Developed SRM brings companies financial advantage, research says

6 November 2014

The gap between companies with more developed supplier relationship management (SRM) and those without is widening, global research has found.

The State of Flux report, The Journey to Customer of Choice published today, also revealed these companies are reporting a definite financial advantage to a commitment to SRM.

Almost half of ‘leaders’ - companies recognised by the study as having the most developed SRM - reported benefits equivalent to 4 per cent or more of contract value. They are more likely to receive preferential pricing and twice as likely to get access to innovation, the study concludes. The survey also noted leader companies are much more likely to share strategic information with suppliers. 

Alan Day, chairman and founder of State of Flux said: “The key question has always been ‘what’s the business case for SRM?’ and we now have numbers that support a business case.”

The report said: “The leading companies are demonstrating better alignment to business objectives and increased benefits. Their investment in SRM is resulting in more collaborative and open supplier relationships."

A significantly higher proportion of leader companies than others had defined SRM, although almost a third had not, according to the study. But less than 20 per cent of total respondents to the survey said they had robust supplier performance, contract and risk management in place for more than three-quarters of their suppliers. The report concluded this was “an area requiring urgent attention”.

The use of technology to develop SRM also remains the area where companies are performing least well, the study says.

The report also identified the concept of ‘customer of choice’ - that is being the preferred organisation for a supplier - and found 77 per cent of leader companies believe they are a customer of choice for more than 50 per cent of their key suppliers. But the report also concluded for most organisations, “the realisation that they may not actually be a customer of choice for many of their key suppliers, is difficult to absorb and in some cases even more difficult to address”.

According to the survey, 68 per cent of respondents place responsibility for SRM in procurement. Overall, 85 per cent of respondents said they believed SRM would become more important in the next 12 months. This was mainly attributed to a return to more strategic priorities in line with the economic recovery. The main driver of SRM was overwhelmingly to deliver value in the form of cost reduction, risk reduction and innovation. The area of SRM making the most progress was obtaining support and engagement from senior management.

The study also highlighted a lack of people with requisite skills and budgets and resources aimed at SRM as a consistent barrier to developing SRM.

The survey is based on responses from more than 500 companies globally in more than 20 sectors. Of these, 46 organisations were regarded as “leaders”, 32 were “fast followers”, 96 “followers, with the remaining 62 per cent considered to have developing or undeveloped SRM practices. The automative industry was the sector with the most developed SRM, while the public sector has the least developed overall.

The study also outlined 10 key points for companies seeking to implement or improve SRM. These are:

• Understand where you are now and how your SRM objectives align to company strategy.

• Close the business drivers-to-benefits gap.

• Engage proactively with all key stakeholder groups, especially senior stakeholders.

• Listen to suppliers.

• Ensure the approach to segmentation focuses scarce resource.

• Ensure the SRM role is properly defined and invest in training.

• Use technology to master relationship management.

• Share information to promote openness, transparency and trust.

• Develop a supplier innovation strategy and process

• Leverage sell side strategic account management

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