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Putting Supplier Relationships in the Green Zone

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Companies today are aggressively working with suppliers and other partners to find fresh opportunities for revenue growth through innovation, mergers and acquisitions, new market entry and different strategies. The problem for many procurement organizations is that their processes and performance metrics are designed primarily to keep a lid on costs – not to foster broader supplier value. As most procurement professionals understand, after a certain point traditional sourcing savings inevitably begin to dry up. Traditional supplier management has to evolve from more contract and compliance-focused supplier measurement to collaborations on cost reductions and even revenue/growth enhancement; ultimately, to maximize value over the full supplier relationship lifecycle.
This webinar focusses on the success factors for strengthening and extracting more value from existing supplier relationships.

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Putting Supplier Relationships in the Green Zone

  1. 1. Putting Supplier Relationships in the Green Zone Access the exclusive on-demand webinar of this topic here: https://goo.gl/Se9gy6
  2. 2. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay Today’s Presenters Chris Sawchuk Richard Waugh Principal & Global Procurement Advisory Practice Leader The Hackett Group VP of Corporate Development Zycus Inc.
  3. 3. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay About Zycus – Comprehensive Source-to-Pay Suite
  4. 4. 4© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Our session today…  Companies today are aggressively working with suppliers and other partners to find fresh opportunities for revenue growth through innovation, mergers and acquisitions, new-market entry and other strategies. The problem for many procurement organizations is that their processes and performance metrics are designed primarily to keep a lid on costs – not to foster broader supplier value.  As most procurement professionals understand, after a certain point traditional sourcing savings inevitably begin to dry up. Traditional supplier management has to evolve from more contract and compliance-focused supplier measurement to joint collaborations on cost reductions and even revenue/growth enhancement. Ultimately, to maximize value over the full supplier relationship life cycle.  This webcast will focus on the success factors to strengthening and extracting more value from existing supplier relationships.
  5. 5. 5© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. An inflection point is on the horizon… Organizations are investing increasingly more resources into the management of their existing supply base Soon, the value created through the process of architecting an appropriate supply base (strategic sourcing)… …will be exceeded by the value created through the process of managing, developing and innovating with that supply base (supplier relationship management).
  6. 6. 6© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. In 2014, Hackett highlighted “Five Characteristics of World-class Procurement Organizations” 1. Act as a trusted advisor to the business 2. Driving suppliers to innovate 3. Providing analytics-backed insights 4. Protecting the business from risk 5. Taking an agile approach to staffing
  7. 7. 7© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. We find many elements of SRM permeating the key priorities of procurement organizations globally in 2018 46% 58% 54% 43% 57% 55% 51% 45% 50% 52% 28% 41% 25% 29% 35% 20% 21% 25% 23% 17% 15% 38% 87% CriticalHigh Elevate the role of procurement to a trusted advisor to the business Reduce purchase costs Increase internal stakeholder satisfaction Improve OPEX savings Enhance operational process efficiency Expand purchasing’s scope/influence Deepen influence on complex spend categories to drive value beyond sourcing Improve procurement’s business agility Support enterprise innovation strategy, objectives and initiatives Increase level of supplier collaboration Support enterprise digital transformation strategy, objectives and initiatives 83% 83% 78% 77% 76% 76% 68% 67% 67% 66% Source: Key Issues Study, The Hackett Group, 2018
  8. 8. 8© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. While the importance of capability improvement in SRM continues to grow… 72% 45% 55% 60% 55% 46% 52% 17% 38% 23% 17% 21% 28% 20% 89% 78% 77% 76% 74% CriticalHigh 83% 72% Improve procurement analytical, modeling and reporting capabilities Obtain more value from existing categories through category management Increase spend influence through strategic sourcing efforts Align procurement skills and talent with changing business needs Measure and manage procurement performance and business value Obtain more value from existing suppliers through supplier relationship management (SRM) Improve procurement agility Source: Key Issues Study, The Hackett Group, 2018
  9. 9. 9© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. …our ability to address our SRM capabilities remains a challenge Source: Key Issues Study, The Hackett Group, 2018
  10. 10. 10© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. So, what “truly” is Supplier Relationship Management (SRM)? Simply, it is the proactive and coordinated management of suppliers to… To be successful, it needs to be… …but it can be challenging • Manage and improve the performance of suppliers • Manage and mitigate the inherent risk (low or high) of supplier relationships • Enable internal business processes (i.e. innovation) with supplier capabilities • An enterprise capability • Proactive, collaborative and systematic • Focused on capturing the full value of the customer-supplier relationship • Two way thus requiring commitment from both sides
  11. 11. 11© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Today, many supplier-customer relationships are characterized by… • Inconsistent, inefficient and less than productive interactions • A lack of structure to facilitate exchange of ideas, best practices & learning’s • Limited goal setting, measurements and consistency for supplier performance • A narrow focus on supply risk management • Supplier capabilities that are not fully leveraged for business challenges & innovation • Limited sharing of business strategies or joint strategic value creation planning • To name a few… Overall, full value is not being realized
