain Management, Global Pharmaceutical Company It was quite rare for the central group, or relevant category managers, to have direct responsibility for operationally managing key supplier relationships this was most often allocated to the business area with the greatest spend or influence. Procurement s responsibility for specific relationships usually included process facilitation and commercial management. In a number of companies, relationship leaders were located in separate dedicated supplier management groups that sometimes reported independently of Procurement. All organisations put more focus on managing direct material suppliers, although the same tools were used on indirect and similar results generated. IT tended to be the most advanced indirect category, due to the recognition by the Chief Information Officer of the company s dependency on key suppliers. Supplier numbers managed, resource requirements, and individual objectives Mature SRM programmes managed suppliers. Most organisations piloted new tools and processes on three to six suppliers to prove the concept. After the initial test period, most organisations rolled the process out to the broader group of target relationships during a month period. For all organisations, standard roles and responsibilities were defined for each relationship, thereby driving the overall resource requirement. None of the study participants felt that incremental resources were required as a result of structured SRM and most agreed with the comment that resources were now, focused on the right suppliers and right agenda. A number of study participants reported that Procurement resources in their organisation were still skewed too far toward sourcing, considering the relative value available from SRM. For example, one organisation competitively sourced $2b of spend each year leaving $8b to be managed. Although detailed analysis of the benefit tracking system indicated that 80% of realised savings were due to SRM rather than sourcing, 80 individuals dedicated their time to sourcing activities while only four focused on SRM. In almost every participating organisation, category managers played a significant relationship management role. The most mature companies, recognising a need for a different skill set than the one typically employed in sourcing, also hired experienced individuals (often with a background in key account management) to act as relationship leaders focusing on the most critical supplier relationships and providing mentoring and guidance to less experienced relationship managers. All companies manage supplier relationships, but only some do it systematically and strategically Sourcing, contracting, implementation/delivery, etc. are poorly coordinated Interactions with suppliers are functionally silo-ized Focus on cost (often price) Primary reliance on competitive pressure Ignore (or try to eliminate) human side of business relationships with suppliers Figure 1 Typical, ad hoc approach to supplier management Strategic SRM Consistent management of entire lifecycle of interactions with suppliers Cross-functional approach to working with suppliers Focus on total value Leverage the power of collaboration as well Consciously address & leverage human side of business relationships with suppliers While the top performers have made significant inroads in aligning the objectives and incentives of the organisation around the principles of SRM, at most participating organisations, it remains a mixed bag: Approximately 50% of study participants reported that relationship leaders based in Procurement had formalised annual objectives for SRM and key relationships. Most study participants noted that objectives and incentives for individuals in Procurement or Supply Chain not specifically dedicated to SRM were still focused primarily on savings delivered from sourcing Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 9

14 Organising for SRM In one leading organisation, a relationship manager s bonus is decided in part based on their category director s evaluation and in part on an evaluation from the head of SRM putting financial muscle behind the dual reporting role. In the mature organisations, objectives of business stakeholders working closely with strategic suppliers were closely aligned with defined objectives of the joint relationships which helped to drive more successful relationships. In the less mature organisations, business stakeholders did not have any SRM objectives and were more akin to passionate volunteers. Some leading organisations are now developing plans for deploying SRM tools and processes to less important suppliers where there will be no central reporting and relationship management will be undertaken solely by business stakeholders. These organisations are building SRM capabilities beyond the Supply Chain or Procurement functions by developing tools and processes stakeholders can use in managing their relationships, providing those individuals with both technical and skill-building training, and making professional supplier relationship managers from Procurement or Supply Chain available for guidance and support. Such programmes have improved stakeholder satisfaction and generated success stories that supplier management teams used to build support across the organisation. Progress reporting All the companies interviewed have some tools and mechanisms in place to track their overall progress with respect to implementing and developing their SRM efforts. While the majority of these tools focused on tracking whether SRM activities were being completed, top performers tended to include, if not focus on, measuring outcomes the strategic and financial benefits the company was looking for. In mature organisations, respondents reported that progress (including results) is consolidated and actively reported to C-level executives, as well as a procurement leadership team. The companies used a number of interesting approaches, including: Creating e-enabled centralized dashboards of SRM metrics that automated data collection from a variety of existing systems; Reporting critical SRM improvement projects to the Board on a monthly basis via a success story based approach; and Formally soliciting feedback from suppliers on the effectiveness of their SRM efforts and incorporating that feedback into C-level reports. Less mature organisations reported having individual supplier management teams solely responsible for progress managing their activities with very little or no overall SRM programme evaluation. As a result, many of these SRM programmes had not been able to fully report and leverage their success stories with executive stakeholders. Key change management activities Study participants reported a wide range of approaches for building internal support and momentum behind their SRM programmes. The most consistently reported were: Executive engagement: Senior executive support for SRM, built on a belief in the value SRM could bring to the enterprise, has been critical in driving SRM principles throughout top performing organisations. Creating this support often required aligning the SRM programme to the company s overall strategic objectives, demonstrating successes and hard benefits through pilot relationships, and creating a tangible roadmap to show how the organisation would develop the SRM programme over time. 10 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

