Supplier RelationshipManagement
How key suppliers
drive your company’scompetitive advantage

At PwC in the Netherlands over 4,600 people work together from 12 offices and three different perspectives:
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2

Foreword
Nearly all self-respecting procurement organisations have a stated intent andcommitment to do more in the area of supplier relationship management. And for all
the right reasons:• Without SRM, negotiated savings may never be realised,• The business might consider procurement “missing in action” when something goes
wrong, and• Suppliers may begin to see procurement as just negotiating, i.e. not involved in thereal business. As a result, they might not make their best effort going forward, letalone be proactive in offering innovative suggestions.

Remko van Hoek
Global Procurement
Director PwC & Visiting
Professor Cranfield
School of Management

The call to do more with SRM is not new, so isn’t it about time we actually started doing
more and talking less? The answer is yes, but the process is not easy and some help andinput on the following could be valuable:• The capabilities and composition of the procurement team might need to change,• The team’s orientation may need to be adapted (with a view to primarily selling thecompany to suppliers to get the best inputs first),• Time allocation could need tweaking (e.g., spending more time with suppliers thanwith the procurement team), and• Roles and engagement with internal stakeholders might need a review (essentially,
inserting procurement into a business-centric relationship).
Put simply, being able to negotiate a deal does not mean a buyer is able to manage arelationship, nor is it possible to ensure premium access to suppliers in a contract. So
our team and our toolkit need work.
We initiated a study to gain a better understanding of SRM and to advise our clients on
this topic. The value of this study for procurement leaders is many-fold:• It informs our understanding of what is keeping us from doing more in the area of
SRM,• It offers practical perspectives and insights that can enhance our action planning,• Because the study is based on discussions with our peers, expert interviews and aonline survey, it is not theory centric or wishful thinking; it is about real-life lessons
from the market,• Finally, it is part of our team’s ongoing effort to help improving SRM practices withinsight and practical advice.
However, our efforts will not end with this report. On the contrary, our work has justbegun. There are lots of opportunities to join the discussion in upcoming roundtables
and further practice development. Do let us know if you would like to get involved andbenefit from the process. The time is ripe for procurement to start doing what it has
been meant to do more for a long time. Please use the advice, experience and tools
captured in this report to your advantage. It is our hope that this will help you on yourSRM journey.

3

4

Table of contents
Executive summary

6

Introduction

7

1. Key research findings

10

2. Towards world-class SRM

18

3. How to establish SRM

36

Acknowledgements

38

About the research team39

Appendix 1: Population profile of online survey

41

Appendix 2: Detailed SRM maturity model

42

5

Executive summary
Ensuring the best prices through strategic sourcing is no longer perceived as a
strategic capability of the procurement function. As a result of further outsourcing
of non-core competencies, organisations are starting to realise that they havebecome more reliant on suppliers in terms of innovative power, security of supply,
corporate social responsibility, and on-going cost savings. Strategic partnerships
are at the top of the corporate agenda of many global organisations and Supplier
Relationship Management (SRM) is seen as one of the few remaining procurement
topics that can still make a significant difference. But many organisations
encounter difficulties in initiating, developing and managing partnerships. In
particular, leadership and soft skills are mentioned as primary reasons for failure,
alongside technical & functional competencies. We initiated a study on SRM togain a better understanding of the typical challenges involved and to determine
how supplier capabilities drive competitive advantage.

A CPO roundtable, desk research, an
online survey and expert interviews
were input for our research. Below, wesummarise the ten key findings of ourstudy report:
1. The most important SRM objectives
are leveraging supplier capabilities,
delivering cost savings and reducing
supply risk exposure.
2. Approximately 60% of the respondents
have a formal segmentation process
in place, with spend size, product/
service importance and risk exposure
as the most important segmentation
dimensions.
3. While the benefits of SRM are
acknowledged, the average SRM
maturity level is still low.

6

4. The top-three challenges respondents
encounter are an overemphasis on
cost reduction, a lack of specific
SRM competences and insufficientalignment between the business,
procurement and supplier.
5. Typical best practices arequantification of benefits and costs(ROI), proactive and two-way
performance management, anddocumented supplier strategies per
segment.
6. Benefits measurement, executive
sponsorship and strategic coherence
are indicated as the most critical
success factors.
7. Technical/functional, relational anddevelopmental competencies must bebalanced and continuously developed.

8. Innovation, sustainability, leagility
and resilience are seen as the key
drivers for SRM value creation.
9. Current SRM programmes
already contribute to performance
management and risk exposure
reduction.
10. The respondents indicate that there
is a positive correlation between thepresence of SRM and an increasein market share, responsiveness tomarket changes, increased returnon investment and shortening orderfulfilment lead times.

Introduction
Procurement becomesstrategic
The role of the procurement function is
drastically changing in today’s challenging
world. In the past, procurement was
expected to ensure the timely availabilityof products and services while also being
responsible for accurately processing
transactions. Economic developments
during the 1980s and 1990s prompted
companies to recognise the potential
contribution of procurement tomeeting cost-out targets. Through theimplementation of category management
and running strategic sourcing initiatives,procurement was able to rationalise thesupply base and consolidate volumes,
resulting in price reductions. Global
sourcing and outsourcing of non-core
activities became popular as well.
However, the procurement function was
still functionally organised, with little
collaboration and alignment with otherbusiness functions, which kept the priceorientation alive.
During the advent of the Total Cost of
Ownership (TCO) concept, organisations
started to realise that a change from afunctional orientation towards processes
optimisation was required, with crossfunctional collaboration. As a result,procurement became the responsibilityof cross-functional teams while its
strategic importance and recognition
increased. The procurement function not
only contributed to price reductions, butalso played a crucial role in optimising
total lifecycle costs. The next step
towards procurement excellence is toadopt a value-driven orientation withexternal/supplier collaboration as a key
cornerstone.

Business
StrategyMore value driven

Accelerate innovation
through partnerships
Reduce carbon footprint andrealise sustainable sourcing
Improveavailability of
products & services

Drivemarket and company
standardization

Manage risks andcomply to regulations

More cost driven

Maximisetax benefits

Optimiseworking capitalRun efficient
processes

Reducespend on direct andindirect categories

Encourage visibility inthe supply chain

A Procurement Strategy is developed with the objective of impacting and supporting theBusiness Strategy and is, therefore, fully business driven.

As stated previously, ensuring the bestprices through strategic sourcing is nolonger perceived as a strategic capabilityof the procurement function. As a resultof further outsourcing of non-corecompetencies, the procurement costs asa percentage of total cost is 50-80% forcompanies that develop, manufacture,trade and/or distribute goods. Besides
this financial impact, organisations arestarting to realise that they have become
more reliant on suppliers in terms ofinnovative power, security of supply,
corporate social responsibility, anddelivering on-going cost savings. Together
with sustainability, strategic partnering is
at the top of the corporate agenda of many
global organisations and is seen as one offew remaining procurement topics thatcan still make a significant difference.

External integration: next
step towards procurement
excellence
Companies are now aware that they must
integrate and collaborate with suppliers
to remain competitive and take the next
step towards procurement excellence.
Supplier management is not a new topic,
but it has always been the ‘stepchild’of the procurement function. KPIs likespend reduction were an important
culprit here. Companies became rather
proficient and mature in running
strategic sourcing initiatives and created“money on the table”. After realising
the contracted savings, category teams
and buyers jumped on the following
sourcing initiative while neglecting
the implementation and management“Besides risks, we need to financially materialize thecontribution of innovation and sustainability”

7

of contracts. Delivering “money in the
pocket” reflected as savings in the P&L
appeared to be another story. Research
indicates that there is an average of 25%
contract value leakage (“money in theair”). Formalising contract managementand delivering “performance to contract”
is a challenge for many organisations.
Not every supplier is qualified as a partner:
supplier segmentation is necessary todifferentiate supplier strategies. If a supplieris qualified as strategic, an organisation can
decide to initiate a partnership.

