Putting Supplier Relationships in the Green Zone

Putting Supplier Relationships
in the Green Zone
Access the exclusive on-demand webinar of this topic here:
https://goo.gl/Se9gy6

About Zycus – Comprehensive Source-to-Pay Suite

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.

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).

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

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

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

…our ability to address our SRM capabilities remains a challenge

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

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

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

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

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

• 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
…as well as…

Become your supplier’s “Customer of Choice”
Empathize
On-Board
ScoreSegment
Enable

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.

 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

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

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

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

To make SRM successful, Procurement must function as the
transformational change agent between suppliers and the business

There are some key learnings
from successful
(and not so successful)
SRM efforts

 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
Strategic
Enterprise
Partners
Strategic Suppliers
Core Suppliers
Strategic
Enterprise
Partners
Strategic Suppliers
Core 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

…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

(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…

(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

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

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.

…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.)

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.

Putting Supplier Relationships in the Green Zone

Recommended

Recommended

More Related Content

More from Zycus

More from Zycus (20)

Recently uploaded

Recently uploaded (20)

Putting Supplier Relationships in the Green Zone