15 Supplier engagement: Before any study participant could realise results from their SRM programme, they had to demonstrate to suppliers that they were truly committed to doing business in a different way, and thereby encourage the suppliers to begin working with them more collaboratively. Marketing the programme broadly, being serious about sharing benefits from improvements, and finding one or two suppliers willing to pilot the programme and be advertised as success stories helped a number of organisations. SRM leaders was a decrease in the incidence or significance of supply disruption issues. Stakeholder engagement: Many key business unit stakeholders saw the value of collaborative relationships with suppliers long before Procurement or Supply Chain. With this audience, the challenge was proving that the Procurement or Supply Chain organisation could be part of the solution. Strong communication and coordination over time helped many study participants make that case and enabled business unit and SRM leaders to work together in identifying new opportunities and increasing the likelihood that they would be realised. Where business unit stakeholders were sceptical, SRM leaders focused on identifying stakeholders who believed in SRM and would allocate resources thus accelerating early projects and building a track record of success to engender broader support. Skills and tools: No SRM programme can be successful or build internal support unless the people tasked with making it work have the right skills and tools at their disposal. In top performing organisations, relationship leaders had strong general business skills such as communication, influencing, and project management in addition to the cost and negotiation skills traditionally prized in Procurement. Relationship management teams were quickly equipped with a toolkit that was logical and could be flexibly applied to drive value from relationships. Delivery of strategic, rather than just cost benefits: To justify the significant shift in mindset required by SRM, study participants needed to demonstrate a wide range of SRM benefits that were specifically differentiated from the benefits of existing sourcing practices. One key benefit often cited by 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 11

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17 Value Delivered By Strategic Supplier 34 Relationship Process and Tools Management Deployed in Major Organisations

18 Process and Tools Deployed Approaches to process All of the organisations we spoke with had developed an SRM process and toolkit. A number reported that by formalising their approach, it had immediately become more credible both internally and with suppliers. In some companies, SRM was considered an extension of the sourcing process and in the others it was thought of as a standalone process. In all companies, it was clear that individual and organisational attitudes and behaviours were perceived to be of equal importance to tools and mechanisms. However, tools were seen as a valuable means to improve the quality of interactions between the buying and selling organisations and a number were consistently identified as key for unlocking supplier value. A number of organisations applied SRM tools in two discreet phases. In the first phase, they applied performance management tools to relationships to provide clarified approaches to relationship governance, performance scorecards, and review meetings. In the second phase, they utilized more sophisticated tools to generate additional value, beyond what was agreed upon in the contract. Segmentation All study participants reported segmenting their supply base to identify the most important suppliers. Although, some respondents did not treat suppliers in the different segments any differently from an operational management perspective, in the top performing organisations, segmentation drove a differentiated approach. The Kraljic matrix was frequently the starting point from which segmentation models were developed, but most study participants went further. 2 The specific segmentation criteria most frequently mentioned by participants were: Spend: At the most basic level, almost every company in the study looked at forward spend, not past spend which has enabled them to focus on the suppliers that would be important to them going forwards. Value opportunities: One primary goal of their SRM programmes was to find additional sources of value in their relationships. As such, most study participants assessed the improvement areas that could drive benefits beyond contract commitments when selecting which suppliers to focus on. Dependency: Participants often considered their ability to economically source a new supplier and/or switch an existing supplier out. Risk and business impact: Many participants placed a heavy emphasis on how integral each supplier was to current and future business operations and competitive advantage. Strategic interdependence: Participants analyzed not just how important the supplier was for their organisation, but also how important their organisation was for the supplier. Where they identified an imbalance, many companies either looked to find a way to increase their importance to the supplier (e.g., diversifying or increasing spend, launching a new innovation, providing access to unique resources) or reduce their own dependence (e.g., finding additional suppliers). Relationship complexity: The more complex (number and type of contracts or goods) and interdependent (level and extent of interactions between individuals across company lines) the relationship with the supplier, the more likely study participants were to dedicate formal SRM resources toward its development and maintenance. Leading organisations have undertaken segmentation at regional and global levels for each category and consolidated the outputs into a centrally coordinated programme. All organisations refreshed their segmentation on an annual basis to ensure any internal or supplier changes were captured. 2 Kraljic, Peter. Purchasing must become Supply Management. Harvard Business Review: September October, Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

