Brighton Landing West 10 Guest Street Boston, MA USA

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1 New trends in SRM 3 April 2012 Brighton Landing West 10 Guest Street Boston, MA USA This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, or in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. Copyright 2012 by Vantage Partners, LLC. All rights reserved.

2 About Vantage Partners Mission: Drive measurable business results by transforming the way companies negotiate with, and manage relationships with, key business partners Practice Areas: Sourcing & Supplier Management; Strategic Alliance Management; Key Account Management Spin-off of the Harvard Negotiation Project Faculty at Harvard University, the Tuck School of Business at Dartmouth, and the US Military Academy at West Point Leaders in international conflict resolution through CMG (now part of Mercy Corps) Copyright 2012 by Vantage Partners, LLC. All rights reserved. 1

3 Vantage Partners publications 2

4 Top five trends in SRM 1 Close alignment of sourcing and negotiation with supplier relationship management 2 Focus on cross-functional engagement 3 Focus on innovation 4 Investment in people & soft skills 5 More robust measurement Copyright 2012 by Vantage Partners, LLC. All rights reserved. 3

5 1 Close alignment of sourcing and negotiation with supplier relationship management 4

6 Aligning related but often disconnected processes Business Strategy Category Management Strategic Sourcing Supplier Relationship Management Copyright 2012 by Vantage Partners, LLC. All rights reserved. 5

7 Alignment across category management, SRM, and negotiation strategies & effect on results Copyright 2009 by Vantage Partners, LLC. All rights reserved. pçìêåéw=ommv=s~åí~öé=m~êíåéêë=däçä~ä=píìçó= áåîçäîáåö=çîéê=rmm=åçãé~åáéëk S

8 2 Focus on cross-functional engagement 7

9 SRM success depends on internal relationship mngmt as much as external relationship mngmt What can suppliers do to help? Develop & deepen partnerships with suppliers Develop & deepen partnerships with internal business partners What does the business need? Copyright 2012 by Vantage Partners, LLC. All rights reserved. 8

10 Strategic SRM requires coordination and alignment with suppliers and internally ^ëá~ `ìëíçãéê ^ãéêáå~ë bjb^ ^ëá~ pìééäáéê bjb^ Mixed messages; supplier confusion däçä~ä=mêçåìêéãéåílpìééäó=`ü~áå oca péêîáåé=aéäáîéêó p~äéë Mixed messages; compromised trust j~êâéíáåö iéö~ä nì~äáíó=^ëëìê~ååé cáå~ååé j~êâéíáåö oca lééê~íáçåë nì~äáíó=^ëëìê~ååé cáå~ååé Missed opportunities Inefficiency and increased risk Lost leverage Copyright 2012 by Vantage Partners, LLC. All rights reserved. 9

11 Illustrative cross-functional governance structure for strategic supplier relationships Executive Sponsors pìééäáéê ^`jb Joint Steering Committee Supplier relationship management team ACME relationship management team Cross-functional (Commercial & Technical) & cross business unit Relationship Manager Relationship Manager Cross-functional (Commercial & Technical) & cross business unit Team Leaders Team Members Project team* Site / Project teams Project team* Project team* Project team* GmêçàÉÅí=íÉ~ã=äÉ~Çë=êÉéçêí=íç=íÜÉáê=êÉëéÉÅíáîÉ=êÉä~íáçåëÜáé=ã~å~ÖÉãÉåí=íÉ~ãë Copyright 2012 by Vantage Partners, LLC. All rights reserved. 10

12 3 Focus on innovation 11

13 How frequently customers and suppliers work with each other on innovation projects NMMB Buy-side respondents Sell-side respondents méêåéåí~öé=çñ=oéëéçåçéåíë TRB RMB ORB MB Never Rarely Periodically Regularly and often Source: Ongoing global research conducted by Vantage Partners, in partnership Copyright 2012 by Vantage Partners, LLC. All rights reserved. with IACCM, and ISM. based on over 500 responses. 12

14 Degree of untapped potential customers & suppliers for additional innovation from/with suppliers Buy-side perceptions Sell-side perceptions SB SB PVB RRB Little to none A significant amount A great deal PSB RUB Source: ibid. Copyright 2012 by Vantage Partners, LLC. All rights reserved. 13

15 Companies that engage in more innovation with suppliers, report higher ROI from their efforts Roughly what percentage of innovation at your company currently comes from your suppliers, or from joint collaboration with suppliers? RMB QMB PMB OMB NMB MB Average across Responses Companies estimating ROI from innovation from/with suppliers is MUCH LOWER than internal innovation efforts Companies estimating ROI from innovation from/with their suppliers is MUCH HIGHER than internal innovation efforts Spearman s Rho: Source: ibid Copyright 2012 by Vantage Partners, LLC. All rights reserved. 14

16 4 Investment in people & soft skills 15

17 What does the relationship in SRM mean? Not this We play golf together We avoid disagreement or conflict We shield suppliers from competitive pressure We don t hold suppliers accountable for commitments and performance We sacrifice our obligations to our stakeholders We are naively trusting But rather this We treat suppliers with the courtesy and respect due to all people in all our interactions We are candid, and able to disagree (even forcefully), withoutbeing disagreeable We hold ourselves to the same standards as our suppliers We actively search out opportunities for mutual benefit We actively seek to cultivate mutual trust Copyright 2012 by Vantage Partners, LLC. All rights reserved. 16