  12. 12. 12© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Where SRM programs exist, supplier enabled innovation tops the list for improvement 35% 50% 46% 50% 62% 35% 67% 85% 30% 30% 50% 60% 60% 60% 40% 60% Regulatory compliance Non-innovation business generation Reliability Cost /price reduction Quality Flexibility Supply Assurance/Risk Mitigation Innovation Top Performer Peer What dimensions of SRM performance for key suppliers would you like to improve? (% of responses – multiple responses allowed) Source: SRM Book of Numbers, The Hackett Group
  13. 13. 13© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Right goods and services at the right price Contract monitoring Reduce demand activity, complexity and variability Collaborative planning, demand shaping, “customer of choice” focus Increase business value derived from spend / supply Shift from lowest price to TCO Right goods and services at the right time and place Strategic relationship management, support for joint innovation and revenue / growth enablement Collaborative cost reductions Supplier qualification, operational reviews, etc. SRM value evolution is a key enabler to overall Procurement value evolution Supply Assurance Price Total Cost of Ownership Demand Management Value Mgmt. PROCUREMENT EVOLUTION SUPPLIER RELATIONSHIP MGMT EVOLUTION
  14. 14. 14© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. We find that there are many key SRM practices being leveraged by top performing buying organizations… • Establishing an enterprise wide and coordinated SRM program • SRM Center of Excellence (COE) for process management • Dedicated SRM staff versus part time • Utilizing broad and holistic supplier measurement systems • Addressing the execution of key business outcomes and capabilities • Focus on strategic suppliers, not all suppliers • Focusing on being better customers • A “Voice of the Supplier” feedback process is utilized • Supplier development resources are provided to help suppliers Source: SRM Book of Numbers, The Hackett Group
  15. 15. 15© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. • Facilitating supplier engagement • Structured buyer-supplier senior executive relationships - “supplier advisory boards” • Supplier conferences leveraged for formal best practices sharing • Creating an explicit gain sharing and mutual cost reduction environment • Leveraging enabling technology • “CRM for SRM” functionality for supplier account management • Collaborative workspaces and applications • Supplier portals for supplier self-service information management Source: SRM Book of Numbers, The Hackett Group …as well as…
  16. 16. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay Become your supplier’s “Customer of Choice” Empathize On-Board ScoreSegment Enable
  17. 17. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay Yourcompany.com/zycus-supplier-network MY PERFORMANCE Task and Milestone My Workbench MY ORDERS View Orders MY CONTRACTS View Contracts MY CATALOGS Upload New Catalog View Catalogs MY INVOICES Create PO Invoices Create Non PO Invoices MY PAYMENTS View Payments SUPPLIER MANAGEMENT Performance Reports Development Report ESOURCING Respond to Events View Event Score Understand Your Supplier’s Collaboration ChallengesEmpathize The Backstory: Suppliers are suffering from “portal fatigue” – not only a different portal for each buying customer, but for those customers with multiple disparate applications for S2P, multiple portals for a single customer, sometimes incurring incremental fees to transact with customers on business they already have Scenario: A single portal interface – with no fees to the supplier – makes it possible for suppliers to log-in once, and enter data once, across a range of collaborative activities with multiple buying customers.
  18. 18. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay  Supplier Vetting On-boarding Approval Workflow  Supplier Self- Registers Supplier Locations + Contact Details Certifications/ Documentation Banking & Financial Info Business Classifications/Product & Service Details  3rd Party Validation & Real-time Risk Monitoring Integrated with SIM Repository  ERP Synchronization  System Assigns Pre-Qualification Scoring Supplier Self-Service Registration, Full-Service GovernanceOn-Board
  19. 19. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay Scoring Supplier Performance and Risk Performance KPIs: • Technology • Quality • Cost • Flexibility • Service Supplier Risk Score Risk Area Risk KPIs: • Financial • Legal • Reputational • Operational • Strategic Score
  20. 20. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay Segmenting Suppliers Across Multiple Dimensions Capabilities 2-D Segmentation of suppliers based on any two iPerform Scorecards or KPIs Segment suppliers at Scorecard as well as KPI Level Visibility via 2x2 Kraljic matrix & pie-chart Trigger segment based follow-up actions from within the tool Segment
  21. 21. Source to Pay Suite: Spend Analysis | eSourcing | Contract Management | Supplier Management | Savings Management | Project Management | Request Management | Procure-to-Pay Profile and Prioritize Supply Base for Enablement EMAIL PDFIMAGE MOBILE APP On-boarding cost per supplier $925 Applied time to on-board 17 hours Elapsed time to on-board 16 days Enable 80/90 Rule Prioritize suppliers accounting for 80% of transactions for on-boarding in first 90 days CXML PO FLIP EDI OCR Mobility Supplier Portal Machine-to-Machine Integration Track Educate Support
  22. 22. 22© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. To make SRM successful, Procurement must function as the transformational change agent between suppliers and the business Source: SRM Book of Numbers, The Hackett Group
  23. 23. 23© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. There are some key learnings from successful (and not so successful) SRM efforts Access the exclusive on-demand webinar of this topic here: https://goo.gl/Se9gy6
