6. Supplier Relationship
Management
Session Topics
Increasingly used to deliver total
cost savings
Enabler for Innovation and Revenue
/ Growth Enablement SRM strategy and value proposition
SRM performance and building the case
Motivates suppliers beyond the
checkbook SRM Capabilities and Practices
Aligning SRM with category
Challenge to implement because of
management, supplier compliance, etc.
existing operating models and skills
SRM transformation lessons learned
NOT a software solution or “CRM’s
SRM technology enablement
evil twin”
Transact / Manage &
Design Source
Fulfill Develop
7. What is Supplier Relationship
Management (SRM)?
“Key processes, definitions, tools, and roles to drive
coordinated proactive management of suppliers across the business”
Supplier Performance Supplier Development
Supplier Stratification SRM Governance
Management and Collaboration
How should supplier How should supplier-facing How should supplier How should capabilities of
relationships be stratified staff be organized and performance be managed existing suppliers be
based on strategic internal collaboration and across different supplier developed to deliver
importance to prioritize supplier interactions be types and strata to continuous improvement
resources and tailor conducted? maximize performance? and ongoing cost
management processes? reduction?
• Supplier Stratification • Team Structure and • Function KPI • Supplier Development
Definition Roles Development Needs Definition
• Supplier Stratification • Ongoing Governance • Supplier Performance • Supplier Development
Criteria • SRM Competency Target, KPI and Program Definition
• Supplier Stratification Management Scorecard Definition • Ongoing Supplier
Process • Ongoing Supplier Development
Measurement. Includes
Cost, Quality, Risk, etc.
Executive Supplier Scorecard Supplier Name
Executive
Strategic
Company-
Management
Executive
Management
Team Roles
Executive
Sponsor
Executive
Sponsor
Executive
Executive
Sponsor
Executive
Sponsor
Executive
SRM Lead:
Account Manager:
Functional Area / Category:
Site:
Intellectual
capital
Company Supplier Supplier Contact: Scorecard Date:
Wide Partners Management
Team Roles Sponsor Sponsor
Status Definition Supplier Representatives:
Strategic Team Roles Good Meets or exceeds performance target
Enterprise
Partners
Relationship
Relationship
Relationship
Management Lead
Relationship
Relationship
Management Lead
Relationship
Fair
Poor
Does not meet performance target; acceptable variance; improvement needed
Unacceptable variance from performance targets; action required
Company Representatives:
Joint sharing Joint
80% Leads Roles Management Lead
Relationship Management Lead
Relationship
Invalid Invalid percentage data has been entered into the cell
Relationship
Financial
Value Strategic
Leads Roles
Leads Roles
Company
Management Lead Supplier
Management Lead KPIs Metrics Performance Targets Performance Trend
Supplier Score
(Scale of 1-10)
Comments
capability process
Business Office Roles Operations Management Team Roles Metric Metric Data Score Unaccept- Last Last Last One Qtr Metric KPI
investment improvement
Accept-
KPI
Target
Multi-
Multi-
KPI Wt. Metric Today
Strategic Suppliers Wt. Total Source Range able Range able Range Yr Qtr Mo Trend Score Score
Suppliers Business Office Roles Operations Management Team Roles
of Supply -
Assurance
≤ ≥ h
Business Office Roles Operations Management Team Roles
Delivery
On time delivery percentage 50% tbd 0 - 100 80 81 - 89 90 90 80 85 90 9.0
Contract Communications Operations Initiative Risk 15%
Management
Contract
Management
Management
Communications
Management
Management
Operations
Management
Management
Initiative
Management
Management
Risk
Management
Delivery conformance
Additional available capacity
50%
56%
100% tbd
tbd
0 - 100
0 - 100
≤
≤
80
80
81 - 89
80 - 89
≥
≥
90
90
80
50
78
75
85
80
95
90
h
h
9.5
9.0
9.3
supplier
Environment /
Assurance of
Communications
Contract Operations Initiative Risk
Capability Systems &
Business
collaboration
Supply -
Company Company
Management Company
Management Company
Management Company
Management Management 15% ≤ ≥ i
Core
Core Suppliers Supplier Supplier Supplier Supplier Supplier
Financial stress
Credit score
33%
11% 100%
tbd
tbd
0 - 60
0 - 20 ≤
48
16
49 - 53
17 ≥
54
18
40
15
54
16
58
17
50
18 h
8.3
9.0 8.8
Suppliers
Financial Legal & Audit Customer
Rejection rate
Weighted non-comformance rate
26% tbd 0 - 100 ≤
≤
80 81 - 89 ≥
≥
90 70 75 80 90 h
h
9.0 acquisition process
Escalation Performance 26% tbd 0 - 100 80 81 - 89 90 80 83 85 91 9.1
Performance
Financial Satisfaction
Customer Management Management
/ CAR
by supplier Value integration
Quality
Management Support Audit
Legal & Management Escalation Performance 25% Process chage 16% tbd 0 - 60 ≤ 48 49 - 53 ≥ 54 40 45 50 60 h 10.0
Performance
Financial Support Satisfaction
Customer Management Management
20% Management
Company Company & Audit
Legal Management
Company
Satisfaction Escalation
Company Performance
Company Audit rating 16% tbd 0 - 60 ≤ 48 49 - 53 ≥ 54 30 35 40 42 h 7.0
Basic Performance Support Management Management
Financial
Value
Basic Suppliers
Transactional Suppliers
Suppliers
Management
Supplier Supplier Management
Supplier Supplier Supplier
Supplier 1
Auidt response time
Response to standard request
16%
9%
100% tbd
tbd
0 - 60
0 - 100
≤
≤
48
80
49 - 53
81 - 89
≥
≥
54
90
40
60
43
70
45
80
56
91
h
h
9.3
9.1
8.9
creation
Supplier 2
Supplier 3
Response to emergency request
Communication about potential
problems
9%
9%
tbd
tbd
0 - 100
0 - 100
≤
≤
80
80
81 - 89
81 - 89
≥
≥
90
90
90
70
80
75
70
76
60
78
i
h
6.0
7.8
opportunity
Flexibility to change 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 80 85 85 91 h 9.1
Roles Company Team Member Supplier Team Member
≤ ≥ h
Non-Preferred Customer services 9% tbd 0 - 100 80 81 - 89 90 70 75 80 85 8.5
Services
15% Efficiency in providing information 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 90 80 70 60 i 6.0
Local support efficiency 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 85 91 h 9.1
Production lead-times 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 90 80 70 60 i 6.0
Competitiveness of Production
9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 85 90 h 9.0
lead-times
Stability of lead-times 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 80 80 g 8.0
Compliance with quoted lead-
9% 100% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 85 90 h 9.0 8.0
times
12. Supplier Relationship
Management
“A comprehensive methodology
was developed in house to
improve supplier operational
performance on a broad basis.