In our definition, Supplier RelationshipManagement (SRM) is a systematic
approach for developing and managing
partnerships. It is focused on joint growthand value creation with a limited numberof key suppliers based on trust, open
communication, empathy and a winwin orientation. Non-partnerships aremanaged by means of other measures
like contract administration, contract
management and vendor rating. In our
opinion, Monczka e.a. (CAPS Research,2011) described the SRM objectives andbenefits very concisely:

Value Orientation:
Internal

Value Orientation:
ExternalValue

SRM driven by
innovation,
sustainability
and leagility“Value creation:
beyondtraditional cost
cutting”
Breakthrough inoperational & financial
performance“Money in the air”

Impact of Contract
Management“Money in the
pocket”

No contract
management“Money on thetable”
Time
Impact of Strategic Sourcing

8Impact of Supplier
Relationship Management

1. Become ‘customer of choice’:preferential treatment regarding
availability, costs, access totechnology, innovation and risk
reduction
2. Focus on value: increased market
competitiveness through considerationof all relevant elements that determine
stakeholder value
3. Leverage on supplier capabilities:
advantageous position through early
involvement in the innovation andproduct & process development
processes
4. Share growth, profits, risks andinvestments: joint objectives, efforts
and resource commitments resulting
in a healthy culture for continuous
growthResearch objectives andapproachWith more than 500 sourcing &procurement practitioners worldwide,
we have broad and deep expertiseto support organisations in solving
supply-related issues. We have noticed
that many organisations encounter
difficulties in initiating, developing
and managing partnerships. And as we
mentioned, besides technical & functional
competencies, leadership and soft skills
were mentioned as main reasons for
failure. We initiated this study on SRM to
get a better understanding of the typicalchallenges and to determine how suppliercapabilities drive competitive advantage.
Our research focused on privatecompanies that develop, manufacture,trade and/or deliver goods. The majorityof the participating companies areheadquartered in the Netherlands. To
achieve our goal, we wanted answers to
the following research questions:• How is SRM currently structured at
private sector organisations?
• Which key challenges do organisations
encounter in building strategic
partnerships?

• Which best practices can be adopted toachieve world-class SRM?
• Which supplier capabilities drivecompetitive advantage?
• How can organisations successfully
implement SRM?
The research team deployed several
research methods to collect observations,draw conclusions and define
recommendations. After several initialinterviews with business executives andprofessors, we decided to organise a
CPO Round Table to further elaborate on
SRM. We also took this opportunity todefine hypotheses. Next, we performed
extensive desk research (PwC andnon-PwC sources), which we used asa basis for developing and launching
an online survey. The results of theonline survey and case studies served
to validate the hypotheses. This reportpresents our observations, conclusions
and recommendations. It is important tonote that our database is growing because
organisations are still contributing bymeans of the online survey.

Phase IV:
Expert interviews

Phase II:
Desk Research
CPO Round Table
to explore topic
and define
hypothese

Phase I:CPO Round Table

Extensive
literature review
to build
foundation forresearch

This report is structured in three chapters.
Chapter 1 presents current SRM practices,
including SRM objectives, current
maturity level, typical key challenges,
unique supplier capabilities, and benefits
achieved by organisations. Chapter 2
describes best practices for achieving
world-class SRM. Finally, chapter 3
provides a framework for implementing
and deploying world-class SRM. We wish
you much reading pleasure and we hopeto offer you and your organisation ‘foodfor thought’ to further enhance Supplier
Relationship Management.

Online survey tovalidate
hypothese (panelof 30 respondents,
see appendix A
for population
profile)Phase III:
SurveyExpert interviews:
Chemicals
FMCG
Energy & Utilities
Construction
System integrator

Individual reports
for participants
based on online
surveyFinal report andclosing seminarPhase V:
Report9

1. Key research findings
Chapter 1 presents the main
observations and conclusions of
our SRM study. Our findings are
structured around six elements,
namely:• SRM objectives• Typical SRM challenges• Current maturity level• Unique supplier capabilities• Critical success factors• Potential benefits

SRM Objectives

Developments in the businessenvironment have become much
more difficult to anticipate due to theglobalisation of demand and supply
markets, more demanding customers andconsumers, shorter product lifecycles,
continuous pressure on costs andcash, and societal pressure regarding
corporate social responsibility. As aresult of outsourcing, procurement andsupplier management have become more
important and strategic. But what are
the most important objectives of SRM?
We asked the respondents to select threeobjectives from a list of ten that are most
relevant for their organisation.
SRM is focused on joint value creation
based on trust, open communication andcollaboration with a limited number ofkey suppliers. Leveraging on suppliercapabilities is mentioned as the mostimportant objective of SRM. Organisations
are aware that they don’t have the means
to finance all activities on their own.
Activities that were always perceived

as strong contributors to competitive
advantage and were kept in-house (e.g.
product development, manufacturing,
services, etc.) are now qualified foroutsourcing. Gaining access to uniqueknowledge, resources, capabilities, talentand ideas are an integral part of this key
objective.
The second most important objective
is reducing cost. This would appear
to conflict with the focus on value
creation, but cost-cutting is still one of
the key imperatives. The main differencewith traditional approaches is that
benefits are now realised and shared
together with partners. This objectiveis also related to the low maturity
level of SRM as a business process (seefollowing paragraph): the businessperceives procurement, and therefore
SRM, primarily as a contributor to cost
reduction.
Security of supply is selected as thenumber three objective of SRM. Due to theglobalisation of supply chains, stronger

Figure 1. Objectives to initiate SRM
Leverage on supplier capabilities
Deliver on cost reduction targets
Improve security of supply
Become a 'customer of choice'
Manage the supply risk profile
Enhance supplier relationships
Guarantee sustainable sourcing
Increase the responsiveness of the supply chain
Anticipate on volatile commodity prices
Other
0%

10

5%

10%

15%

20%

25%

fluctuations in demand & supply, material
scarcity, and preferential behaviour bysellers or even countries, it has become
difficult for companies to ensure productavailability to customers. By means ofpartnerships, buying companies aim
for preferential treatment while drivingout strong volume and mix fluctuations
through integrated forecasting &planning, product substitution &simplification, and hedging.
Other SRM objectives that are notincluded in the above graph but werementioned during expert interviews:
increase innovative power, reduce
working capital, prevent reputational
damage, enable closed-loop supply chain
management, shorten time-to-market,
increase supplier service, and improve
product quality.

Typical SRM challenges

Although organisations are aware andconvinced of the SRM benefits, many
still encounter difficulties in developing,
implementing and operating partnerships.
SRM requires a completely different mindset, which makes SRM a complicatedexercise. But what are the key challenges
the respondents encounter? We asked
them to select three from a list of ten thatare most relevant for their organisation.