19 One thing we have done better than anything else is to be disciplined and keep information flow going. Keeping the basic processes going enables us to create value in our organisation. Head of Supplier Management, Consumer Packaged Goods Firm A typical segmentation model is shown below in Figure 2. In this model, there were three levels of active management of suppliers and a long tail where no centrally coordinated SRM was applied. Key tools and processes for unlocking value A number of participants reported that a key benefit of their SRM activities was that internal staff had a much deeper and objective understanding of the suppliers they worked with. Many tools contributed to this insight including supplier strategy analysis, supplier preferencing, and power and dependency. The SRM tools that were most consistently identified as keys for unlocking supplier value are summarised below. The full range of tools identified in the study are listed in the value levers element of the SRM value model in Section 6 (Figure 10). Relationship governance Clarification and documentation of roles, responsibilities, and interfaces on both sides of the relationship was a foundational step in SRM for all organisations in the study. Figure 3 shows an example supplier management team and Figure 4 shows an elevated governance structure. There were a number of approaches reported to allocating the important relationship leader role: The most frequent approach was for category managers to take responsibility for the commercial management of a number of the key suppliers within their category portfolio, with operational management undertaken by business stakeholders. For the most important relationships, the above responsibilities were supplemented with a small number (typically 2 20) of dedicated relationship leaders with a background in procurement. Tiers Breakthrough partners (c 5 10) Development suppliers (c 30 40) Performance suppliers (c 200) Characteristics High spend (both historic and forecast) Significant current and future opportunities for delivering value over time beyond the contract commitments (e.g., innovation or co-investment) Often, relatively high dependency on the part of the customer (e.g., limited market, key product input, or source of competitive advantage) Increasing spend (relatively high now and growing) Potential for delivering value over time beyond the contract commitments Current or potential dependency on the part of the customer Steady, moderate spend Primary source of value comes from the contract and current and future dependency is relatively low Relatively complex (e.g., multiple touch points) Implications Long-term (5 + years) relationship strategies/plans Joint performance measurements around strategic value, financial value, operational effectiveness, and relationship value agreed and tracked on a regular basis Proactive identification of and co-investment in potential value generating opportunities Formal, structured relationship governance Relationship development plans (most likely not as far reaching or long-term as plans with breakthrough partners) Joint performance metrics around all four value dimensions above Formal, structured relationship governance Annual business plans Joint performance metrics, primarily around financial value and operational performance Simple, but formal, governance structure Remaining suppliers (c 5,000 +) Low spend Primary source of value comes from the contract and current and future dependency is relatively low Not very complex (e.g., few touch points) No formal plans One-way performance metrics, primarily around financial value and operational performance Informal governance Figure Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 15

20 Process and Tools Deployed Supplier management team management one of the key inhibitors of value creation identified by suppliers in previous research. Relationship Sponsor Relationship Leader Performance scorecards Operational Performance Manager Commercial Manager The tool most frequently identified by participants as being critical for unlocking value from suppliers was the performance scorecard. As well as monitoring performance, this was seen as key for identifying improvement opportunities and measuring opportunity implementation progress. Functional Rep. 1 Functional Rep. 2 Functional Rep. 3 Figure 5 shows two different performance scorecard frameworks used by leading organisations from the study. While the frameworks differ in several respects, both incorporate what study participants termed critical aspects of measurement: Figure 3 Supplier Operational metrics focused on items such as cost, quality, and delivery (often quantitative items derived from ERP systems). Although these measures are based on hard facts and data often derived from existing systems, their The next approach was to assign stakeholders in business areas as relationship leaders. They were provided with training and support to better manage the commercial dimensions of the relationship and balance their technical knowledge. The most advanced organisations specifically recruited for this role with top suppliers. They sometimes hired people with a background in key account management (KAM) and put them into an SRM role. The KAMs were either sourced internally, from the broader market, or from current suppliers. The advantage of the latter approach is that their background in KAM enabled them to understand the supplier s motivation, their business model, and its constraints. Companies believed that this enabled them to control the relationship effectively. Most organisations assigned an accountable executive to sponsor each strategic relationship. This gave clarity to suppliers on executive roles and improved access to senior Supplier relationship management team Cross-functional (Commercial & Technical) & cross business unit Figure 4 Governance Structure Executive Sponsors Supplier ACME Joint Steering Committee Relationship Manager Relationship Manager Project execution teams ACME relationship management team Cross-functional (Commercial & Technical; x-bu) Team Project Team* Project Team* Project Team* Project Team* Team Leaders Team Members *Project team leads report to their respective relationship management teams 16 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

21 perceived weakness was that they did not give a full picture of what the companies could expect from their relationships going forward. Qualitative relationship health information collected using surveys of people involved in the relationship (from both the customer and supplier organisations). Adding data of this variety to the scorecard afforded organisations a richer perspective on performance and potential opportunities. Techniques used to strengthen these subjective measures included putting a confidence factor on individual scores; requiring written justification for red scores; and time limiting perceptions to the previous three months. Going beyond these two measures, some leading companies also tracked both the strategic value of the supplier relationship whether the relationship was meeting the overall needs of the company and the financial value realised often highlighting incremental contributions to revenue or cost savings above and beyond reduced prices secured in the sourcing process. The most sophisticated scorecards used by study participants were joint scorecards where buying organisations said, Instead of us measuring you and you measuring us, let s develop some measures where we re looking at our relationship jointly. We have set certain objectives where it s a joint effort maybe improving forecast information and it s not useful for us to evaluate each other, we need to evaluate ourselves jointly. None of the companies we spoke with used a scorecard that attempted to capture the complete range of SRM value identified in this study. Such a scorecard might look something like Figure 6 and the complete range of SRM value identified is shown in the SRM value framework in section 6. Illustrative performance scorecards Performance Scorecard Performance Scorecard Lagging measures PART 1: Operational Metrics Measurement (Quantitative Facts & Data) Criteria Weight Score 1. Product Quality 2. On-time Delivery 3. Total Cost Mgmt. 4. Payment Terms 5. Your Score + + PART 2: 360 Relationship Measurement (Qualitative Perceptions) Quality of Relationship Factors w/ Strategic Supplier 1 Business & cultural alignment Executive commitment and support on both sides Ethics, relationship trust and openness of communication Day-to-day working relationships at the operational level Growth potential and continuity in the relationship Relationship Strength Leading measures Lagging measures (outcomes) Leading measures (means) Strategic Value Contribution to product innovation Contribution to business process innovation / improvement Reduction in supply continuity risk Contribution to entering new markets Contribution to corporate social responsibility goals Contribution to brand equity Operational Performance Quality (e.g., PPM defect rates) Delivery (e.g., order to delivery cycle time) Flexibility (e.g., ability to respond to changes; speed of response to changes) Service level (e.g., time to resolve critical issues; end-user satisfaction) Admin Processing (e.g., invoice accuracy) Financial Value Total cost (of acquisition and ownership) Price stability Cost avoidance Asset Utilization Return on assets Return on investment Incremental profits or revenue generated Relationship Quality Level of trust Frequency and quality of communication Degree of mutual understanding Degree of strategic alignment Quality of joint problem-solving and conflict management Level of mutual commitment Figure Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 17