The related initiative has
brought big benefits across the
entire supplier base, with focus
on the largest and most critical
partners.” SRM Performance
14. Internally, SRM Management Influence Varies by
Spend Category and Related Functional Partners
% of organizations managing these spend categories well in an SRM program/process
IT (services / large BPO relationships) 76%
IT infrastructure and Enterprise Applications… 74%
Direct Materials / Services 62%
HR (services / large BPO relationships) 48%
Other indirect services 48%
Finance (services / large BPO relationships) 38%
MRO / Capital Equipment services 37%
Transportation & Logistics (services / large BPO… 33%
Facilities Management / "Workplace Services" 30%
not managed formally managed tactically at best managed well at a few key suppliers managed well across all relevant spend
Best-in-Class management Not Applicable Do Not Know
Set up a governance structure, and adopt a “best practices benchmarking” approach
15. Top Performers Deliver Nearly 2x SRM Savings
Today than Peers, and SRM Value Will Take
Increasingly More “Value Share” from Sourcing
Total monetary value delivered from SRM (and non-SRM growth
benefits) processes as a percentage of total spend
0.70% 5-24X “ROI”
for SRM for
most firms!
0.57%
1.16%
0.13%
0.95%
Growth-Related benefits (Non-SRM)
1.14% Growth-Related Benefits (SRM)
Cost Savings/Avoidance from SRM
0.06%
0.53% 2.90%
2.48%
1.93%
1.20%
Top performers will have
Peer Group Top Performer Peer Group Top Performer higher value contribution from
SRM than Sourcing in 3 years
Currently Three Years
Sourcing
5.00% 4.13% 3.60% 3.37%
Savings:
16. SRM Has a Huge “ROI” (18-51X) Based on Spend
Savings from SRM Process Investment! SRM “Top
Performers” Realize 2-5X Greater than Their Peers!
SRM Top
Metric Peer Group Performer Source
1 Total SRM FTEs per $B Spend 5.16 3.50 2011 Hackett SRM Study
$ $
2 SRM fully-loaded wage rate $ 98,389 106,153 Hackett 2011 Procurement Benchmark
$ $
3 SRM Process cost per $B spend 507,688 371,535 Line 1 * Line 2
Normalized to spend and burdened
4 Process cost as a % of spend 0.07% 0.05% (technology and other costs)
SRM-related spend savings
(reduction/avoidance) as a % of
5 spend 1.20% 2.48% 2011 SRM Study
6 SRM "ROI" 1818% 5135% Line 4 divided by Line 5
The study also looked at involvement vs. satisfaction across nine
different roles. Top performers outscored peers across the board.
17. Supplier Relationship
Management
“Supplier Readiness to receive support on
processes and to share data is not always
a given.”
“Agreeing leads and roles and
responsibilities is difficult due to the
multiple parties involved having a
different opinion.”
“Buy-in from suppliers and business areas
who own key relationships is key to ensure
an effective program.” SRM Capabilities
“SRM is seen as a useful by some and
burdensome by others and meetings for
meeting’s sake. “
24. Supplier Relationship
Management
“SRM programs where there
has been endorsement from
senior management has been
a key positive driver in getting
support. The creation of a
forum and regular dialogue to
bring open and honest debate
has been the catalyst to
change some of the ways in
Making it Happen
which internal functions work
with suppliers.”
Speaking Notes: If procurement is about maximizing the value of supply, then strategic sourcing, as typically applied, addresses only a single element: pricing and TCO. Sourcing can only do so much to tap the true value of strategic relationships, drive innovation and improve supplier capabilities and performance over time. It is true that a strong sourcing process, embedded within a robust category management methodology, should set up the appropriate supplier relationship management (SRM) processes for success, especially surrounding strategic supplier relationships. But once preferred suppliers in a rationalized supply base are put in place, the game shifts toward joint value creation. This demands a collaborative approach that may prove difficult for many procurement organizations, as it requires new skills, processes, tools and organizational support.
How superior skills and more effective talent management drive better performanceTop performers generate significantly better functional performance through more highly skilled, effective and engaged talentTop performers have a greater proportion of jobs requiring sophisticated skillsDespite having more difficulty hiring and retaining talent, they use more effective talent management practices to hire, manage and retain higher caliber peopleThe people filling these jobs apply their skills with better performance results
Mention Fig 4 in text
*Assumes same overall Supply-Side value delivery and applies anticipated mix shift from studyBig changes planned. Shift from sourcing to SRM. TPs will hit inflection point