Justifying Supplier Management Investment: Exploring Top Program Drivers

Yesterday, I explored what is perhaps the most important highlight from State of Flux’s recent SRM report: risk reduction has become the number one driver of investment in SRM programs (for procurement/buy-side organizations). But what other areas fall behind risk as other top drivers of program investment?

Cost reduction is the second most important driver of SRM programs. Service level improvements, quality improvements, access to the best supplier resources, end-customer experience, supply chain efficiency, and innovation are top program drivers as well, according to the report.

Less important for companies are such drivers as preferred access to scarce capacity/materials (which we believe to be reflective of a recent climate of non-supply-constrained markets generally), sales/revenue growth, joint product/service development, and sustainability and corporate social responsibility (CSR) programs. I suspect that for some of these areas (e.g., joint product/service development), the industry breakdowns will vary somewhat widely, and I look forward to digging into a deeper cut of the data with State of Flux in the weeks to come.

Patterns of adoption, priorities, and results emerge in the data as well. For example, State of Flux observes that “a far greater proportion of leaders are reporting [SRM] benefits compared to followers … leaders are far more likely to be benefiting from supplier innovation. Leaders are around twice as likely to be benefiting in the areas of improved sustainability and CSR…”

One observation I'll make in this regard, from this side of the Atlantic, is that some of the more successful supplier relationship management programs we observe tend to focus on areas that require broader supplier engagement (e.g., innovation), rather than silo or niche areas that are more compliance-driven (e.g., supplier diversity). Indeed, I'd rank a number of the companies overseeing some of the more robust supplier diversity programs as actually quite weak overall on supplier management – despite significant and success in this one area.

What lessons can we draw from this? Namely, that to do SRM right requires significantly more than just assigning a few strong resources to tackle a single challenge. It requires changing how the entire procurement organization (and business) looks at and engages suppliers. Which is why effective and strong SRM is as much about redefining the procurement function as it is about prioritizing supplier engagement and management.

For deeper reading into supplier risk management:

How Do You Handle Underperforming Suppliers?

Of Supplier Management…and Horsemeat

Beyond Bird Flu 2.0 – Inoculate Your Supply Base Against Supply Chain Risk

The Policy Supply Chain: Conflict Minerals and Preparing for Mandated Ethical Sourcing

Conflict Minerals Analysis: Readiness, Technology, and Questionable Practices

Conflict Minerals Compliance: Checklists, Templates, Planning Documents

Conflict Minerals Q&A: SEC Enforcement, China, Scrap, and Supplier Views

Conflict Minerals – How To Prepare Your Supply Chain (Part 1)

Conflict Minerals – How To Prepare Your Supply Chain (Part 2)

“Be Smart About” – Supplier Information Management Solutions (Part 1)

Procurement Visibility and Insights – Supply Chain Transparency

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