22 Process and Tools Deployed Structured review meetings Study participants reported that their organisations had instituted a set of structured and interconnected meetings with their top suppliers both to address the performance of the relationship (based on the scorecard results) and to plan for the future. The meetings typically fell into three tiers: Strategic review meetings: Annual or semi-annual sessions involving executives, technical subject matter experts, and relationship leaders from both sides. These meetings focused on sharing long-term plans, areas of investment over a multiyear horizon, market, regulatory, and geo-political trends for the purpose of identifying risks and opportunities. Often, the meetings also involved high-level evaluation of improvement initiatives underway, operational performance, key risks, and formal after-action reviews of significant initiatives or events in the relationship. At the most mature organisations, the outputs of these strategic review meetings were developed into action items and integrated into operational review meetings. Operational review meetings: Monthly or quarterly sessions involving relationship leaders and other individuals responsible for the day-to-day management of the relationship. These meetings focused on reviewing improvement initiatives and assessing operational performance and risks in more detail than at the strategic reviews. Unlike the ad-hoc meetings many organisations use to fire fight operational issues, the operational review meetings described by top performers were highly structured discussions focused on setting performance targets and managing performance levels. Critical issues were addressed in these meetings, but in the larger context of the entire relationship. Relationship debriefs: Annual sessions involving leaders from all aspects of the relationship. These meetings focused on Example scorecard structure based on value framework Realization of Business Value Cost reduction Lower cost of goods sold Lower overhead expenses Increased profit margin Revenue increase Incremental revenue Incremental profit Increased free cash flow Risk exposure reduction Lower supply disruption risk Lower quality and service risks Reduced reputation risks Lagging measures (outcomes) Realization of Business Benefits Demand / consumption reduction Specification simplification and/or standardization Access to new markets New or improved products leveraging supplier innovation Operational Performance Improved service levels Improved quality levels Improved efficiency and quality of administrative processing (e.g., invoice accuracy) Improved flexibility & responsiveness Use of Value Levers Frequency of value discovery and planning sessions Number of multi-year joint strategic plans with suppliers Level of trust Frequency and quality of communication Relationship Health & Quality Enablers Number and type of joint improvement / innovation initiatives underway Implementation of joint processes / procedures (e.g., joint demand forecasting) Degree of mutual understanding Quality of joint problem-solving and conflict management) Leading measures (means) Figure 6 18 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

23 1-3-5 year relationship strategies are increasingly used Part 1 Executive Summary A short, persuasive summary of future strategy Part 6 Risk Management Major internal and external issues and potential sources of risk and vulnerability Part 2 Key Information Sub-category strategy, supplier strategic contribution, and all critical data Part 7 Cost: Benefit Analysis Financial detail of business case, return on investment, value delivery, and cost reductions Part 3 Strategic Analysis Impact on current & future revenue, centrality to competitive advantage, dependency, supplier strategy, and relationship complexity. Part 8 Implementation Plan Details of the plan, timings, and change management requirements Part 4 Relationship Approach Relationship segment, likely relationship length, key opportunities, SRM value levers to be applied, and business value to be created Part 9 Governance Roles and responsibilities for supplier engagement and the ongoing relationship Part 5 Business Impact Cross-business, cross-functional, and supplier impact of the strategy Part 10 Supporting Information Appendices of supporting data, project management tools, and project charters Figure 7 identifying the successes of the relationship and capturing any lessons the partners had learned over the course of the year, incorporating them into new ways of working together. Study participants cited the foundation of trust, mutual understanding, and collaboration that developed over time between them and their most important suppliers as one benefit of the review meetings. After putting a regular, disciplined schedule of meetings in place, participants reported a dramatic increase in the amount of information sharing, enhanced ability to act on that information, and increased use of rigorous joint accountability loops and related tools to ensure that the identified improvements and opportunities were delivered and successes and failures were analysed and built on. Supply chain analysis and process re-engineering For study participants, the improvements and opportunities identified through scorecards and review meetings often resulted in structural analysis and challenged the existing supply chains and processes. This fundamental redesign of cost drivers repeatedly unlocked savings in the range of 10 30% for leading organisations. Study participants expressed that this level of change was rarely achievable through sourcing exercises alone, as a level of trust and understanding was required before suppliers and internal stakeholders were willing to make such fundamental changes. Whilst there is often a role for Procurement in supply and value chain analysis, internal and external experts in LEAN and Six Sigma are required to fully exploit these opportunities. Most organisations closely aligned their SRM activities with LEAN and Six Sigma programmes that were already underway in their company in order to secure resources. Relationship strategies Although only used by the more mature companies, a year relationship strategy or account plan was identified as 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 19

