Future Purchasing SRM report (part 3) – measuring the benefits

In the last of our series covering the Future Purchasing (FP) / Vantage Partners report “Value Delivered by Strategic Supplier Relationship Management in Major Organisations”, (available here for download) we’ll look at the tricky issue of benefits capture and constructing a business case.

When it comes to measuring the benefits, the report is at its most interesting and has some really quite counter-intuitive material. I would have expected the leaders in SRM to be obsessed with measurement, tracking benefits and savings and so on. But Webb and Hughes suggest almost the opposite.  In fact, it looks like the most successful practitioners don’t get too hung up on precise measures of benefit.

To them, SRM is almost an ‘article of faith’. The benefits are so clear, that trying to convert them into pounds, dollars or Euros is unnecessary and a waste of time / resource. And the reasons given for the lack of systematised measures were fascinating, particularly the last on the list in the quote below – that measuring would push the focus too much onto cost reduction, which arguably should not be the main driver of SRM.

Measurement of SRM benefits was relatively unsystematic — even amongst leaders. Reasons given for this included: executives did not require it; the inherent difficulty in measuring the value from benefits such as incremental innovation, adverse events avoided, and smoother working relations; and, the risk that measurement would encourage focusing exclusively on cost reduction activities.”

However, there were plenty of stories of the benefits of SRM; and the leading practitioners had convinced senior management of the full range of benefits.

Respondents shared stories of many specific improvements yielded by their SRM programmes, however few companies aggregated or tracked all SRM related benefits — though they remained convinced that the ROI was quite high. One company that did attempt to quantify benefits reported annualised cost savings of $350m and incremental revenue of $1b.

So what is the conclusion? The authors are not suggesting that you shouldn't bother with measures; but equally if you're going to get hung up on trying to chase every pound note out of the process, then perhaps you’d do better with a structured negotiation / reverse auction programme rather than SRM.

In any case, if you want to develop the holistic value you can obtain from your key suppliers, or you're just vaguely interested in SRM, then do take an hour or so to read this report. It is a first-class piece of thought-leadership from the two firms involved.

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