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State of Flux: An Update on the Current State of Supplier Relationship Management

I had the opportunity to speak at the annual SRM Summit coordinated by State of Flux, led by their leader Alan Day.  Alan spoke on insights from their annual SRM “book”, which included survey results on the current state of SRM.

Alan presented the six pillars of SRM and provided an update on these.  Here are the six pillars:

Value – Does procurement have a sales pitch to sell SRM internally to the organization?  What does your procurement team pitch when they talk about SRM – most people can’t even begin to understand how to explicate value!

Engagement – have you got your key stakeholders on board – and the three key stakeholder groups include suppliers, operational stakeholders, and the business.  But in general we are good at recognizing the operational stakeholder, and the business.  But most companies have NOT done a good job of recognizing voice of the supplier?

Governance – is there a solid approach for supplier segmentation? This involves building a strong model for governance and oversight and ensuring everyone understands how it works, and often use only one or two criteria – there should be 15 different criteria.  Does the supplier see you as strategic?  If they don’t  – you are up the creek!

People – how will you treat these relationships for strategic, global, strategic, local, and each requires a treatment strategy and a process around that.

Collaboration – 360 results, key account plans, and is there a plan for how I will allocate myh spend – and I will sell you X in a sales plan – and signed off by boss, and tied to my bonus for the sales facing person.  We want a JOINT one, where we both sign off – our sales person is trying to increase sales by 10%, and we want to reduce by 10%, and they will fight to achieve that number.  A joint account plan with strategc suppliers is key.

Technology – Innovation management, relationship management, risk management, sustainability.

The survey methodology segments the 405 respondents into three groups:

Only 10% of people fall into the LEADERS (39) category, and have to be established in five of six categories. described above  Next are the FAST FOLLOWERS, who are advanced in 4 of the key issues.  Over three quarters of organizations are in the “FOLLOWERS” category.  Overall, Technology and People are the categories with the weakest capabilities.  Here are a few facts from the survey:

  • 47% have developed an SRM value prop.
  • 42% of respondents report financial benefits of more than 4% through SRM.
  • 41% of companies have successfully reduced risk through SRM.
  • Senior stakeholder engagement remains key.  Senior management support for initiatives has fallen from 75% in 2015 to 55% in 2019.
  • Supplier support for SRM is still healthy but down from around 85% in 2015 to 72% in 2019.
  • 98% of companies now segment their suppliers, but only 68%have treatment strategies. This means that we need to be more robust in conversations, and have an open conversation with contractors regarding what good performance looks like!
  • 91% have governance models for over 50% of their supply base.
  • Only 24% of companies have done people and skills development in SRM– and most of that is negotiation training!
  • Technology for SRM is abysmal.  About 86% of organizations mainly use Excel to handle supplier management information, 24% have no other technology, and only 6% are fully satisfied with the technology that supports SRM.
  • For collaboration, 51% say SRM has improved collaboration, with 42% optimistic for the future.  About  53% say mutual trust has improved, and only 17% of organizations have joint plans in place for the account.

Alan also shared his views on what it takes to become a “Customer of Choice”.   What makes you a customer of choice?  1). Money- are you a source of profitable revenue for the supplier?  2) Brand alignment- does the supplier want you as a customer?  3) Behavioral side of the relationship.  For the first issue – Alan asked who gets up in the morning to get a paycheck?  Money is NOT a motivator and it becomes a factor only when the customer doesn’t pay you.   Once the suookuer has your work – they deserve to get paid – and unless you delay payment or AP problems – it is demotivating.  But money over time is NOT a motivator.  Once you get to know the brand and understand what is under the hood, the appeal is less, and you take the brand for granted.  So you are only left with behavior – and often companies put no effort into what the supplier experiences when they deal with procurement, or how our people are trained to deal with suppliers, especially the operational teams.

Alan also disucssed the importance of a joint operating sales plan.  “If a supplier is a strategic partner, we need to see how to improve them, but also how we can help them achieve their target on the joint account plan.  It is a key part of that joint account plan.  Most organizations only source about 20% of their spend each year.  I am cynical about the value of sourcing, given how much time and effort we put into it – and it is not worth the time and effort we put into it, and value is being eroded.  I am cynical about RFP’s, and I believe they are dead – but I think negotiation should be like it is with a sibling, should be tough, harder, and get along at the end of it, with no blood on the walls.  What is the cost increase for suppliers to respond to our RFP’s – and are we increasing the market cost of doing so?    There is more value in managing the 80% rather than the 20%.”

Overall, this was an extremely valuable summit.  I hope to be able to attend again next year!