24 Process and Tools Deployed a key tool for formalising and agreeing on the approach to managing key suppliers. All participants acknowledged the value of formalising the relationship strategy and noted it as one of the few SRM tools that could provide a mechanism for planning and managing relationships beyond a restrictive oneyear cycle. However, resource constraints often prevented their creation. Typical contents of a relationship strategy are shown in Figure 7. When used, a well-developed relationship strategy provides a means of prioritizing opportunities, identifying risks and dependencies, and documenting governance. Study participants noted it as particularly important for suppliers that are used extensively across country, category, or business unit boundaries as it helped the organisation think more systematically about how to balance the needs of different stakeholders. A small number of the most mature companies in the study created joint strategies and plans with their most important suppliers, which they found extremely valuable for both planning and evaluating the relationship. 1 Current Subcategories 2 Current Suppliers Elements of a category level strategy 4 Potential Suppliers For some respondents, the relationship strategy was anchored in, or part of, a relevant long term category level strategy. These respondents looked at each category and asked themselves What will our customers want over the next three, five, and 10 years? Will the suppliers we have today be able to take that journey with us? How do we help them position for that? Will other suppliers be better? How do we find those suppliers and engage them early? As shown in Figure 8, the category level strategy typically documents the current subcategories and suppliers, new supply market technology, and potential suppliers. Also covered are internal issues such as end product roadmaps and volumes, technology roadmaps, forecast subcategory spend levels, and subcategory interdependencies. Technology The SRM leaders participating in this study put relatively little emphasis on technology and software tools for SRM and consistently emphasized the view that SRM success is mostly about mindset and skills. By contrast, many companies think of SRM primarily as a software tool for activities such as contract management and scorecard monitoring. This mirrors customer relationship management (CRM), in which best in class companies see CRM as fundamentally cultural, whereas the majority see limited results through focusing on an expensive software system and the data dimension. 3 New Supply Market Tech 5 Internal Governance Plans and budgets End productroadmaps End product volumes Internal tech roadmaps Subcat interdepends Pipeline of Agreed Sourcing and SRM projects Figure 8 20 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

25 Approaches to Measuring SRM Value 5

26 Approaches to Measuring SRM Value Overview of measurement approaches and practices Although the companies interviewed in the study are recognized as having relatively mature SRM programmes, their approaches to tracking and measuring the benefits delivered remain fairly nascent and unsystematic. While we expected leading companies to be engaged in formal measurement and reporting of benefits from SRM efforts, this study suggested that that is generally not the case. There are surprisingly few resources and little rigor applied to the measurement of SRM value. As a consequence, much of the value delivered is only known and understood by the people directly involved in managing specific relationships. Respondents pointed to four main reasons for a lack of formality and systematisation in their measurement practices: Executive Support: For many participating companies, SRM initiatives were launched with strong senior executive commitment reducing, and in many cases eliminating, the need for a highly quantitative business case focused on ROI or other financial targets. At these organisations, executive commitment was based on a strategic assessment that formal management of supplier relationships, and more collaborative partnerships with key suppliers, was imperative for success. Measurement difficulty: SRM delivered a broad range of benefits, including softer, intangible value, such as trust, understanding, and openness. Respondents reported that this softer value often led to some of the most important paybacks (e.g., supplier investments, suppliers going beyond stated contract terms and coming to customers with new ideas first); however, soft value was felt to be simply too difficult and time consuming to measure. Measurement bias: Some respondents felt that if their company increased the focus on precise quantitative value measurement, they would become fixated with the minutia of measurement and tracking. The fear was that the result of this would be reduced focus on and delivery of the softer value elements and a more tactical SRM programme that delivered incremental cost reductions only. They also worried that time would be diverted away from value delivery into measurement activities. Timescales to delivery: Some of the most significant benefits from SRM were delivered over a longer period of time than could be tracked by quarterly or annual scorecards, and therefore study participants found that many benefits were not being fully recognised or valued through their existing measurement systems. Leading organisations addressed this issue by modifying their scorecards to include reporting on both the short-term activities that drive toward quarterly targets and the longer-term projects that yield larger, but less immediate, benefits. Although many participants recognised that more formal measurement, even without exact quantification, would help demonstrate the value of SRM, there was still a high degree of confidence in the value of SRM and satisfaction in the results of SRM initiatives. SRM measurement practices employed Study participants reported utilizing five different practices to measure the benefits of SRM. Sometimes one approach was used exclusively, but frequently a combination of practices was employed. Practice 1: Individual supplier scorecards The most frequent method of measuring benefits generated by SRM was tracking improvements through scorecard and KPI performance at the individual supplier level. The measurements typically involved establishing a standard set of KPIs, baselining existing performance, and measuring improvements. The advantages of this practice include: Being relatively easy to employ Enabling cross-company comparisons (where the same metrics are used), and 22 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

