1. B Supplier Management –
Moving Beyond the Stick to
Become a Customer of Choice
Sundar Kamakshisundaram – Ariba
Pierre Mitchell – The Hackett Group
Mike Uddin – Reed-Elsevier
Jeremy Donaldson – Sallie Mae
© 2012 Ariba, Inc. All rights reserved.

2. Agenda
Introduction
Panel Discussion
The Hackett Group – Pierre Mitchell
Reed-Elsevier – Mike Uddin
Sallie Mae – Jeremy Donaldson
Q&A
2 © 2012 Ariba, Inc. All rights reserved.

3. Strategic Sourcing Is Foundational, but Supplier
Management (SRM) Is Transformational...
Source: Procurement Key Issues Study, The Hackett Group, 2011
3 © 2012 Ariba, Inc. All rights reserved.

4. Defining Supplier Management or
Alternately Called “SRM”…
“Supplier Management” is multi- faceted and
touches many aspects of Business Commerce
Registration &
On-boarding Supplier
Process Portals • Supplier Information Management that unifies
platform, process and supplier profiles across the
Supplier company and keeps it current, complete and correct.
Discovery • Highly usable web-based portal for suppliers to register
Supplier Performance
and manage information collaboratively with customers
Management Management
• Supplier Performance Management capabilities
or SRM
including Process Workflow and approvals, Surveys
Vendor Master
and scorecards, flexible role based dashboards and
Management Diversity/Green/
Corporate customizable reports
Risk Responsibility • A Robust technology platform that seamlessly
Management
integrates in-context Supplier info such as
Parentage, Financials, Diversity and Sustainability to
manage and mitigate Supply Risk
• A unified Supplier Record merging data and process
flows to third party systems and data sources
4 © 2012 Ariba, Inc. All rights reserved.

5. “SMARTER SUPPLIER MANAGEMENT”
MOVING BEYOND THE STICK TO BECOME A CUSTOMER OF CHOICE
Pierre Mitchell, Director, Procurement Research, The Hackett Group
5 © 2012 Ariba, Inc. All rights reserved.

6. Supplier Relationship
Management
Session Topics
 Increasingly used to deliver total
cost savings
 Enabler for Innovation and Revenue
/ Growth Enablement  SRM strategy and value proposition
 SRM performance and building the case
 Motivates suppliers beyond the
checkbook  SRM Capabilities and Practices
 Aligning SRM with category
 Challenge to implement because of
management, supplier compliance, etc.
existing operating models and skills
 SRM transformation lessons learned
 NOT a software solution or “CRM’s
 SRM technology enablement
evil twin”
Transact / Manage &
Design Source
Fulfill Develop