The most severe challenge is thedominant role of costs. Cost reduction
is an essential part of value creation
but too much focus on this aspectdiscourages a long-term orientation. KPIs
are focused on short-term optimisation,
provoke counterproductive behaviour& collaboration, and emphasiseprocurement’s traditional role of getting
the lowest prices. However, value drivers
like innovation, sustainability and leagility
require a long-term orientation which isconflicting with the short-term focus.
So far, procurement has always been
responsible for running sourcing projects.
Functional competencies like negotiation
skills, market analyses, and cost & risk
management were perceived as the
key to success. However, SRM requires
completely different skills like influencing,leadership and change management.
Traditionally, buyers do not naturally havesuch skills or are not trained to develop
them.

customer. Furthermore, organisations caninherently have different orientations:some are farmers, while others are
hunters and this will never change.
Expert interviews have taught us that alack of executive sponsorship and businesscase are the most important hurdles toovercome. Executive ownership ensuresalignment with the corporate objectives,
sufficient resource allocation as well asa mandate to change and solve issues. A
business case creates appetite at the start,
helps to track and trace progress andtranslate the impact of benefits into the
P&L and balance sheet.
Other key challenges that are notpresented in the graph but werementioned during expert interviews
include a lack of training, no specific SRM
strategy & objectives, no harmonised way
of working with a standard toolkit, thefact that KPIs are focused on operational
issues and a lack of rigorous programmemanagement.

The third key issue selected by the
respondents is that the strategic
objectives of the buyer and supplier
are incompatible. This situation isexacerbated if the buying organisation
wants to develop a partnership while
the supplier is focused on exploiting the

Figure 2. Challenges & issues when implementing SRM
Too much focus on costs instead of value
Lack of specific SRM competencies and skills
Strategic objectives that are not compatible
No alignment between the business and procurement
Open communication and information sharing is difficult
Focus on fighting instead of collaborating
Ignorance of soft skills to manage business relationships
Lack of business involvement in managing the relationship
Limited engagement and sponsorship from top-management
Lack of mutual understanding and empathy
Other
0%

5%

10%

15%

20%

25%

11

Overall SRM maturity level
Maturity models help organisations todefine the current state of affairs andprovide the opportunity to facilitate a
discussion on the ambition level. We
distinguish four different levels:
1. No SRM: the organisation manages
all suppliers by means of contracts
without any differentiation in
supplier strategies. The objective isto realise ‘performance to contract’.
Performance management is onedirectional and rather directive.
Collaborative improvement initiatives
are rather unstructured.
2. Exploring: the organisation recognises
the value potential of key suppliers
and initiates a limited number of pilot
projects to build trust, experienceand credibility. Joint initiatives now
go beyond cost reduction and areorganised in a more structured way,
but are still rather operational/tacticalby nature.

Figure 3. Current maturity level of SRM
70%
60%

64%

50%
40%
30%
20%

23%

10%

13%

0%
No SRM

Exploring

Established

0%World-Class

3. Established: SRM is a mature businessprocess and fully integrated in theoperating model. All key suppliers
are covered by the SRM programme
and financial benefits are delivered
while risk exposure is significantly
reduced. SRM starts to deliver top-line
improvements as well and is seen as
a strong contributor to competitive
advantage. Joint improvement
initiatives are formalised with a clear
governance structure.
4. World-class: SRM is at the heart of thebusiness and fully incorporated in thecorporate strategy. The organisationis “customer of choice” for a selected
number of strategic suppliers withwhich it is fully integrated. The
organisation shows double-digit
improvement percentages year-onyear and, as a result, stays ahead of its
competitors. Collaboration between
both partners is a way of working:procedures are no longer necessary.

Based on the respondents’ answers, weconclude that the current maturity levelof SRM is still relatively low. Almost aquarter of all respondents (23%) indicate
they have no SRM programme at all.
Collaboration with strategic suppliers is
unstructured, as are joint improvement
initiatives. Most organisations are at the‘exploring’ stage (64%). They initiatedan SRM programme and are developing
toolkits & templates, but only for a limited
number of partners. A minority of the
respondents have fully “established”
SRM programmes (13%) while none of
the respondents has a ‘world-class’ SRM
programme in place.

“SRM is from the entire organisation: procurement
seduces, inspires and facilitates”

12

SRM Maturity Model

Based on desk research and expert
interviews, we developed an SRM
Maturity Model to help organisations
determine their current maturity level anddefine their future ambition level. Thismodel recognises the four maturity levels
as discussed above, and distinguishes
seven SRM enablers that are critical tosuccess. Appendix 2 presents the maturity
model in more detail.

No SRM

Exploring

We asked each respondent to score theirorganisation on the seven individual
enablers. The results are fully in line withthe overall SRM maturity level as presented
above. The average score per enabler
is between level 1 and level 2 whereby‘Strategy & Governance’ seems to be mostdeveloped enabler. This is hopeful because
a successful SRM programme starts
with a clear vision and objectives. The‘People’ enabler is clearly lagging, whichemphasises the importance of having abalanced set of the competencies in place.

EstablishedWorld-Class

Strategy &Governance

Focus on ‘performance tocontract’
No SRM strategy & objectives

Focus on cost reduction SRM
strategy formulated but poorly
understoodPartial focus on value creation
SRM strategy known and fully
understood

Full focus on value creation SRM
strategy fully integrated withbusiness strategies

Process

No SRM process in place withspecific toolkit
All suppliers treated the same

Documented SRM process withbasic toolkit
Little differentiation

SRM process fully known andadvanced toolkit Advanced
supplier strategies

SRM process fully integrated
Partnership strategy jointly
developed and managed

No formal SRM structure in place

SRM initiatives are coordinatedthrough existing relationships

SRM through cross-functional
teams from business andprocurement

SRM through centralised SRM
office, with SRM roles andresponsibilities

PeoplePeople are low skilled in SRM
competencies with no training

Level of SRM competence varies
significantly across organisation
with some basic training

Key SRM stakeholders havemoderate SRM competences withstandard training program

All SRM stakeholders have deep
SRM competences and there is
tailored SRM training

Technology

No SRM support systems andtools

Some SRM support systems
and tools in place, but limited
integration

Integrated systems with suppliers
for sharing and reporting
information

Real time exchange of
operational, tactical and strategic
information

Performance
management

SRM performance is not being
trackedSome basic performancemeasures are tracked andreported (one-way)

Critical performance measures
are developed and periodicallyreported (two-way)

Performance measures are jointly
developed with suppliers andcover all SRM aspects

Risk
management

No risk management approachin place

Risks are mapped, but concrete
actions to mitigate these risks arelagging

Full visibility on relevant risks,approach to mitigate risks
developed internally

Full visibility on relevant risks,
mitigation approach developedwith suppliers

Structure

Figure 4. Current maturity level on SRM enablers
Strategy & Governance
Process
Risk Management
Technology
Performance management
Structure
PeopleNo SRM

Exploring

EstablishedWorld-Class

13

Supplier Relationship Management will
not be successful simply by implementing
these seven enablers. Expert interviews
and desk research taught us thatappropriate competencies make the realdifference. We asked the respondents toscore their own organisation on threedifferent SRM competencies:
1. Technical/functional competencies:
sourcing, negotiating & contract
management, supply market
analyses, spend analyses, operational
excellence, cost management,risk management and suppliermanagement.