18 Supplier relationship management strategies Demanding e~êçò píê~íéöáå= `çää~äçê~íáçå Adversarial Cooperative ^=Åçããçåäó=éÉêÅÉáîÉÇ=Äìí= Ñ~äëÉ=ÅÜçáÅÉ pçñíò Accommodating Copyright 2012 by Vantage Partners, LLC. All rights reserved. 17

19 Partnering principles at a glance The ability of individuals to collaborate effectively is shaped to a large extent, for better or worse, by their organizational environment Mutual Trust Open Communication Mutual Understanding Business to business collaboration & relationship management Joint business planning Joint and/or aligned investment Integration of operations Risk and reward sharing Formal governance Mutual Respect Interpersonal collaboration & relationship management Treat people with respect, not as means to an end Rely on persuasion not coercion, & be open to persuasion by others The success of business relationships between organizations ultimately depends heavily on the quality of collaboration among individuals Acknowledge others contributions, express appreciation; celebrate joint success Invite feedback Copyright 2012 by Vantage Partners, LLC. All rights reserved. 18

20 5 More robust measurement 19

21 Benefits of strategic partnerships with suppliers For customers Preferred access to supplier s best people Increased operating efficiencies Lower costs Improved quality Enhanced service Influence over supplier investments & technology roadmaps Preferred access to supplier ideas Increased innovation from and with suppliers, leading to lower costs and incremental revenue Sustainable competitive advantage For suppliers Greater visibility into customer purchasing plans Increased operating efficiencies Longer term customer commitments; greater predictability of future business Increased scope of business and revenue Lower costs of sales; increased margins Opportunities to develop, pilot, and showcase innovative solutions Deeper insights into customer strategy and plans; ability to align investments leading to increased ROIC Sustainable competitive advantage Copyright 2012 by Vantage Partners, LLC. All rights reserved. 20

22 SRM value framework Business Value Business Benefits Value Levers Reduced costs Process efficiency Supply chain effectiveness Reduced inventory Specification simplification Demand reduction Joint process redesign Joint supply chain redesign Joint specification analysis Joint demand management Remuneration model redesign Improved end user satisfaction Favoured customer pricing Total cost reductions Reduced capital expenditures Service level improvement Quality level improvement Volume consolidation Total cost modelling Capital Shared spend investments reduction Performance scorecards Joint review meetings Relationship governance structure Post-award contract management Value Enablers Mutual Understanding Mutual Respect Product innovation Preferred access to best talent Increased revenue Joint process innovation Increased speed to market Joint product design New technology access Open Communication Mutual Trust New market access Shared marketplace insights Strategic alignment/influence Joint strategic planning Supplier resource investment Gain sharing Reduced risk exposure Reduced supply disruption Fewer quality or service issues Preferred capacity access Joint forecasting Supply chain visibility Balance of dependency Joint risk management Reputation protection Copyright 2012 by Vantage Partners, LLC. All rights reserved. Gain sharing 21

23 Illustrative scorecard metrics EçÑÑÉêÉÇLáãéäÉãÉåíÉÇF=íç=ÅÜ~åÖÉ=ÅìëíçãÉê= ëìäãáííéç=l=~ééêçîéç oéçìåíáçå=áå=éä~åí=ççïåjíáãé oéçìåíáçå=áå=epb=áååáçéåíë cáå~ååá~ä=s~äìé fååêéãéåí~ä=êéîéåìé=ñçê=åìëíçãéê fååêéãéåí~ä=êéîéåìé=ñçê=ëìééäáéê fååêé~ëéç=ã~êöáåë=ñçê=ëìééäáéê oéçìåéç=`ldp=ñçê=åìëíçãéê fååêé~ëéç=ol^lolf`=ñçê=åìëíçãéê=~åç= ëìééäáéê lééê~íáçå~ä=méêñçêã~ååé o~íáç=çñ=~åíì~ä=íáãé=êéèìáêéç=ñçê=éêçàéåí= ÅçãéäÉíáçå=îÉêëìë=éä~ååÉÇ p~íáëñ~åíáçå=eééê=ëìêîéóf=çñ=éåçjìëéêë=ïáíü= çê=ãééíáåöë oéä~íáçåëüáé=nì~äáíó cêéèìéååó=çñ=çáëéìíéëi=~åç=íáãé=íç=êéëçäìíáçå qê~åëé~êéååó=çñ=åìëíçãéê=éä~åëlñçêéå~ëíë=íç= ëìééäáéê qê~åëé~êéååó=çñ=ëìééäáéê=åçëí=ëíêìåíìêé=~åç= ÑìíìêÉ=éä~åë=íç=ÅìëíçãÉê oéëìäíë=çñ=åìëíçãéêjëìééäáéê=ëí~ññ= Åäáã~íÉ= ëìêîéóò Copyright 2012 by Vantage Partners, LLC. All rights reserved. 22

24 Vantage Partners A spin-off of the Harvard Negotiation Project, Vantage Partners helps companies achieve breakthrough business results by transforming the way they negotiate with, and manage relationships with, their suppliers, customers, and alliance partners and the way they collaborate internally across business units and functional groups. 10 Guest Street Boston, MA USA T: F: jwadd@vantagepartners.com 23