7. What is Supplier Relationship
Management (SRM)?
“Key processes, definitions, tools, and roles to drive
coordinated proactive management of suppliers across the business”
Supplier Performance Supplier Development
Supplier Stratification SRM Governance
Management and Collaboration
How should supplier How should supplier-facing How should supplier How should capabilities of
relationships be stratified staff be organized and performance be managed existing suppliers be
based on strategic internal collaboration and across different supplier developed to deliver
importance to prioritize supplier interactions be types and strata to continuous improvement
resources and tailor conducted? maximize performance? and ongoing cost
management processes? reduction?
• Supplier Stratification • Team Structure and • Function KPI • Supplier Development
Definition Roles Development Needs Definition
• Supplier Stratification • Ongoing Governance • Supplier Performance • Supplier Development
Criteria • SRM Competency Target, KPI and Program Definition
• Supplier Stratification Management Scorecard Definition • Ongoing Supplier
Process • Ongoing Supplier Development
Measurement. Includes
Cost, Quality, Risk, etc.
Executive Supplier Scorecard Supplier Name
Executive
Strategic
Company-
Management
Executive
Management
Team Roles
Executive
Sponsor
Executive
Sponsor
Executive
Executive
Sponsor
Executive
Sponsor
Executive
SRM Lead:
Account Manager:
Functional Area / Category:
Site:
Intellectual
capital
Company Supplier Supplier Contact: Scorecard Date:
Wide Partners Management
Team Roles Sponsor Sponsor
Status Definition Supplier Representatives:
Strategic Team Roles Good Meets or exceeds performance target
Enterprise
Partners
Relationship
Relationship
Relationship
Management Lead
Relationship
Relationship
Management Lead
Relationship
Fair
Poor
Does not meet performance target; acceptable variance; improvement needed
Unacceptable variance from performance targets; action required
Company Representatives:
Joint sharing Joint
80% Leads Roles Management Lead
Relationship Management Lead
Relationship
Invalid Invalid percentage data has been entered into the cell
Relationship
Financial
Value Strategic
Leads Roles
Leads Roles
Company
Management Lead Supplier
Management Lead KPIs Metrics Performance Targets Performance Trend
Supplier Score
(Scale of 1-10)
Comments
capability process
Business Office Roles Operations Management Team Roles Metric Metric Data Score Unaccept- Last Last Last One Qtr Metric KPI
investment improvement
Accept-
KPI
Target
Multi-
Multi-
KPI Wt. Metric Today
Strategic Suppliers Wt. Total Source Range able Range able Range Yr Qtr Mo Trend Score Score
Suppliers Business Office Roles Operations Management Team Roles
of Supply -
Assurance
≤ ≥ h
Business Office Roles Operations Management Team Roles
Delivery
On time delivery percentage 50% tbd 0 - 100 80 81 - 89 90 90 80 85 90 9.0
Contract Communications Operations Initiative Risk 15%
Management
Contract
Management
Management
Communications
Management
Management
Operations
Management
Management
Initiative
Management
Management
Risk
Management
Delivery conformance
Additional available capacity
50%
56%
100% tbd
tbd
0 - 100
0 - 100
≤
≤
80
80
81 - 89
80 - 89
≥
≥
90
90
80
50
78
75
85
80
95
90
h
h
9.5
9.0
9.3
supplier
Environment /
Assurance of
Communications
Contract Operations Initiative Risk
Capability Systems &
Business
collaboration
Supply -
Company Company
Management Company
Management Company
Management Company
Management Management 15% ≤ ≥ i
Core
Core Suppliers Supplier Supplier Supplier Supplier Supplier
Financial stress
Credit score
33%
11% 100%
tbd
tbd
0 - 60
0 - 20 ≤
48
16
49 - 53
17 ≥
54
18
40
15
54
16
58
17
50
18 h
8.3
9.0 8.8
Suppliers
Financial Legal & Audit Customer
Rejection rate
Weighted non-comformance rate
26% tbd 0 - 100 ≤
≤
80 81 - 89 ≥
≥
90 70 75 80 90 h
h
9.0 acquisition process
Escalation Performance 26% tbd 0 - 100 80 81 - 89 90 80 83 85 91 9.1
Performance
Financial Satisfaction
Customer Management Management
/ CAR
by supplier Value integration
Quality
Management Support Audit
Legal & Management Escalation Performance 25% Process chage 16% tbd 0 - 60 ≤ 48 49 - 53 ≥ 54 40 45 50 60 h 10.0
Performance
Financial Support Satisfaction
Customer Management Management
20% Management
Company Company & Audit
Legal Management
Company
Satisfaction Escalation
Company Performance
Company Audit rating 16% tbd 0 - 60 ≤ 48 49 - 53 ≥ 54 30 35 40 42 h 7.0
Basic Performance Support Management Management
Financial
Value
Basic Suppliers
Transactional Suppliers
Suppliers
Management
Supplier Supplier Management
Supplier Supplier Supplier
Supplier 1
Auidt response time
Response to standard request
16%
9%
100% tbd
tbd
0 - 60
0 - 100
≤
≤
48
80
49 - 53
81 - 89
≥
≥
54
90
40
60
43
70
45
80
56
91
h
h
9.3
9.1
8.9
creation
Supplier 2
Supplier 3
Response to emergency request
Communication about potential
problems
9%
9%
tbd
tbd
0 - 100
0 - 100
≤
≤
80
80
81 - 89
81 - 89
≥
≥
90
90
90
70
80
75
70
76
60
78
i
h
6.0
7.8
opportunity
Flexibility to change 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 80 85 85 91 h 9.1
Roles Company Team Member Supplier Team Member
≤ ≥ h
Non-Preferred Customer services 9% tbd 0 - 100 80 81 - 89 90 70 75 80 85 8.5
Services
15% Efficiency in providing information 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 90 80 70 60 i 6.0
Local support efficiency 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 85 91 h 9.1
Production lead-times 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 90 80 70 60 i 6.0
Competitiveness of Production
9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 85 90 h 9.0
lead-times
Stability of lead-times 9% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 80 80 g 8.0
Compliance with quoted lead-
9% 100% tbd 0 - 100 ≤ 80 81 - 89 ≥ 90 75 80 85 90 h 9.0 8.0
times

