How Are Your Peers Doing on Supplier Relationship Management? (Part 2)

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Last week, Spend Matters began covering the recent report from State of Flux on supplier relationship management (SRM), “Entrepreneurial SRM: Solving the Value Puzzle.” Part 1 focused on defining SRM — what it is, what it isn’t, and the six most important components of SRM, as according to State of Flux.

The State of Flux report provides a host of interesting data on how organizations are doing on their SRM efforts, which will be the topic of today’s post. How does your organization compare in this regard to your peers? Are you ahead of the pack or somewhere in the middle, or do you have some catching up to do?

For this report, State of Flux surveyed 372 companies from more than 25 industries around the world and categorized them according to the maturity and success of their SRM programs. “Leaders” are the top 10%; “followers” make up the next 15%; and the remaining 75% are companies that do not yet have a clear SRM strategy or senior leadership support.

So if your procurement organization’s SRM program is backed by senior management and your SRM ambitions and achievements go beyond just contract and performance management, congratulations: you are probably already ahead of your peers.

However, State of Flux has found a widening gap between “leaders” and “followers” throughout the years, which suggests that the organizations truly innovative in SRM are leaving the rest far behind.

The vast majority of leaders have a value proposition for SRM (compare this with just 40% of other businesses), and they report both financial and non-financial benefits of SRM. In contrast to non-leaders, they also tend to gather structured supplier feedback.

Looking at the survey sample as a whole, only 21% of companies have identified the necessary skills for SRM, and 89% have not carried out a skills and competency assessment. Four in five companies have not ever implemented any kind of SRM training.

The majority (90%) of the respondents have segmented their suppliers, with the top three criteria being the business criticality of products and services; level of spend; and the degree of difficulty in finding an alternative supplier.

Once you have completed a supplier segmentation, the crucial next step is to implement differentiated treatment strategies. This is a key component of any successful SRM program, and yet only 21% of respondents have implemented such strategies.

How Do Your Peers View SRM Value?

Cost reduction, risk management and service improvement rank top in what respondents viewed as primary sources of SRM value over the past 12 months, with each area cited by more than 50% of the respondents. The chart below shows the complete ranked list.

Source: State of Flux

When asked for the single most important source of SRM value for the next 12 months, cost reduction and risk management still ranked top, selected by 21% and 20% of respondents, respectively.

Interestingly, 15% cited competitive advantage as the most important source of value. This ranked towards the bottom of the first chart, which suggests that more companies are becoming attuned to the fact that successful SRM can be a powerful way to differentiate yourself from the rest.

The last post in this series will address entrepreneurial procurement and SRM best practices. You can also check out the full report for yourself here.

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