Effective SRM correlates with high performance business

For six consecutive years, Accenture has evaluated the performance and challenges of supply chain executives in the procurement arena. In 2005, Accenture surveyed 229 senior procurement executives from across Europe and the United States to discover how companies can successfully manage supplier relationships to deliver sustainable benefits in the long term.

Says the head of a sourcing practice at a global banking giant, "Senior supply chain executives take note - the 'differentiate or die' philosophy is alive and well. As this report shows, the question is not whether SRM is happening, but how much more value we can realise."

South Africans agree

For many chief procurement officers, SRM represents an opportunity to build more robust post-contract award capabilities and ensure that the savings promised during the sourcing process are achieved and even surpassed.

Mike Mitchley, vice president of commercial services, Gold Fields, agrees: "We have moved away from a short-term approach towards longer term partnerships with suppliers. In essence, we've started saying to vendors: 'We want a long-term, mutually beneficial relationship with you. Let's work together to see how we can improve each other's bottom lines.'"

"With the South African Government placing a focus on economic growth and capital investment for infrastructure through its Accelerated and Shared Growth Initiative, organisations cannot afford to ignore SRM - it will be the chief factor in determining an organisation's ability to deliver," says Hayley Walters, supply chain lead at Accenture in South Africa.

"Accenture experience has shown that, successfully harnessed, SRM can channel innovation into an organisation and help businesses move one step closer toward achieving high performance."

Findings

The findings of the study not only illustrate the cost benefits of SRM but indicate that in order to extract the best value, a company must use a holistic approach to align procurement capabilities, technologies and processes. SRM leaders are organisations that achieve more than 50% of their procurement benefits from post-contract award activities.

By analysing the activities adopted by SRM leaders, conclusions can be drawn as to how other companies might successfully implement SRM to reduce operational costs, impact the bottom line and, ultimately, achieve high performance.

Specific findings of the study include:

• There is a tangible prize for those that focus on sourcing and SRM. Looking across the total benefits achieved, 3 - 5% savings can be achieved by both sourcing and post-contract activities against total procurement operating spend. SRM leaders achieved savings of 3 % on their total annual procurement spend.
• Companies' focus on SRM is set to increase. When questioned about their future focus on SRM, 64% of all respondents believe the importance of post-contract activities will increase or remain the same. Some respondents are even more bullish—an additional 12% reported that their SRM focus will increase.
• SRM activities span departments. All survey respondents split their procurement activities between the procurement function and other departments within their business - 37% of all respondents ranked the ability to work cross-functionally as most important. Interestingly, the procurement department tends to focus on administrative activities such as logging of contract information, whereas other departments spend more time on value-adding activities such as joint product development.
• Superior results are achieved by those that focus on collaboration with suppliers. SRM leaders not only recognise the importance of value-added collaboration with suppliers, but they also assign greater resources against these activities. For example, they dedicate (on average) nine full-time employees to joint product development compared with all respondents, who only dedicate three full-time employees. SRM leaders, however, also ensure they master the basics, such as monitoring and reporting suppliers' performance.
• There is a SRM skills gap. SRM requires supply chain skills that appear to be lacking inside and outside of the procurement department. This is illustrated by the fact that those who succeed at improving supplier relationships consider the most important activity to be monitoring supplier performance, yet only 15% consider themselves to be experts in this activity.
• SRM leaders use collaborative technology. High performing SRM practitioners demonstrate higher levels of technology adoption across all functional areas of procurement technology. The difference between the SRM leaders and all respondents is greatest for contract management, business-to-business integration/collaboration and e-sourcing.
• SRM varies across different industries. Among the global survey population the greatest percentage of SRM leaders were found in the following sectors: media and entertainment (50%); automotive (38%) and pharmaceutical, medical products and health (32%). The lowest corresponding percentages were found in the sectors of property and facilities management (0%), banking and insurance (5%), and industry and manufacturing (8%).

The path of partnership is never an easy one. Leaders that have embraced SRM from a more strategic and holistic standpoint, however, are clearly winning in the marketplace - and not purely through cost reductions. Companies can realise other benefits beyond savings, including reduced risk, increased speed-to-market and access to new technology and solutions.

^*Accenture defines SRM as "the systematic management of supplier relationships to optimise the value delivered through the relationship over their life cycle".