8. Why SRM?
• Value beyond Sourcing Savings
World-Class procurement groups create:
TCO reduction and „disciplined growth‟
– 3.6x greater savings from SRM than peers in
Non-cost performance improvement direct spend
• The Growth Agenda – 13.1x greater savings from SRM than peers
in indirect!
More innovation
Source: 2011 Hackett Procurement Benchmark
Emerging markets
Incremental revenue from
“Agility” (variabilization, flexibility) supplier innovation efforts
• Supply Risk
facilitated by Procurement
8.3%
Viability/capacity
Compliance (quality, regulatory, etc.) 3.5%
• Third-party governance
• Supply Chain vs. Supply Chain
Multi-tier management
•
Peer Group Top Quartile
Efficiency/automation of SRM Source: 2011 Hackett Procurement Benchmark
8 © 2012 Ariba, Inc. All rights reserved.

9. SRM Leadership Is a Demonstration
of Industry Leadership
9 © 2012 Ariba, Inc. All rights reserved. Source: Planning Perspectives, Inc.

10. Hackett SRM Study
Objectives
• Rank the top SRM program value objectives being sought
• Assess SRM Performance in growth enablement, total cost
reduction, and other value streams, by supplier segment, and
by spend category
• Define and correlate SRM capabilities and practices to
performance to show which ones really matter
Org structure and responsibility models (including by stakeholder type)
Supplier Segmentation approaches and analysis of
performance/capabilities for „strategic supplier‟ management
Level of alignment to other areas in Procurement and the business
Technology adoption and success (e.g., automation to free up time for
strategic SRM)
• Assess SRM KPIs and how projects are getting funded
• Create an “SRM ROI” figure using different assumptions for
“R” and “I”
• Learn how others are knocking down SRM adoption barriers
and other lessons learned
10 © 2012 Ariba, Inc. All rights reserved.

11. What is your focus for SRM? How does
this vary internally?
What dimensions of SRM performance for key suppliers would you like to improve?
(% of responses – multiple responses allowed)
60%
Innovation
85%
40%
Supply Assurance and Risk Mitigation
67%
60%
Flexibility
35%
“Agility” as antidote
Growth to Risk
60%
Quality
62% Compliance
focused
60%
Cost /price reduction
50%
50%
Reliability
46%
“The biggest challenge is to get
New business generation / revenue uplift 30% category management teams
(non-innovation related) 50% to contribute. The reluctance is
in part due to the intense work
30% load on procurement on day
Regulatory compliance
35% to day issues in achieving
cost reduction.”
Top Performer Peer Study Respondent
11 © 2012 Ariba, Inc. All rights reserved.

12. Supplier Relationship
Management
“A comprehensive methodology
was developed in house to
improve supplier operational
performance on a broad basis.
The related initiative has
brought big benefits across the
entire supplier base, with focus
on the largest and most critical
partners.” SRM Performance

13. How to Define an “SRM Top
Performer” (Sample Metrics)
• Percent spend and suppliers in SRM programs and processes (overall and for
strategic/critical suppliers)
• SRM FTEs (not just in Procurement) per $B in “SRM-influenced” spend
For overall vs. strategic suppliers (less vs. more FTEs for TPs respectively)
Similar to sourcing: “Center-Led”; Quantity vs. Quality of Influence
• Stakeholder involvement AND satisfaction with SRM
• Economic value contribution as % of spend from SRM
Savings Related (i.e., price; TCO elements)
Non-Savings Related (e.g., revenue uplift, working capital, etc.)
• "Customer of Choice" status to key suppliers
How do your suppliers segment you?
How much attention/budget/IP do you enjoy vs. competitors?
What do you bring to the table besides a checkbook (good and bad)?
Have you asked your suppliers? If so, what have you done with feedback?
How do you measure SRM performance? Top performers feel that almost 60%
of SRM value created is measured (as compared to roughly 20% for other firms)
13 © 2012 Ariba, Inc. All rights reserved.

