SRM Warning Signs: Why Companies Fail to Invest

Continuing our analysis of State of Flux's annual SRM report, we come to why organizations are failing to invest in supplier relationship management activities. Curiously, the differences between the survey results from 2012 and 2011 are quite large (we speculate perhaps owing to the different economic climates each year, especially within the UK, where the survey respondents are primarily based, which was in the early days of austerity in 2011). One of the largest declines in reasons reported for decline in SRM activity (among those reporting a decline) between 2011 and 2012 was "more immediate priorities such as cost reduction, cash flow, etc." 75% of respondents suggested this was the case in 2011 compared with 27% in 2012.

Losing budgets and resources saw a similar decline year-over-year, falling from 63% in 2011 to 18% in 2012. Reasons on the rise for declining investment include "shortage of people with required skills/competencies (38% to 55%), "change in organization strategy" (13% to 36%) and "stakeholder support withdrawn/not provided" (25% to 55%). Only a small minority of those surveyed in each year reported a decline SRM investment as a result of a failure to create value. On this side of the Atlantic – we can't speak specifically for the UK based on our research – we would agree with a key finding suggested by the data that organizations lack sufficient skills to direct investment in SRM into suitable programs. In fact, in many cases, finance organizations have taken a more active role in risk management programs, specifically, because procurement organizations lack the right mix of skills.

Spend Matters observes that when SRM investment declines (or fails to grow) there are many potential casualties, with the ultimate victim often not residing in procurement, but in the business. This can range from lost savings opportunities from joint cost-take out and supplier development programs to rising supply risk not only from a failure to monitor supplier financial stability but also a lack of visibility into changes and patterns around supplier quality, on-time performance and other risk factors (natural disaster, weather, labor, etc.). But as important, a lack of investment in SRM sends the wrong message to suppliers, especially when one's peer companies are making investments to work more effectively with the same supply base. After all, in lean or risky times, being the customer of choice has many advantages.

- Jason Busch

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