Supplier Relationship Management
Ensuring the best prices through strategic sourcing is no longer perceived as a strategic capability of the procurement function. As a result of further outsourcing of non-core competencies, organizations are starting to realize that they have become more reliant on suppliers in terms of innovative power, security of supply, corporate social responsibility, and ongoing cost savings. Strategic partnerships are at the top of the corporate agenda of many global organizations and Supplier Relationship Management (SRM) is seen as one of the few remaining procurement topics that can still make a significant difference. But many organizations encounter difficulties in initiating, developing, and managing partnerships. In particular, leadership and soft skills are mentioned as primary reasons for failure, alongside technical & functional competencies. We initiated a study on SRM to gain a better understanding of the typical challenges involved and to determine how supplier capabilities drive competitive advantage.
A CPO roundtable, desk research, an online survey, and expert interviews were input for our research. Below, we summarise the ten key findings of our study report:
1. The most important SRM objectives are leveraging supplier capabilities, delivering cost savings, and reducing supply risk exposure.
2. Approximately 60% of the respondents have a formal segmentation process in place, with spend size, product/ service importance, and risk exposure as the most important segmentation dimensions.
3. While the benefits of SRM are acknowledged, the average SRM maturity level is still low.
4. The top-three challenges respondents encounter are an overemphasis on cost reduction, a lack of specific SRM competencies, and insufficient alignment between the business, procurement, and supplier.
5. Typical best practices are quantification of benefits and costs (ROI), proactive and two-way performance management, and documented supplier strategies per segment.
6. Benefits measurement, executive sponsorship, and strategic coherence are indicated as the most critical success factors.
7. Technical/functional, relational, and developmental competencies must be balanced and continuously developed.
8. Innovation, sustainability, legality, and resilience are seen as the key drivers for SRM value creation.
9. Current SRM programs already contribute to performance management and risk exposure reduction.
10. The respondents indicate that there is a positive correlation between the presence of SRM and an increase in market share, responsiveness to market changes, increased return on investment, and shortening order fulfillment lead times.