14. Internally, SRM Management Influence Varies by
Spend Category and Related Functional Partners
% of organizations managing these spend categories well in an SRM program/process
IT (services / large BPO relationships) 76%
IT infrastructure and Enterprise Applications… 74%
Direct Materials / Services 62%
HR (services / large BPO relationships) 48%
Other indirect services 48%
Finance (services / large BPO relationships) 38%
MRO / Capital Equipment services 37%
Transportation & Logistics (services / large BPO… 33%
Facilities Management / "Workplace Services" 30%
not managed formally managed tactically at best managed well at a few key suppliers managed well across all relevant spend
Best-in-Class management Not Applicable Do Not Know
Set up a governance structure, and adopt a “best practices benchmarking” approach

15. Top Performers Deliver Nearly 2x SRM Savings
Today than Peers, and SRM Value Will Take
Increasingly More “Value Share” from Sourcing
Total monetary value delivered from SRM (and non-SRM growth
benefits) processes as a percentage of total spend
0.70% 5-24X “ROI”
for SRM for
most firms!
0.57%
1.16%
0.13%
0.95%
Growth-Related benefits (Non-SRM)
1.14% Growth-Related Benefits (SRM)
Cost Savings/Avoidance from SRM
0.06%
0.53% 2.90%
2.48%
1.93%
1.20%
Top performers will have
Peer Group Top Performer Peer Group Top Performer higher value contribution from
SRM than Sourcing in 3 years
Currently Three Years
Sourcing
5.00% 4.13% 3.60% 3.37%
Savings:

16. SRM Has a Huge “ROI” (18-51X) Based on Spend
Savings from SRM Process Investment! SRM “Top
Performers” Realize 2-5X Greater than Their Peers!
SRM Top
Metric Peer Group Performer Source
1 Total SRM FTEs per $B Spend 5.16 3.50 2011 Hackett SRM Study
$ $
2 SRM fully-loaded wage rate $ 98,389 106,153 Hackett 2011 Procurement Benchmark
$ $
3 SRM Process cost per $B spend 507,688 371,535 Line 1 * Line 2
Normalized to spend and burdened
4 Process cost as a % of spend 0.07% 0.05% (technology and other costs)
SRM-related spend savings
(reduction/avoidance) as a % of
5 spend 1.20% 2.48% 2011 SRM Study
6 SRM "ROI" 1818% 5135% Line 4 divided by Line 5
The study also looked at involvement vs. satisfaction across nine
different roles. Top performers outscored peers across the board.

17. Supplier Relationship
Management
 “Supplier Readiness to receive support on
processes and to share data is not always
a given.”
 “Agreeing leads and roles and
responsibilities is difficult due to the
multiple parties involved having a
different opinion.”
 “Buy-in from suppliers and business areas
who own key relationships is key to ensure
an effective program.” SRM Capabilities
 “SRM is seen as a useful by some and
burdensome by others and meetings for
meeting’s sake. “

18. Top Performers Have 3X Higher Capabilities than Peers, but
Still Have Room to Improve Beyond. Technology Lags…
2.91
Organizational
Top SRM performers:
0.98 • Have 2.3X fewer strategic suppliers
(per $B spend) than peers, enabling
them to perform SRM with 37.5%
2.53
Strategy & fewer resources
Alignment
1.00 • Dedicate over 2.7X more resources to
each strategic supplier
2.62
• Are more than twice as likely to lead
Process SRM via a single enterprise SRM group
Technology is
0.87
immature and
and program/process
sporadically • Have effective SRM skills at more than
implemented
2.25 2X the rate of peers
Technology • Developed best-practice capabilities at
0.52
Top Performer Peer 3X the rate of peer organizations
0=Not Applied
• Adopt technology much more
1=Applied somewhat in a few areas aggressively than peers in self-service,
2=Applied very well in a few areas
3=Applied somewhat across most areas
analytics, etc.
4=Applied well across most/all areas
5=Going even beyond this practice
N/A - Not Applicable
18 © 2012 Ariba, Inc. All rights reserved.

19. Top Performers Are Better
Strategy/Alignment
Customers to Their Key Suppliers
Relative to your competitors, to what extent do you feel that you are a
"customer of choice" for suppliers in critical spend categories?
50%
46%
38%
30%
Peer Group
20% Top Performer
12%
4%
0%
1=We are definitely NOT a 2=We're a good customer 3=We're a good customer 4=We're a very good
customer of choice in a few areas overall, but still have a customer, especially with
few opportunities critical suppliers
19 © 2012 Ariba, Inc. All rights reserved.