Figure 5. Current maturity level on SRM competencies
World-Class

Established

Exploring

No SRM
Development
capabilities

Relationshipcapabilities

Operational & technicalcapabilities

2. Relational competencies: envisioning,leadership style, project & programmemanagement, change management,
process & organisational design,
influencing, issue solving, personal
relationships and emphatic behaviour.
3. Developmental competencies:
innovation power, sustainability,
continuous improvement, lean and/or
agile operations, production capacity
and information management.
On average, none of the competencies
score higher than level 2, which again is inline with the overall SRM maturity level.
We expected that the technical/functional
competencies would score relatively
higher because these cover the traditional
activities of procurement. Based on thequestions asked, we cannot explain why
this is not the case.
Finally, we asked the respondents at whatlevel they currently collaborate with key
suppliers. Once more, the results are
consistent with the previous observations:collaboration with key suppliers is in the‘Exploring’ phase with joint continuous
improvement programmes and productdevelopment as the frontrunners.

Figure 6. Current buyer-seller interactions with key suppliersWorld-Class

Established

Exploring

No SRM
Continuous
improvement

14

Joint
product
development

Focus onvalue
creation

Real-timedata
exchange

Open-bookcontracts

Integrated
planning
cyclesSharedinvestments

Supplier competencies

The success of SRM is also highly
dependent on the competencies of the
supplier. Supplier competencies are theresources, processes and measures a
supplier can offer the buying firm, andwhich are needed to develop and manage
partnerships. One overall conclusion fromthe study is that most organisations scorethe competencies of their key suppliers
significantly higher than their own
competencies.

Figure 7. Supplier operational & technical competencies
70%
60%
50%
40%
30%
20%
10%

Operational & Technicalcompetencies

0%

Almost 70% of the respondents indicatedthat their key suppliers deliver theirproducts/services on time in full andaccording to specifications. They also
perceive the production process of their
key suppliers as efficient. The ability tointegrate with information systems isscored relatively low.

Relationship competencies
Almost all respondents (90%) indicatedthat their key suppliers are willing andable to collaborate. Top management
support is guaranteed at the majority ofthe suppliers.

Delivery

Efficientproduction
process

Flexibility

Quality of
products

Ability tointegrate withinformation
systems

Agree
Neither agree, nor disagree
Disagree

SRM is based on building relationships
and trust is an important enabler.
However, 50% of the respondents
indicated that their relationship with key
suppliers is not based on trust.

Figure 8. Supplier relationship competencies
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Willingness
and ability
to collaborateTopmanagement

Commiment
to relationship

Willingness
to shareinformation

Empathy

Easy to deal
with onday-to-day
operations

Relationshipbased on
trust

Agree
Neither agree, nor disagree
Disagree15

Developmental competencies
The respondents gave the developmental
competencies of their key suppliers
relatively low scores compared tothe other two capabilities, while
the respondents scored their own
developmental competencies as highest.
The ability to develop new products orrealise product improvements was the
only supplier competency with an averagescore of over 50%.

Critical Success Factors

Figure 9. Supplier developmental competencies
70%
60%
50%
40%
30%
20%

To successfully achieve the SRM
objectives, organisations need to meetseveral prerequisites. We asked the
respondents to select three critical successfactors out of a list of ten that are most
relevant to their organisation.
It is vital to track the progress of theintended benefits. Positive results build
credibility and ensure focus. The second
important critical success factor is
strategic coherence. First, the businessand procurement should be internallyaligned so that SRM fully contributes tobusiness objectives. Once that is realised,a partnership will only succeed if there isa strategic coherence between the buying
firm and key supplier. For example, theAgreeNeither agree,
nor disagree

10%0%Disagree

Ability todevelop new
products or
product
improvements

Offersustainablebusinesssolutions

Actively shareinnovative
ideas

Continuous
improvementof processes

Other success factors critical to SRM thatare not presented in the graph but werementioned during expert interviews
are: get the supplier data right, fulltime dedicated supplier relationshipmanagers, cross-functional teams,
supply market & supplier intelligence,and clear understanding of SRM by theorganisation.

cost leadership strategy of a buying firm
does not really match with a supplier’s
strategy focused on differentiation by
innovation. The third-ranked critical
success factor is sponsorship by top
management. It ensures that the rightpriorities are set and that sufficient/appropriate resources are allocated.

Figure 10. Critical succes factors for SRM
Benefits measurement
Strategic coherence internally and with supplier
Top management support
Governance structure is in place
Relationship governanceControl & compliance with standardized
Continuous people development
Dedicated budget and resources
Enabling technologies
Initial business case and ROI
Other
0%

16

5%

10%

15%

20%

Benefits of SRM

Performance improvement and risk
exposure reduction are communicating
vessels. Taking more risk could resultin short-term advantages but threatens
long-term financial and operational
performance. In our research, we asked
respondents to indicate which benefits
have already been realised with current
SRM initiatives. The figures do not reflect
the level of performance improvement but
how often a benefit was mentioned by a
respondent.

Other SRM benefits that are not presented
in the graph but were mentioned duringexpert interviews are: higher contract
compliance rates, more successful
outsource deals, increased supplierservice percentages, strengthened
relationships, higher speed-to-market andless waste in the supply chain.
This chapter described current SRM
practices. Chapter 2 will elaborate on
best practices that provide guidance toestablish and/or enhance SRM at yourorganisation.

Figure 11. Performance benefits of SRM
More efficient processes
Reduction of inventory
Improved customer satisfactionMore sustainable products or processes
Better access to technological innovations
Higher responsiveness to customer demand
Improved on-time delivery by our suppliers
Better quality of our end product
Better access to new products/markets
0%

10%

20%

30%

40%

50%

60%

0%

10%

20%

30%

40%

50%

60%

Figure 12. Risk benefits of SRM
Quality issues
Scarcity of materrials
Currency & price flutuations
Disruptive events in the supply chain
Reputation damage“The nature of the relationship determines the required
capabilities”

172. Towards world-class SRM
This chapter presents typical best practices
to successfully establish and enhance
an SRM programme or to develop andmanage partnerships. We will use theseven enablers from the Procurement
Framework of PwC which are:

4. People: which unique competencies
does your organisation need toestablish and manage SRM?

1. Strategy & Governance: what does
your organisation want to achievewith SRM and how are theseobjectives secured?

6. Performance Management: how
does your organisation measure andimprove partnership performance?

2. Process: which activities does yourorganisation perform and how is SRM
supported by a standard toolkit?
3. Structure: how does your organisation
structure SRM and which roles &responsibilities are established?

5. Technology: which support systems
does your organisation deploy?

7. Risk Management: how does yourorganisation identify and mitigate
risks at key suppliers?
This chapter concludes with a short
description of four key capabilities that, in
our view, drive SRM value creation.

Figure 13. Procurement Framework of PwC

Enablers:
The review and alignment of the enablers is
topic of the total procurement transformation.

Strategy &GovernanceDirection setting:
The procurement strategy is the heart ofprocurement and should be aligned tocompany and business strategy and objectives.

Processes:
The operational side of procurement: fromdetermining needs to payment of invoices
while managing contracts and suppliers.