27 The most mature companies reported that the impact of SRM is often communicated to executive leaders in a narrative format that either summarized improvements or documented success stories. Fostering a competitive spirit between suppliers. Leading organisations also reported aggregating data across scorecards to deliver formal enterprise-wide SRM reports and dashboards that track and report the consolidated improvement across all metrics. The acknowledged weakness of this approach was that most of the metrics are relative indicators of improvement, rather than quantifiable financial outcomes. (For more detail on supplier scorecards, see Section 3.) Practice 2: Existing procurement benefit measurement SRM improvements that resulted in cost reductions or avoidance were generally registered through the existing procurement benefit measurement systems. However, only a few leading organisations categorised specific savings as SRM generated. For the majority, this made it challenging to identify SRM savings generated at a supplier level and impossible at an aggregated SRM programme level. This practice contrasts strongly with sourcing, where all Procurement teams aggregate and report sourcing savings at both the category and organisational level. Aggregating value from sourcing and demonstrating it s impact on business metrics has been a key lever for gaining visibility, credibility, and influence with executives and ultimately resources for successful companies. Some respondents recognized that this lack of consolidation underplayed the contribution of SRM and reinforced organisational perceptions of sourcing as the main route to obtaining more value from third party costs. Practice 3: SRM specific measurement A small number of pioneering organizations in the study reported taking a different approach working with their finance team to agree on specific measures that addressed the broad range of benefits derived from SRM, beyond cost reduction and avoidance. At these companies, the agreed value measures were linked via KPI trees to overall business metrics. As part of this approach, these companies also set aggregated targets for SRM value delivery and created clearly defined alignment between their SRM goals and the organisation s At one major financial services company, in addition to looking for and tracking standard cost reductions generated by their SRM programme, they also employ existing activity-based costing models to determine the impact of SRM on business processes (e.g., the cost of producing customer statements). By taking this approach, the organisation has quantified supplier contributions to process enhancements into millions of dollars worth of tangible business value. To take their efforts a step further, the SRM team then links those cost savings directly to the profit and loss for each business area developing a compelling picture for senior management that ties the SRM programme directly to improved results on the company s financial statements. strategy, goals, and metrics (in terms of growth, product development, innovation, revenue, etc.). Practice 4: Use of case studies The most mature companies reported that the impact of SRM is often communicated to executive leaders in a narrative format that either summarized improvements or documented success stories. The use of compelling stories and case study detail provided a more nuanced understanding of successes and failures than quantitative data alone, and was often just as persuasive as numbers. These case studies were identified as a very powerful tool by a number of study participants who included them with procurement s more quantitative performance reports. The ideal, of course, is a mix of hard quantitative data and compelling case studies Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 23

28 Approaches to Measuring SRM Value According to the head of Supplier Relationship Management at one leading pharmaceutical company, You can create an executive presentation with slides in PowerPoint showing some numerical successes and accomplishments for individual relationships or your entire SRM programme and you ll get some traction when the numbers are good. But, sometimes the most powerful thing you can do to explain the value of SRM is sharing the success stories. For example, you might tell senior leadership, A supplier flew some of their top people in and we worked together day and night and came up with a diagnosis and some possible solutions. We solved it quickly and it led to some ideas as to how to improve an aspect of manufacturing testing so this doesn t happen again. That is the kind of stuff that is hard to capture in numbers, but really excites people. Practice 5: Risk reduction Measuring the value of SRM with respect to risk is particularly complex as it is innately difficult to report on events that were averted. However, some companies successfully addressed this challenge by building a historical baseline of adverse events such as supply disruptions, safety breaches, and reputational compromises. They then measured the trend downwards over time to assess the risk reduction delivered. Though the measurement remained somewhat subjective, it allowed the organisations to put a financial value on this aspect of SRM value delivery. Alternatively, participants described performing a qualitative assessment of current risk levels, then measured the improvement (the reduction) in the perceived level of risk, and, if desired, assigned an estimated financial value to that Problems with product design/specifications Coordination gaps across business units and internal functions Changes in business strategy Financial mismanagement Figure 9 Internal factors Marketplace factors Problems with reliability of infrastructure (i.e. transportation or communication) Fluctuations in supply and demand Changes in the competitive landscape Regulatory changes reduction of risk exposure. Categories of supply chain risks Supplier factors Problems with production capacity and/or capability Lack of control over supply chain Changes in business strategy Poor financial health Environmental factors Destruction/disruption from natural disasters Destruction/disruption from acts of war/terrorism Losses from criminal activity Instability due to political or economic turmoil Regardless of the approach, leading companies tended to focus on risk in the four primary categories described in Figure Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