20. Top Performers Have a Broader
Strategy/Alignment
Measurement System for SRM
How comprehensive are the supplier performance metrics that you employ?
(% of responses – single choice) 41% 40% 40%
37%
20%
11% 11%
0%
N/A - we don't measure suppliers 1=Narrow: biased towards the 2= Broader, but biased to what is 3=holistic: focused on executing and
formally contract easily reported or required for expanding strategic business
risk/compliance requirements outcomes and capabilities)
Peer Top Performer
20 © 2012 Ariba, Inc. All rights reserved.

21. Organization
Dedicated SRM Resources Outperform Part
Timers. Top Performers Have Higher Skills
than Their Peers.
How effective are your SRM resources in terms of SRM-related skills?
Dedicated SRM Resources Resources doing SRM part-time
90%
40%
60%
48%
10%
12% 35%
4%
50%
50%
36%
31%
Peer Top Performer
Peer Top Performer
Somewhat effective skills Highly effective skills Somewhat effective skills Highly effective skills

22. Multiple Segmentation Criteria Are
Process
Used – Not Just „Impact vs. Complexity‟
Please select the segmentation criteria that you formally use in your supplier segmentation/tiering criteria?
(% of respondents – multiple selection allowed)
Relationship complexity / Integration 89%
52%
Risk Factors (e.g., sole/single sourced, tied to critical 89%
products/services, etc.) 76%
Spend magnitude 89%
95%
Buyer-Supplier dependency 67%
52%
Value opportunity identified/suspected; willingness to 67%
partner 52%
Revenue factors (suppliers tied to major new 67%
product/service development) 33%
Supplier Performance 44%
38%
Barriers:
• "Establishing a consistent standard to Other 22%
determine which suppliers should be 10%
included in a program“
• "Lack of segmentation to identify
suppliers that would be a good fit” Top Performer Peer
22 © 2012 Ariba, Inc. All rights reserved.

23. Technology
SRM Technology/Tools Practices - Extent
„To what extent have you implemented the following practices?‟
Peer Avg. TP Avg.
2.63
A supplier portal allows supplier self-service information
maintenance and access to various SRM-related applications
0.48
Third-party content/knowledge is integrated into SRM-related 2.63
applications to allow external supplier intelligence rather than just
internally provided intelligence 0.33
Analytics are available for supply base segmentation, aggregated 2.56
supplier/category performance, risk management status, and other
SRM-related supply base analytics 1.29
Collaborative workspaces and applications are available to support
2.20
project planning/tracking, training / knowledge
management, document sharing, linkages to specialty
applications, etc. 0.33 0=Not Applied
1=Applied somewhat in a few areas
2=Applied very well in a few areas
Core SRM workflows are automated for supplier 1.33 3=Applied somewhat across most areas
qualification, supplier performance target setting, performance data 4=Applied well across most/all areas
collection/scoring/sharing, compliance monitoring, etc. 0.46 5=Going even beyond this practice
N/A - Not Applicable
Top Performer Peer
23 © 2012 Ariba, Inc. All rights reserved.

24. Supplier Relationship
Management
“SRM programs where there
has been endorsement from
senior management has been
a key positive driver in getting
support. The creation of a
forum and regular dialogue to
bring open and honest debate
has been the catalyst to
change some of the ways in
Making it Happen
which internal functions work
with suppliers.”

25. Barriers and Countermeasures
Cited Barriers Tactics used to Justify SRM Value
• "Resources", "Manpower No hard benefits needed - treated as 63%
strategic initiative
justification", "Lack of Time", 33%
"resources to manage [program]" Integrate SRM as just another part of 38%
• Buyers are not always able to Procurement Category Management
methodology 53%
implement - no SRM Tool available
Perform detailed analysis (e.g., calculate 38%
• Not enough FTEs to focus on SRM, costs of ineffective supplier management
and potential benefits of improved… 13%
"ROI and resources to focus on it"
Use risk management or other corporate
• Procurement project management initiatives to fund/support the SRM effort
38%
(e.g., external customer… 47%
resources - Funding for
systems/tools to support Use Pilot programs for quick wins and then 38%
use calculated benefits for broader ROI
• Commitment of resources from a model 33%
personnel and time commitment
Use external benchmarks and peer case 25%
standpoint and tools studies to show what others are doing 60%
Tap 'Free' Resources at suppliers who are 13%
willing to suggest and implement
improvement ideas 7%
Top Performer Peer
25 © 2012 Ariba, Inc. All rights reserved.