SIX PILLARS FOR SUCCESS

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1 SIX PILLARS FOR SUCCESS 2013 GLOBAL SRM RESEARCH REPORT Executive summary

2 COPYRIGHT 2013 STATE OF FLUX LIMITED State of Flux Limited has asserted the right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the copyright owner. INFORMATION DISCLAIMER The information contained within this report is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Publication date: November 2013 Publication name: Six Pillars for Success 2013 Global SRM Research Report

3 EXECUTIVE SUMMARY Once again, the vast majority of companies are reporting progress in developing, embedding and gaining benefit from their SRM programmes. However, some serious challenges remain. The focus of SRM remains split between programmes that put more emphasis on contract and performance management to assure the value negotiated in contracts is delivered, and programmes that build on those foundations but are looking for more collaboration with suppliers to create new value. The areas showing the most improvement are now more related to outputs such as trust and collaboration. The areas making the least progress still include some of the key enablers for successful SRM, such as investment in training, and information and technology. The barriers to progress are much the same as previous and are focused around limited budgets, distractions caused by business change and insufficient stakeholder engagement. Innovation remains a challenge as it is once again reported to be making slow progress. There are clear indications that SRM will become more important in the next 12 months and beyond, with it making a more important contribution to key strategic objectives. BUSINESS DRIVERS AND VALUE This year, risk has been identified as the most important business issue driving investment in SRM. While cost reduction and cost avoidance remain priorities, customer of choice related business drivers have also gained in importance. The level and range of tangible benefits are increasing, notably in supplier service levels, supply chain efficiency, impact on profit margins, risk reduction and cost avoidance. Leaders are almost twice as likely to be experiencing benefits in areas such as sustainability, access to the best supplier resource, and joint product or service development. Benefits being delivered are well aligned to the business drivers, although this may well be serendipitous, as little seems to be done to ensure a clear line of sight between SRM value and business objectives. Around 25% of respondents (34% of leaders) report post contract SRM related benefits to be worth 6% or more of the contract value. However, capturing and reporting benefits remains a challenge, with 32% of respondents not knowing what the benefits are. The gap between leaders and followers reflects the trend in previous years. It continues to grow both in terms of direct financial and non-financial benefits, and indicates the link between the investment leaders are putting into their SRM practices and the results they are achieving. Customer of choice discretion is certainly exercised by suppliers, as evidenced by the descriptions of the benefits received on the buy side and provided by the sell side global SRM research report 3

4 STAKEHOLDER ENGAGEMENT AND SUPPORT While respondents have consistently reported good progress in achieving stakeholder engagement and support, the evidence suggests there is still a lot of work to do. None of the three key stakeholder groups identified executive and senior management, business and operational stakeholders, or suppliers are fully engaged by more than 50% of respondents. Leaders have a much higher level of engagement but still not at the level it needs to be. Stakeholder engagement is almost impossible without having a clear understanding of what the SRM value proposition is. Overall, 43% of respondents have created a value proposition. However, only 14% have communicated this to all impacted stakeholders. There is a better understanding of how strategic relationships would benefit both the buy and the sell side. At the moment, 25% of the SRM programmes the sell side are engaged in, are not with customers they regard as strategic. GOVERNANCE AND PROCESS Governance and process has seen the most improvement since 2012 for both leaders and followers. Single point accountability for the development and implementation of SRM is increasingly evident through the appointment of process owners. Segmentation of the supplier base is now common practice for most organisations. More than eight out of ten respondents say they formally segment their suppliers. The variation in approach is now more to do with the criteria that are used and the number of segmentation tiers that are thought to be appropriate. An increasing proportion of external spend is coming within the scope of SRM, with almost 60% of respondents reporting that more than half of their third party spend is covered by SRM. Developing the appropriate SRM operating model is making progress. Last year this was one of the areas making the least progress. This year, over 50% of respondents report that progress is being made. However, it still remains a problematic area for many. The survey has sought to establish what proportion of respondents key supplier group has robust contract and performance management in place. The feedback tells us only 48% of respondents have effective contract management in place for more than half of their key suppliers. For performance management the figure is only 38%. PEOPLE AND SKILLS Investment in training, and the development of an end to end talent and organisational effectiveness approach, is still a major challenge. While SRM is increasingly recognised as a distinct role by more companies, it is not always being supported by the creation of formal job profiles, skills requirements, training solutions and performance management. Organisations are increasingly making supplier relationship managers the focal point of the relationship but are also recognising the need for effective teamwork. Nearly seven out of ten buy side organisations are making use of cross functional teams to help manage key supplier relationships. The skills required to deliver effective SRM and real business value are now more fully understood. However, what this reveals is a significant gap between demand (for training in important skills) and supply (the provision of that training). The biggest gaps are for the relationship management skills such as influencing, communication and strategic thinking global SRM research report 4

5 INFORMATION AND TECHNOLOGY Technology as a key enabler for SRM remains a concern. Dissatisfaction levels have increased, with the proportion of respondents reporting that IT supports SRM very poorly increasing from 4% in 2012 to 20% in The use of IT systems, software or applications to support SRM has not increased from the low level reported in For those companies making use of existing IT, the majority report it to be poor or very poor in meeting the needs of SRM. The criticisms have remained broadly the same over this period also. These are focused on a lack of required functionality, information having to be gathered from different systems, and no access to systems for stakeholders or suppliers. From an industry sector perspective, FMCG companies appear to be making most use of IT, with interestingly the IT / high tech sector making the least use. In the absence of effective IT solutions, the majority of organisations are still relying on the use of shared drives and tools such as SharePoint to store and share information. In terms of scorecards and reporting, most respondents are currently using Excel spreadsheets. RELATIONSHIP DEVELOPMENT AND CULTURE Important relationship attributes are increasingly understood and being developed, but truly innovative relationships are rare. Successful relationships are characterised as being open and transparent, innovative, strategically and culturally aligned, trusting, collaborative, and behaviourally mature. Fundamental to openness and transparency is the willingness to share information. The type of information being most commonly shared is operational. There is also a noticeable reduction in the proportion of buy side respondents sharing more strategic information as compared to Innovation is still a real dichotomy. It is consistently identified as one of the most important elements of the SRM value proposition. However, difficulties at the implementation stage remain. This view of slow progress in making relationships truly innovative is broadly confirmed by the sell side, although three quarters of them say that being part of an SRM programme has helped them present innovative ideas. For relationships to function well, it s important that sufficient strategic and cultural alignment is achieved. Less than one in five buy side companies are using a 360 degree relationship assessment tool to baseline and develop more strategic and cultural alignment. Trust is identified by both the buy and the sell side as the most important attribute in a relationship, and the most important thing to achieve SRM success and real business benefit. Collaboration has become almost the watchword of SRM. Around 40% of buy side companies report that they collaborate with suppliers on a regular basis. Half of these claim it is business as usual global SRM research report 5

6 REQUEST YOUR FULL COPY OF THE REPORT The 2013 SRM report is now out. This year is the fifth consecutive year State of Flux has published this global research report, which draws responses from 425 global organisations. Once again, for the second year running, the report includes perspectives from the sell side on how SRM is being received by suppliers. A new element introduced this year is the SRM index which will enable companies to measure and report on progress. There is a wealth of data, analysis and opinion on these and other topics in the 166 page report; alongside revealing case studies from some of the world s leading companies. Call us on +44 (0) or us at enquiries@stateofflux.co.uk if you would like to recieve a full copy of the report.