29 SRM Value and Benefits 6

30 SRM Value and Benefits Overview of SRM value model In previous large scale surveys by Vantage Partners and Future Purchasing, respondents indicated that they believed they could realise 23 46% more value by managing suppliers more effectively. Yet, only a couple of the organizations in the study were tracking and measuring the impact of their SRM activities comprehensively. It is, therefore, impossible to prove or disprove this benefit range from the current study. All of the SRM leaders interviewed felt they had unlocked significant value as an outcome of their SRM activities, but as discussed in Section 5, most organizations did not have a holistic benefit measurement system to capture the value delivered. Figure 10 is a holistic SRM value model derived from the study interviews. It includes: Value enablers: the building blocks of collaborative working relations with suppliers Value levers: the tools, processes, and procedures used to generate business benefits (see Section 3) Business benefits: the tangible business improvements realised through the use of value levers Business value: the outcomes of business benefits that feeds into an organization s financial results Value enablers All of the organizations who participated in this study, and indeed most of the clients we have worked with in the past, reported that reaching a minimum threshold of mutual trust, mutual understanding, mutual respect, and open communication was a pre-requisite for the more tangible business value their organizations desired. And, study participants reported that these four value enablers were the key items that contributed to suppliers viewing the customer as an attractive company to do business with far more than dollars spent. Each of the four value enablers pictured in Figure 10 supports and is supported by the other three: Mutual understanding: A deep knowledge of each company s strategy, capabilities, and needs. Mutual respect: An appreciation of each other s capabilities and skills, and openness to learning from each other. Mutual trust: Prioritizing fairness and integrity in the relationship, and believing the other party does the same. Open communication: Enjoying a level of transparency between the organizations that enables raising challenges and problems early and dealing with them rapidly, in a way that enhances, rather than damages the relationship. Specific types of information shared in leading relationships included key account plans, strategies, business plans, and demand forecasts. While these four value enablers were often enhanced by implementing new practices (e.g., clarifying roles and responsibilities, implementing performance scorecards, applying contract management, and holding joint review meetings where information was shared openly) companies reported that making significant improvements required some fundamental shifts in the mindset of individuals who interact with suppliers on a regular basis (pictured in Figure 11). For historically adversarial relationships, it sometimes took more than a year before improvements were achieved and two or more years before the impacts of the improved relationship enabled the companies to increase the business value generated. Business benefits Once participants established collaborative relationships with their critical suppliers, they were able to implement some of the value levers in the framework and saw immediate results in terms of business benefits such as greater process efficiency, lower total cost of ownership, increased innovation, and reduced supply chain disruption. It was at this point that 26 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

31 All of the organizations who participated in this study, and indeed most of the clients we have worked with in the past, reported that reaching a minimum threshold of mutual trust, mutual understanding, mutual respect, and open communication was a pre-requisite for the more tangible business value their organizations desired. internal stakeholders began observing tangible results from their SRM activities. The most successful SRM programmes captured stories about these successes and the business benefits they generated and publicized them throughout the organisation both to senior management and business unit stakeholders to build support for continued investment in the programme. SRM value reported by study participants Business Value Business Benefits Value Levers Process efficiency Joint process redesign Supply chain effectiveness Reduced inventory Joint supply chain redesign Joint specification analysis Reduced costs Specification simplification Demand reduction Joint demand management Remuneration model redesign Favoured customer pricing Volume consolidation Increased Revenue Improved end user satisfaction Total cost reductions Reduced capital expenditures Service level improvement Quality level improvement Product innovation Joint process innovation Increased speed to market New market access Total cost modelling Shared investments Performance scorecards Joint review meetings Relationship governance structure Post-award contract management Preferred access to best talent Joint product design New technology access Shared marketplace insights Account Attractiveness Mutual Trust Open Communication Value Enablers Mutual Respect Mutual Understanding Strategic alignment/influence Joint strategic planning Supplier resource investment Gain sharing Reduced supply disruption Preferred capacity access Reduced Risk Exposure Fewer quality or service issues Balance of dependency Joint forecasting Supply chain visibility Reputation protection Joint risk management Gain sharing Figure Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 27

32 SRM Value and Benefits Old Mindset We are the customer and they are a vendor I need to ensure effective execution of day -to-day work My job is is to manage people (who report to me) Mindset shifts required New Mindset They are an extension of us and we are all colleagues I need to support our partners and enable them to manage the day-to-day work My job is is to manage effective relationships with external partners Key business benefits that study participants linked to reducing costs included: Process efficiency Supply chain effectiveness Reduced inventory Specification rationalization Demand reduction Post-contract price reductions Total cost reduction Reduced capital budget Figure 11 Supply Chain Management is a support function; my job is to keep my internal clients happy Business value Supply Chain Management has a strategic role to play; I need to work (along with our most critical suppliers) as a partner to the business lines Increased revenue Most companies in the study saw business revenues increase as a result of implementing SRM. However, they often found it very difficult to identify a specific amount and apportion it to a As already discussed, only a few leading organisations reported systematically measuring and aggregating the full range of business value delivered through their SRM activities. Many, however, attempted to capture (at least in an ad hoc manner) some aspects of the business value derived from their programmes. Reduced costs A number of companies felt that strategic sourcing had reached a point of diminishing returns with certain categories. The low-hanging fruit had been picked and continued savings from spend consolidation and competitive bidding were harder to come by. Thus, they increased their focus on SRM in order to find additional ways to reduce or avoid costs. At the level of individual relationships, study participants regularly delivered cost savings. For specific goods or services, this was often in the range of 10 30%; frequently generated through collaborative supply chain analysis, process re-engineering, changing specifications, or redesigning a supplier s remuneration model. One leading company that had aggregated their SRM benefits found that the cost savings delivered by their SRM programme increased exponentially year-by-year. In the first year of their programme, they realised substantial savings of $20m and by year four, that savings had increased to $350m. As a direct result of the value senior management placed on these cost savings, the organisation increased the number of dedicated supplier relationship managers in the Procurement function rising from two to 22 during the four year period. Another organisation had analysed all benefits registered through the Procurement measurement system over a three year period and found that 80% ($380m) had been created from existing relationships, rather than sourcing activities. 28 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

