Supplier Relationship Management – State of Flux suggests slow progress

State of Flux, the procurement consulting firm, have published their annual Supplier Relationship Management report. Almost 300 firms participated, and it is a very interesting and worthwhile read. We will come back to  it shortly when we’ve had time to fully digest it, but a few aspects stood out even on first glance.

The number of what State of Flux define as SRM “leaders” has stayed steady at around 25% of the sample, but the number in the next “developing” level has increased from 37% to 55%. So the conclusion is that more organisations are at least doing something in the area, but few are anywhere near “leading edge” as yet.  But the report includes some strong case studies showing how organisations have benefitted from these processes and programmes, and in general, the better firms are reaping rewards.

Over 80% of “SRM leaders” (organisations that place their SRM initiatives in the top half of State of Flux’s maturity scale) say they have reaped cost reduction benefits. Post-contract financial savings are typically in the region of 2-6% of annual spend with a supplier, although a fifth say they have achieved 8% or more.

In reports and analysis of this nature, the negatives are often more interesting than the positives, and certainly here the big issues identified are worth a close look.  For a start, few respondents believe that technology supports their activity.

Just 4% of leaders and 1% of followers think that existing IT systems strongly support information sharing and collaboration with suppliers”.

So that seems to suggest that there are still gaps and opportunities in the market for solution providers to address this area better?

The respondents also identified shortage of skills as the main issue holding them back. Much as I hesitate to disagree with a strong sample here, I can't help wondering if "lack of skills" might be the wrong diagnosis of the problem. It seems more likely that programmes might struggle because of a lack of process, tools, technology, or performance measurement. Get those right and actually, I don’t believe it is too difficult to convert the right sort of procurement or category manager into an SRM person. Or it may simply mean that there is no well-defined cohort of SRM pros around the industry yet, which is probably true – so perhaps the leading organisations in this area need to be growing their own.

Metrics continue to be an issue.

Progress in developing SRM metrics has also been relatively weak. The most popular KPIs for tracking the success of SRM programmes are financial savings, quality and on-time delivery – classic measures of supplier performance – rather than broader, two-way indicators. Only 18% of leaders and 5% of followers say they are using joint customer-supplier KPIs to any significant extent.

I guess we might question whether a programme that doesn't ask the supplier how they're finding things can possibly be a mutually beneficial SRM programme...

Anyway, good stuff, and we’ll feature more next week.

First Voice

  1. RJ:

    “Lack of skills” – in many instances, yes, but there are some vey good people out there.
    “Lack of systems and processes” – very definitely, most that I have seen are either totally one-way SLA measures or tortuously manual and complex
    “Lack of time” – not even mentioned above but nearly always a major issue: in one firm where I am consulting at the moment the procurement team of about half a dozen is contending with 300 significant projects a year!
    “Lack of focus” – possibly the most important factor of all, in my opinion. Too many organisations try a one-size-fits-all approach that immediately gets bogged down and loses credibility rather than differentiating by value and strategic importance.

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