18

Strategy & Governance

Issue

Best Practice

Traditional view on Procurement results in astrong emphasizes on cost reduction

Let the business define what value means to them througha structured approach of value mapping

The objectives and way of working of the SRM
actors are not synchronised

Make the SRM strategy & objectives explicit: internalalignment precedes external alignment

There is a lack of executive commitment andno burning platform

Develop the business case in collaboration with Financeto build trust & credibility and perform benefits tracking

1

2

3

1. Business drives value
mapping
Procurement is still primarily seen as acontributor to cost-cutting initiatives.
This perception is often reflected in theway companies establish and manage
their SRM programme: a focus on cost
reduction and accompanying performanceindicators.
Value mapping encourages companies
to think beyond cost cutting and allows
them to incorporate value drivers that
also contribute to revenue growth, asset
utilisation and risk reduction. Althoughprocurement can facilitate the process of
SRM value mapping, it is essential that

Figure 14. Alignment

Clueless

Performanceleadershiplow

Alignment

highPerformance leadership is all about craftsmanship,
you will never achieve this without on boarding your people

Going
nowherelow

Individual
Focus

high

…rigorous focus on the strategic
value drivers delivering your objectives…full alignment of strategy withstructure, processes, people and tools

the business defines what value meansand how SRM can contribute. A discussion
on the organisation’s key capabilities
and what the organisation expects frompartners should precede the SRM value
discussion.

2. Internal and externalalignment
Unfortunately, supplier management
and partnerships are often a concernof the procurement function and sales
function, with little involvement of thebusiness. Our research indicated thatthe internal objectives (of the businessand procurement) are not aligned andthat there is a lack of strategic coherence
between buyer and seller.
Value mapping facilitates the discussion
between the business and procurement,
and defines the exact business objectives
as input for the SRM programme. We
recommend that organisations document
the objectives in an SRM charter to makethem explicit and easy to share within
the organisation. Following this internalhandshake, the supplier’s objectives
should be aligned or other candidates
should be sought if objectives or cultures
do not match. As a ground rule, it isour opinion that internal alignment
always precedes external alignment with
suppliers.

19

3. Positive ROI creates a case forchangeMany of the respondents and PwC
clients experience difficulties in getting
appropriate commitment and funding for
an SRM programme. One reason we often
hear is that those involved are not capableof convincing or ‘seducing’ the leadershipteam because it is hard to build a businesscase that presents the financial benefits of
SRM.
A positive ROI attracts the attentionof executives and creates the required
case for change. Using the value map

as starting point, calculate or at least
estimate the business case for each of themain SRM stakeholders. SRM benefits canbe ‘calculated’ by estimating the impact
of preventing risky events, value leakage
due to a lack of contract compliance,
benefits achieved in the past, and by
telling compelling success stories based oncase studies. We recommend involving thefinance function from day one, because it
can provide support in defining the impactof SRM on the P&L account and balance
sheet.

Figure 15. Traditional supplier management vs. supplier relationship management
Traditional Supplier Management

MarketingMarketingMarketingResearch &Development

Research &Development

Research &MarketingResearch &Development

Competition
on
Price

Operations
Sales

Towards Supplier Relationship Management

Development
Partnering
focused on value
creation
Operations
Operations

Operations
Procurement

Sales

Procurement

Logistics

Logistics

Logistics

Logistics

Information
Technology

Information
Technology

Information
Technology

Information
Technology

FinanceFinanceFinanceFinance

Supplier

Buyer

Supplier

Buyer“I want to introduce the NPS for suppliers as part of the
supplier service concept”

20Process

Issue

Best Practice

Lack of formal business process resulting in
inefficiencies and different ‘languages’

Harmonise the SRM process and develop accompanying
toolkits and templates to make SRM explicit

One size fits all strategy to manage supplierswith little differentiation

Develop a segmentation process that is driven by theselected value drivers and is future-oriented

SRM is a stand-alone programme with little
integration

Incorporate SRM into the target operating model so that
integration with other processes is ensured

1

2

3

1. Formal business process
The majority of respondents andinterviewees have initiated an SRM
programme and operated partnerships.
Their situation is often characterised bya diffuse approach whereby no standard
way of working is applied and there is alack of supporting tools and templates.
Furthermore, SRM is often seen as aproject driven by milestones. The latter
is not per se wrong because SRM often

Figure 16. SRM as a formalised business process

Supplier Segmentation, Rationalisation,
Selection and Qualification
AssessPartnershipManagePerformance& Risks

Review

On-going
value creation

Develop &Deliver Plans

Build &
ManagePartnership

DefineStrategy &Objectives

starts as a project aimed at developing afoundation and establishing SRM.
To encourage one SRM language acrosspartnerships and business entities,
organisations need to develop a
harmonised and formalised SRM businessprocess, including appropriate tools andtemplates, such as (but not limited to):• Supplier segmentation tool
• Customer/supplier perception surveys• Supplier account plans & alliancecharter• Performance scorecards• Improvement charters• Structured meeting templates• Benefits tracking tool
As a result, SRM becomes more costeffective while knowledge sharing andcollaboration across the organisation is
encouraged.

2. Multi-dimensional suppliersegmentation
Approximately 60% of the respondents
indicated that they have a formal
supplier segmentation process. The
respondents and interviewees also told
us that spend size and, to a lesser extent
operational risks, are still the main drivers
for segmentation. Supplier strategies
per segment are often lacking or not
documented.

21

Performance at risk

Figure 17. Supplier segmentation
Contract
Management

Supplier RelationshipManagement

Focus costs andcompliance

Focus on value andjoint growth!

Preferred
suppliers

Strategic
suppliers

Transactional
suppliers

Development
suppliers

Competitive advantage and business fit

2. Competitive advantage and business
fit: to what extent do unique suppliercapabilities contribute to competitive
advantage in the future? Examples
include innovation, sustainability
and leagility. And do organisational
structures and DNA match? Thesemight include strategic coherence,
corporate cultures, and organisation
size.
The position on the grid automaticallycorresponds to the appropriate supplier
strategy. Each organisation should
customise its supplier segmentation
process and grid based on sector andcompany-specific requirements.

3. Integrated in operating model
The SRM value map provides a starting
point and defines which dimensions
should be applied − during suppliersegmentation as well as during otherstages of the supplier lifecycle − torationalisation, selection, collaborationand (dis)qualification. Based on several
existing models and our research insights,
we developed a segmentation process,tool and grid based on two axes:
1. Performance at risk: what is thefinancial and operational impact of
the supplier (now and in the future)?
Examples include costs, revenues,
quality, availability, supplier risks, andsupply market risks.

As presented in the PwC Procurement
Framework, SRM is one of the five main
procurement processes. Besides productdevelopment, these five processes indicate
how buying companies and suppliers
actually collaborate. The positionin the supplier grid determines how
intensely each process is executed andmanaged between the buying company
and relevant supplier. It will indicate,for example, whether the organisation
will deploy other contract types withstrategic suppliers (e.g. open book) thanit does with preferred suppliers (e.g.
framework contracts). We recommendthat organisations always consider
SRM in relation to other (procurement)
processes so that important process and IT
interfaces are not missed.

“SRM should also deliver value for the supplier,otherwise you will never become a customer of choice”

22Structure

Issue

Best Practice

SRM is perceived as a Pocurement topic
resulting in a lack of business ownership

Procurement manages the SRM Programme but the businessowns the partnership: cross-functional teams as foundation!

SRM is mispositioned and seen as an
operational/tactical activity

Assign an executive sponsor that owns the SRM
Programme with appropiate targets

Unclear roles & responsibilities, lack of
capacity and diffuse communication

Develop and implement a dedicated governance structure
for the SRM Programme and individual partnerships

1

2

3

1. The business owns
partnerships
We have experienced situations inwhich SRM is completely ‘outsourced’ toprocurement. As a result, procurement
develops the partnership in complete
isolation, which means that businessobjectives are not met and the businessdoes not show any ownership orcommitment. Furthermore, thepartnership will keep a focus oncommercial aspects and solving
operational issues.