33 particular SRM activity. Many study participants reported that attempting to do so was politically sensitive and could create a barrier to future SRM activity. Key business benefits that study participants linked to the delivery of increased revenues included: Product innovation Speed to market New market access Strategic alignment/influence Supplier resource investment Reduced risk exposure Virtually every company in the study had experienced supply disruption that they felt could have been avoided, or at least better predicted and managed, had they had an adequate SRM program in place. This aspect of supply risk, along with managing dependency more broadly, was the most frequently volunteered reason for initiating an SRM programme. The types of supply risk that SRM was seen to impact tended to be dependent on the corporate and procurement specific risk frameworks used. Study participants noted several key areas of risk most frequently targeted for improvement, including: Supply disruption Product or service quality issues Dependency and lock-in Price volatility Reputation Empirical research on the impact of supply risk tends to focus on supply disruption. A key study published by Hendricks and Singhal in 2005 found that equity prices of firms experiencing supply disruptions underperformed their peer group by -40% during the two year period straddling a supply disruption announcement. At the same time, the volatility of share Internal factors Problems with product design/specifications Coordination gaps across business units and internal functions Changes in business strategy Financial mismanagement Problems with reliability of infrastructure (i.e. transportation or communication) Fluctuations in supply and demand Changes in the competitive landscape Regulatory changes Figure 12 Marketplace factors Categories of supply chain risks Supplier factors Problems with production capacity and/or capability Lack of control over supply chain Changes in business strategy Poor financial health Environmental factors Destruction/disruption from natural disasters Destruction/disruption from acts of war/terrorism Losses from criminal activity Instability due to political or economic turmoil price at these firms increased by 13.5% in the year after the announcement. Neither of these measures recovered rapidly following disruption announcements. High profile supply disruption examples tend to attract significant negative media coverage, and result in significant financial losses: Boeing: Plans to radically overhaul Boeing s supply chain for the new Dreamliner 787 aircraft sounded wise, but massive problems with component deliveries in 2007 led to a more than two-year delay in aircraft launch and some $2b in charges to fix supplier problems. British Airways: When the in-flight catering supplier Gate Gourmet sacked 770 employees in 2005, British Airways was left unable to provide meals to passengers and became embroiled in a high profile public dispute with the supplier. British Airways chief executive estimated the dispute to have cost the airline between $50 $60m Future Purchasing and Vantage Partners, LLC. All rights reserved. Value Delivered by Strategic Supplier Relationship Management in Major Organisations 29

34 SRM Value and Benefits One company that tracked incremental revenue value delivered as a result of its SRM programme calculated the additional value to be in excess of $1b annually. Timescale to delivering value A number of organisations reported some immediate improvement in value delivered following the implementation of an SRM programme (particularly through the use of several key value levers such as scorecards). However, the time required for relationships to start delivering significant costdown and risk-down value was typically 6 12 months, with revenue-up benefits often lagging behind by an additional 6 12 months. With some adversarial relationships, it took more than two years to build the relationship and 3 5 years to deliver concrete, business value (whether cost reduction, increased revenue, or risk reduction). Sectoral differences in benefit delivery There were few discernible differences in terms of timescales to value delivery between study participants from different sectors. However, in terms of overall commitment to SRM it appears that the fast moving consumer goods and technology participants were more advanced in embedding SRM into their organisations. They were generally more successful than other sectors in working with suppliers to increase revenue most visibly in the form of product innovation and improved speed to market. Oil and gas companies in the study received significant benefits from SRM in the past four or five years across all value types. They also put the more focus on measuring the value generated any of the other participating sectors. The pharmaceutical and financial sectors appear to be running lower profile SRM programmes with fewer resources and fewer suppliers in scope. This could be due to the greater relative focus they place on competitive sourcing. A functional exception to this observation is IT, where there is a clear emphasis on SRM across all sectors. Sharing SRM value with suppliers Not surprisingly, the approach to sharing benefits generated from collaboratively working with suppliers is inconsistent across the participants and often inconsistent within companies. Only a few leading companies had a formal policy for rewarding suppliers for their contributions to generating value and used it as an incentive for suppliers to generate and implement improvements. For the majority of companies, benefit sharing was often left at the discretion of individual supplier management teams and negotiated with suppliers on a case-by-case basis. A regular outcome was for the buying organisation to take 100% of the benefits, but help suppliers leverage the learning with their other customers where the supplier could realise the full benefit themselves. For some companies, this help extended to assistance with marketing, endorsements, or white papers to generate new opportunities for the supplier. At the other extreme, participants shared a number of stories where the supplier realised the full benefits of their improvement ideas for the first year and then shared the benefits with the customer thereafter. Regardless of their approach to sharing the benefits of opportunities identified as a result of an SRM programme, study participants expressed a clear desire to ensure that supplier contributions to, and investments in, joint projects did not impact the supplier s margins to protect account attractiveness. 30 Value Delivered by Strategic Supplier Relationship Management in Major Organisations 2010 Future Purchasing and Vantage Partners, LLC. All rights reserved.

35 Building the Business Case for SRM 7