  24. 24. 24© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.  High-expenditure area  Many existing alternate products and services  Many qualified supply sources  Goods and services are readily available  Commercial involvement can significantly impact price Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core Suppliers Transactional Suppliers Strategic Enterprise Partners Strategic Suppliers Core SuppliersImportant Suppliers Do Not Do Business With Strategic Suppliers Leverage Strategic  Strategic to profitability and operations  Few qualified supply sources  Large expenditures  Design to quality critical  Complex specifications Routine  Many existing alternate products and services  Many sources  Low value  Small individual transactions  “Anyone” could buy it  Unspecified items for everyday use Bottleneck  Very complex specifications requiring complex manufacturing or service process  Few alternate products available  Few qualified sources of supply  May have a big impact on ongoing operations or maintenance  New technology or untested processes involved in provision of the product or service BusinessImpact Supply Market Challenge To begin, we need to rethink supplier segmentation as typical models don’t allow for multi-dimensional relationships… Tiered Model Critical Suppliers Tactical Suppliers Kraljic Matrix
  25. 25. 25© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. …and instead, we need to first segment the supply base around each of the three SRM dimensions below Supplier Relationship Management (SRM) Capabilities Management Performance Management Risk Management Focus Not a Focus …and then tier Innovation Cost Improvement Sustainability
  26. 26. 26© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. (Spend Categories/Spend Amount) A $5M B $2M C $7M D $4M E $3M F $8M G $1M H $6M J $3M K $5M L $2M M $9M N $6M O $3M I $4M Quantity of Spend Influence Current Spend Influence 68% Opportunity Next, we need to consider not just the quantity of spend influence…
  27. 27. 27© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. (Spend Categories/Spend Amount) A $5M B $2M C $7M D $4M E $3M F $8M G $1M H $6M J $3M K $5M L $2M M $9M N $6M O $3M I $4M Quantity of Spend Influence Opportunity QualityofSpend Influence Supply Assurance Price TCO SRM - Risk SRM - Innovation Demand Management SRM - Performance …but the quality as well
  28. 28. 28© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Lastly, while we see much evidence of performance and risk management in indirect, innovation still eludes us We need to look beyond indirect procurement for the best ideas, typically product based organizations…  First, in these companies, innovation is recognized and embedded in the culture of the company, not just the R&D or product development groups  Second, they allocate / dedicate time to innovation. It’s not done in the margins.  Third, they are comfortable in an environment where success is not guaranteed. This is not always easy for a sourcing professional. …but activity is certainly growing in indirect
  29. 29. 29© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Getting started…leveraging a process framework including supporting technology… Supplier Development Performance & Risk Management SRM Governance Supplier Stratification SRM Definition & Best Practices SRM Systems Company-wide technology tools to automate and manage SRM information across the supplier life-cycle. Systems facilitate information collection, allow supplier access, joint collaboration, self-reporting, and performance tracking. Formal programs for advancing supplier capabilities and improving joint processes to create long-term value. Common SRM definition, including consistent processes and tools, maintained based on best practice concepts and tailored for functional needs. Consistent performance & risk management process and tools using incentives and penalties to drive improved supplier performance. Stratification of the Supply Base enables effective prioritization of resources and management of relationships. Formal governance structure and roles clarify supplier interactions and internal collaboration. Roles-based skills definition results in effective SRM team staffing.
  30. 30. 30© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. …as well as developing a roadmap Year 1 Year 2 Year 3 Process& Systems People& Organization • Obtain buy-in for program from all stakeholders • Identify SRM participants and roles/responsibilities • Build relationships with pilot suppliers • Ensure internal/external executive engagement • Build relationships with all key suppliers • Formalize program to solicit supplier feedback • Have executive involvement for performance reviews • Establish true partnership focus with suppliers • Joint customer/supplier teams focus on improvement opportunities • Gather stakeholder input on program performance • Train participants on program • Define SRM requirements for each tier of suppliers • Develop plan for centralized SRM framework • Pilot segmentation process with pilot suppliers • Build scorecard with standard metrics and KPIs • Launch centralized SRM framework • Extend to all key suppliers • Review performance quarterly with key suppliers • Enable systematic supplier surveys and/or scorecards • Build program measurement plan and process • Build formal supplier development plans • Perform annual review of program performance • Expand technology capabilities (i.e. supplier portal, self-service, etc.)
  31. 31. 31© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Key takeaways  Have an objective for building your SRM capability…and make sure others are aligned to it  SRM is not just a procurement capability, it is an Enterprise capability. You will not be successful on your own.  Everyone is doing some aspects of SRM today. What everyone hasn’t done is develop an overall and consistent framework and establish a single face to the supply base.  SRM has a significant ROI with top performers delivering a 2x value creation advantage over peers through increased innovation, risk reduction, and improved operational performance.  Don’t try and build Rome in a day…it’s difficult to be successful. SRM effectiveness comes from going deep, in the right way, with strategic suppliers. Starting small and successful is crucial.
  32. 32. 32© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Access the exclusive on-demand webinar of this topic here: https://goo.gl/Se9gy6

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