Figure 18. Example of a governance structure
Executive Sponsorship
CxO (sponsor)

CxO (sponsor)

CxO

CxO

Supplier

Customer

As stated previously, procurement willplay a key role in facilitating the SRM
process and establishing a cross-functionalteam so that the interests of all relevant
stakeholders are served. However, thebusiness owns the relationship anddirectly collaborates with the supplier sothat business objectives are achieved.

2. Executive sponsorship andinvolvement
Due to the traditional view on
procurement (see point 1 of ‘Strategy &Governance’), SRM is often perceived
as an operational/tactical processthat will solve issues and reduce costs.
Considering the enormous value
potential and the fact that SRM is only
deployed for key suppliers, such a viewhinders a breakthrough in performance
improvement and risk reduction.

Steering Committee
Key Account Manager
R&D Director

Key Relationship Manager
R&D Director

Sales & Marketing Director Sales & Marketing Director
Supply Chain Director

Other
Other stakeholder/
Subject matter experts

Supply Chain Director

Cross-functional Team
Procurement

Procurement

Research & Development Research & Development
MarketingMarketing

Supply Chain

Supply Chain

Operations

Operations

Other
Other stakeholder/
Subject matter experts

We recommend that companies assign
an executive sponsor from the Board inany case. Such sponsorship emphasises
the importance of partnerships within
the organisation while this type ofsponsor ensures the alignment withcorporate/business objectives, sets theright priorities and can take appropriate
decisions. Personal targets are set andlinked to a bonus remuneration as
incentive.

23

3. Dedicated governancestructure
Building and managing a partnershipis like building and managing a new
department or business entity. It involves
an extra difficulty, however, because
it requires dealing with third-party
personnel. Partnerships are often notestablished in a structured way so thatreporting lines, roles & responsibilities
and communication are unclear. In
addition, employees are only involved inpartnerships part-time, which results in alack of focus.

24

To fully benefit from the SRM value
potential, organisations should develop
and manage partnerships in a similar way
to (new) departments. We recommend
a full organisational design approach,including the following elements coveredin an alliance charter (not exhaustive):• Organisational chart of partnershipand reporting lines;• Description of roles & responsibilities• Definition of objectives and targets• Indication of required capacity (FTE)and skills & competencies• Communication structure and planning& control cycle focus on continuous
improvement.

PeopleIssue

Best Practice

People involved in SRM lack the requiredcompetencies

Develop an SRM competency framework that covers
technical, relational and developmental competencies

Organisation does not offer SRM-related
training and courses

Develop a training programme that is fully aligned with
the SRM competency framework

The company culture is focused on short-term
results: KPI’s determine behaviour!

Show exemplary behaviour and follow a co-creation
approach which encourages understanding and commitment

1

2

3

1. Comprehensive competency
framework
The traditional buyer is often verystrong in functional competencies like
supplier market analyses, strategic
sourcing, contracting, and cost & risk
management. These competencies
significantly contribute to spend and cost
reduction. SRM also requires relationaland developmental capabilities but
companies run into difficulties developing
these competencies on an individual andcompany level.

Figure 19. Time allocation of procurement
Relationshipmanagement

Sourcing
ntractTender and co&
Measurement
t
en
em
ov
impr
Time allocation

We distinguish three categories ofcompetencies that need to be balanced:
technical/functional, relational anddevelopmental competencies. We are notsaying that each individual requires thisfull set of competencies, but a team does.
The three competency groups need to beincorporated into an SRM competency
framework and cover (not exhaustive):
1. Technical/functional: spend
management, category management,
supplier and market analyses, sourcing& selection, negotiation & contracting,project management and cost & risk
management.
2. Relational: communication,
influencing, emphatic power,
leadership & coaching, change
management, team building,mediation, visioning, and personal
development.
3. Developmental: innovation,
corporate social responsibility/
sustainability, operational excellence,customer/supplier orientation, andcontinuous improvement.

25

2. SRM training programme

3. Cultural change required

In line with what was discussed above,
companies primarily develop and train
their people in technical/functional
skills and competencies. As a result, SRM
programmes keep a focus on shortterm, cost reduction targets. Companies
need to make a shift from traditional
buying behaviour towards relationshipmanagement and this should bereflected in time allocation and training
programmes.

Building and managing partnerships
requires a different type of DNA than
exploiting suppliers or customers. In
the supplier segmentation section
we indicated that business fit is a key
prerequisite for partnerships. If yourorganisation’s culture is, by nature,
focused on hunting rather than farming,
we seriously doubt that a partnershipcan be successful. Neglecting the value
opportunity of a partnership by simply
doing nothing is not an option for us. Thismeans that a cultural change programmeis required, driven by appropriate change
leadership and supported by a specific
SRM training programme. We recommend
starting with a specific partnership androlling it out as a business-wide concept.

“Hard skills are the qualifiers, soft skills the winners”

26Technology

Issue

Best Practice

IT is seen as the solution and not as an enabler

Explain the role and contribution of information systems
and map current issues

A lack of supplier analytics undermines thepower position

Enhance spend management, contract compliance andperformance reporting

The organisation encounters difficulties insharing information and data

Define critical information & data requirements anddeploy open systems to collaborate

1

2

3

1. IT as enabler

2. Enhance functionality

Information technology is often seen as
the Holy Grail of supplier-related issues.
However, only implementing software,
which is already complex by nature, does
not add value in complete isolation.
As presented in the Procurement
Framework of PwC, IT is an importantenabler for value creation as it createstransparency and process efficiencies
while improving knowledge management.
During the introduction andestablishment of SRM, it is important toemphasise these benefits and limitations.

An often-heard complaint fromprocurement is that suppliers’ sales
departments have more accurate,advanced and complete customer
analytics. This observation is commonlyreflected in a higher maturity levelof sales functions in general and,accordingly, system support in particular.
As a whole, global companies start toimplement CRM systems years before
implementing so-called eSourcing/eProcurement applications. As a result,the power position of the buying company
deteriorates.

Figure 20. IT integration between supplier and customer

Supplier Applications
Product Lifecycle Management

Advanced Planning & Scheduling

Supplier RelationshipManagement

Enterprise Resource Planning

Integration
Platform
Developments &Engineering data

Forecast &Planning data
Contract data, andcustomer &supplier analytics

Transactional
data

Customer Applications
Product Lifecycle Management

Realising ‘performance-to-contract’ for the
supplier concerned is a key prerequisite
to building a partnership. Therefore,
enhancing basic functionality related tospend management, contract complianceand operational performance reportingis the first step. Most of the ERP systems
are able to deliver this transparency, so
investments are rather limited.

Advanced Planning & Scheduling

Supplier RelationshipManagement

Enterprise Resource Planning27

3. Open systems forcollaboration
Customers and their suppliers want
to deploy IT systems that help themcollaborate in different ways: fromsharing transactional data like purchaseorders to online collaboration on
developing complex ‘engineer-to-order’systems. However, companies encountermany difficulties in sharing informationand data due to the use of different
applications, different coding anddifferent languages.
Now, companies are replacing their EDI
solutions and starting to use open systems
to share information and data via theweb (e.g. XML). Furthermore, software
suppliers are offering their solutions in thecloud while business process outsourcing
for procurement-related processes is
becoming more generally accepted.

