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Supplier Management ROI: Making a Hard Dollar Business Case

This analysis provides a return on investment (ROI) driven approach to building a business case for Supplier Information Management (SIM) systems. It explores several business cases, including Accounts Payable (AP)-focused supplier on-boarding and management initiatives, supply risk management, and capturing trade credits with vendors based on AP and supplier invoice data tied to vendor file master information. We later provide ROI elements and some supporting benchmarks for readers to use in building their own customized ROI analyses.

SIM supports a multi-faceted set of business processes, not just vendor master file maintenance. It's core to broader Supplier Management business processes. You can't manage suppliers if you can't manage the information pertaining to them – not just the data required to buy from them and pay them! Our definition of supplier management includes not only measuring and managing supplier relationships and performance/compliance after a contract is signed, but also managing various pre-commercial interactions such as supplier registration on a supplier portal (if applicable), supplier identification/qualification during a sourcing process, multi-dimensional supplier segmentation, and selected supplier risk management processes.

If you add eSourcing, eProcurement, and contract management to round out the buy-side applications used in managing the supplier from cradle-to-grave, you then arrive at the complete “Supplier Lifecycle Management” (SLM) process (although some solution providers define SLM more narrowly). But for the purposes of this paper, we will only deal with supplier management as defined above.

We define ROI in the form of hard savings, soft savings, and non-savings-related value creation that spans multiple business areas. The complexity of supplier management is what makes the ROI and business case so difficult – there is no single P&L line item to target.

This Compass Research paper will help companies build hard dollar business cases to justify supplier management investments.

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