“SRM is like a long
journey: don’t rush it!”28Performance Management

Issue

Best PracticeMeasure what can be measured: there is a focus
on operational measures

Value mapping drives performance management including
indicators that measure the quality of the relationshipThe buying company measures/controls
the seller

Develop a joint balanced scorecard that includes (joint)
performance indicators for both parties

Creating scorecards is a rather time-consuming
and error-prone exercise

Automate the creation of performance scorecards

1

2

3

1. Balanced scorecard

2. Two-way measurement

We often come across situations wherecompanies only measure what is easy tomeasure. Existing scorecards often cover
operational indicators that only focus on
logistics, quality and cost-related drivers.
This once again emphasises the focus oncost reduction, while organisations lackthe value perspective and opportunity to
improve beyond cost-cutting initiatives.

As the term implies, supplier performance
management is often characterised by thefact that the buying company measuresand controls the supplier. Such oneway measurements do not stimulate thepartnership concept. Interviews withsome respondents indicated that thiscreates an atmosphere of distrust becauseof its one-way nature.

We recommend that organisations adopt
the balanced scorecard concept, whichuses value drivers as a solid foundation
for performance management andimprovement. The starting point isvalue mapping, which links strategic
direction and execution. We challengeorganisations to not just incorporate
technical and developmental capabilities
but also include performance indicatorsthat measure the quality of therelationship. Subsequently, it is essential
to make the balanced scorecard part of thecontinuous improvement cycle between
customer and supplier.

Research has shown that two-way
measurement and a correspondingbalanced scorecard is much more effective
because both parties are committed
to the performance indicators. Some
performance indicators cannot be
assigned to one party only and a sharedbalanced scorecard makes that possible.
In particular, indicators that measure thequality of the relationship require theinvolvement of both partners.

29

3. Automated scorecards
In the event that the balanced scorecard
contains a comprehensive set of KPIs, thecreation of performance scorecards can berather labour-intensive, time-consuming
and error-prone, which is especiallyrelevant if there are many data sourcesfrom different applications. Furthermore,discussions on data integrity and accuracy
are counterproductive and distractive forthe purpose of scorecards, which shouldbe about how to improve performance
together.

We recommend developing performance
scorecards that can be automaticallygenerated. Business intelligence software
can easily extract data from different
applications from both partners and solve
the issue of varying sources. Data security
is a key topic due to confidentiality.

Figure 21. Performance management based on strategy maps and balanced scorecards

Voice

of th

e Cu

stom

er

Translate value drivers into driver
based plans & related budgets tofocus your business planning on
strategy
Strategy Map

MissionVisionStrategy
Objectives
Value drivers

Competitive
cost base

Customer

Optimizing
the BPO model

People/Innovation

Revenue
growthHigh Value
Customertargeting
Efficient
Efficienceback officeprocesses

Superior
SRM

Benchmarkagainstthe best

SRM
Training

Translate value drivers into KPIs atseveral levels in your organisation to
focus your business reporting on strategy

30Target setting,planning &budgeting

Forecasting

Analyse &evaluate
results versus
planning andforecast

Adjustplanning &forecasting

KPIs

Dashboard(e.g. Balanced
Scorecard)

Objective: Profitable Revenue growth
Finance

Processes

Translate mission, vision & strategy into
strategy maps showing what to focus on
to manage your business performance

Planning & Budgeting

KPIs & dashboards

Risk Management

Issue

Best Practice

The organisation does not have a complete
overview of all sources of risks

Perform a joint risk analysis with the business andsupplier

Risk management equals fire fighting andsolving issues

Develop a comprehensive risk management approachthat is fully incorporated in the planning & control cycle

Risk prioritisation and action mitigation do
not take place

Financially materialise the risks based on (an estimation of)
the impact of events

1

2

3

1. Joint risk analysis
Supply chain disruptions have asignificant impact on a company’sbusiness and financial performance.
Many disruptions are supply/supplierrelated (see graph). Sources of potentiallydisrupting events are diverse and can beenvironmental, geopolitical, business ortechnological. Our research indicatedthat many organisations do not have acomprehensive view of all sources of risks.

Figure 22. Survey participants’ view on the greatest risk to which their
supply chain is exposed
Raw material price fluctuation

53%

Currency fluctuation

47%

Market changes

41%

Energy/fuel prices volatility

38%

Environmental catastrophes

34%

Raw material scarcity

28%

Rising labour costs

Risk management starts with theidentification of all potential supply
risks. As is the case for performance
management, we recommend that risk
management is performed in dialogue
with strategic suppliers and preferredsuppliers with a high risk profile so thatno important risks are missed.

2. Risk management approach
Another research study of PwC (Global
Supply Chain and Risk Management
Survey, 2013) revealed that morethan 60% of respondents saw theirperformance indicators drop by 3%
or more in 2012 as a result of supply
disruptions. It is concerning that supply
risk management remains a rather
immature business process that is mainly
driven by fire-fighting unexpected eventsand solving operational issues. Only
41% indicated that they have matureprocesses, structures and systems in place
to effectively address incidents.

26%

Geopolitical instability

22%

Supplier/partner bankruptcy

22%

Change in technology

20%

Unplanned IT disruptions

12%

Counterfeiting

11%

Other

6%

Telecommunications outages

5%

Cyber attacks

2%

To reduce vulnerability and exposure
to high-impact supply disruptions,companies need advanced capabilities
regarding supply management and risk
management. PwC distinguishes six
factors that strengthen the supplier risk
management approach:
1. Risk governance, including processes,
structures and systems;

31

2. Flexibility and redundancy in products
and suppliers;
3. Alignment of strategic objectives with
suppliers;
4. Upstream integration covering
information sharing, visibility andcollaboration;
5. Complexity reduction regarding
processes and products;
6. Data, models and analytics to identify
supply risks.

3. Financial materialisation
Even if every supply risk is known, it is
impossible to mitigate them all due to theimplied costs compared to the potential
benefits. Therefore, segmentation andprioritisation of supply risks is necessary.

For all sources of risk, the likelihood andbusiness impact should be defined. These
two aspects jointly determine whichrisks get priority. We recommend giving
priority to estimating the financial impactof risks with a high business impact. In
most cases, the likelihood is a given andcannot be influenced, while the business
impact determines bottom-line results.
For example, in the event of a serious
breakdown, what does it cost the company(time and thus money) for the time ittakes a supplier to recover its production
capacity? This is what impacts a business.

Figure 23. Segmentation and prioritisation of supply risks

Knowledge of business impact

High

Low

Risk
Realm ofuncertainty

Realm ofrisk management?
Realm ofignorance

Realm ofambiguity

Knowledge of event likelihood

High“Better working together with our suppliers instead offighting against them”

32

33

Key value drivers for SRM

We firmly believe that four key capabilities
drive SRM value creation, namely
innovation, sustainability, leagility andresilience. Both partners must be able todevelop and deploy these four capabilities
concurrently. Elements like trust, open
communication, empathy and a win-win
orientation are prerequisites to actually
benefitting from these capabilities and,as such, function like grout between the
bricks.

1. CEOs ranked innovation as the#1 approach to growth. Increasing
competitive pressures and a need todeliver growth means they recognise
the need to bring new products
and services to the market quickly
and efficiently. Innovation-driven
organisations can achieve sustainablevalue creation and profitable growth.
This can be driven through both ‘backoffice’ operational innovations and‘front office’ growth effectivenesscapabilities. Open Innovation withexternal partners is the next step ininnovation excellence; companies
are aware that they cannot finance
all R&D activities completely bythemselves.

Figure 24. Key value drivers for SRM
Innovation
Trust

Communication

Performance at Risk

Leagility

Empathy

Resilience

Win-WinSustainability

Additional Value

Figure 25. Innovation as the #1 approach for growth

o

Inn

on

i
vat

Growth EffectivenessValue Proposition Innovation
Business Model Innovation

Operational EffectivenessProduct/Tech/Service Innovation
Process/Productivity
Operating Model Transformation
Time

34

Figure 26. Sustainability is a key element for growth and well-being of thebusiness in the long run

Value creation

3. Supply chain leaders operate more
supply chain configurations to achieve
a competitive advantage. Instead of
deploying a one-size-fits-all approach,many companies use an operating
model that constitutes different supply
chain configurations. Each supply
chain configuration is optimisedand differentiated to service-specificbusiness requirements, including the
supply side. A configuration can belean or agile and both configurations
can coexist within a company (forming
the term leagility). Business functions
and suppliers must be fully alignedwith the selected configuration.

4. Although more businesses havebecome aware of risks that can harm
their organisation, few are able toimplement adequate measures toallow the processes and organisation
to cope with these risks. Companies
with mature supply and risk
management practices are more
resilient. They are less vulnerable
to disruptions and recover faster.
If companies invest in flexibility
in their supply chain, they are
better able to endure disruptions
than companies that fail to do so.
Our research indicated that suchcompanies also perform better in all
aspects of operational and financial
performance.

Value erosion

2. Enlightened executives recognisethat sustainability is a key elementof strategic planning for the overall
growth and well-being of the businessin the long run. Industry leaders
are integrating bold, decisive andlong-range sustainability metrics
into overall corporate goals. They
are seeking to achieve sustainable,financial and operational performance
simultaneously – the economicallyrational choice. Companies are
increasingly seeking to embedsustainability in an innovative way, by
linking remuneration to sustainability,
publishing environmental profit
and loss statements, or integrating
financial and non-financial reporting.
Considering the fact that procurement
represents approximately 50-80% of
the total costs, these companies realisethat their sustainability footprint
is primarily defined by their (key)suppliers too, so collaboration here is
key.

Leverage:• Relationships• Assets• Employee s

Operational
effectiveness:• Reduce direct impact• Organisational savings• “Eco-efficiency”
Compliance:• Operational risk
• Regulatory compliance• Reputational risk
• License to operate
Risk management

Leadership:• Extending
positive impact• Product/service
operating model
innovation• Market leading

Increasing maturity of sustainability approach

Managing for value

Strategic advantage“Treat your partners as
the experts”

35

3. How to establish SRM
The previous chapter presented
typical best practices for an SRM
programme and individual
partnerships. But how canorganisations successfully
establish an SRM programme?
This chapter presents a generic
programme approach that must
be tailored to your specific sector
and company requirements.
In addition, we briefly discuss
important change levers that will
increase the chances of success.

Transformational
approach
We suggest following a transformational
approach that considers the value
potential, complexity, number ofstakeholders and organisational impact.
Although SRM ultimately becomes abusiness process, it initially starts out
as a programme to establish SRM ora partnership. Our SRM Programme
Approach is based on Transform™,
which is PwC’s integrated approach tobusiness transformation. It contains afull web-enabled suite of methodology
descriptions, checklists and ready-to-use
templates, tools and trainings. Transform
methodology consists of two parallel andintegrated domains for delivering change
and driving change. Transform™ focuseson programme and change management,
while accelerating the project thanks to alarge number of templates and examples.
PwC has also developed specific versions
for several competencies, including
procurement.
We have now developed a dedicatedapproach to SRM based on Transform™
and experience gained through project
assignments and research. The first stage,‘Assess & Strategise’ is focused on defining
the ambition level, developing a highlevel design for SRM, and calculating thebusiness case as a solid foundation for the
SRM programme. Typical activities include:• Mobilising a cross-functional projectteam;• Reviewing current suppliermanagement programmes, including

Figure 27. TransformTM, PwC’s integrated approach to business transformation

Strategy

Assess &Strategise

DesignConstruct

Implement

Operate &Review

Structure
Process
PeopleTechnology
Performance
management
Risk management

ChangeManagement
Programme
Delivery36

Create “Casefor Change”,
Initial Target
Operating Modeland Scope
Initiatives

CreateTransformation
Blueprint,
Detailed Design
and Quick Wins

Build New Waysof Working andPlan Rollout

Rollout New
Ways of
Working and
EnsureBenefits are
Realised

Operate New
Organisation and
Implement
Continuous
Improvement

strengths and improvement
opportunities;• Defining current maturity level andambition level;• Developing a tailored SRM value mapthat links SRM initiatives to businessobjectives;• Formulating SRM strategies, objectives
and policies;• Developing a high-level design
considering the seven dimensions;• Building a supplier segmentation
process & tool, and defining specificsupplier strategies;• Conducting a supplier segmentation
analysis;• Creating a business case to calculate/estimate the ROI;
• Selecting a pilot project with a key
supplier.
The following stages are executed per
partnership and consist of Design,
Construct, Implement & Operate andReview. We recommend starting with
one or a limited number of pilot projects
to develop a standard tool set and tobuild credibility and trust within theorganisation. After establishing the pilot
partnership(s), the following strategic
suppliers can be adopted in the SRM
programme elaborating on available
templates and experience.

Change levers for success

As is the case for other business
transformations, establishing an SRM
programme is a complex exercise.
Managing change successfully is thenumber one prerequisite. Below is a list of
the top-10 change levers for SRM:
1. Create a sense of urgency: createawareness of what SRM concerns
and why SRM is crucial for theorganisation.
2. Develop a clear vision: develop ashared, clear and inspiring vision
with understandable and measurable
benefits & consequences.
3. Assign executive sponsorship: assign
executive sponsorship and ensure itsrole in the governance structure.
4. Position SRM: present and manage
SRM as a business-wide programme
supported by cross-functional teams.
5. Ensure business alignment: businessobjectives direct SRM value mappingand initiatives; procurement can own
the SRM programme but the businessowns the relationship.

7. Follow co-creation approach: involve
people during the development
process to embed change in theorganisation.
8. Start small: start with one or a limited
number of pilot project(s) to build
trust and confidence.
9. Train, train & train: train stakeholders
in relational and developmental
competencies as well as technical/
functional competencies.
10. Track & communicate progress:
inform stakeholders about therealisation of initial targets andmaterialise them financially.
We hope this report provides yourorganisation with pragmatic guidelines
and best practices to successfully
implement SRM. Don’t hesitate tocontact us if you would like to benchmark
your organisation using our online
benchmarking tool, with no obligation.
PwC wishes you all the best with yourjourney towards world-class SRM. We
look forward to meeting you for aninteractive discussion on your SRM
experiences.

6. Enable dedicated resources: assign
full-time relationship managers andempower people.

“KPIs determine behaviour: selecting appropriate
KPIs is key”

37

Acknowledgements
The research team would like to express its deep and sincere gratitude to all the
respondents for taking the time to complete the online survey and for sharing theirknowledge and insights. A special thanks goes to the organisations that invited PwC
to conduct interviews and discuss SRM objectives, challenges, success factors andapproaches. This report could not have been written without their contribution andenthusiasm:• AkzoNobel N.V.
• Cofely Energy Solutions B.V.
• CRH European Distribution• DSM N.V.
• Royal FrieslandCampina N.V.
• Vanderlande Industries B.V.
Finally, we would like to thank all the PwC colleagues who contributed to this researchstudy by sharing their competency expertise and network.

38

Contact
Hubert Verweij
Senior Manager Sourcing & Procurement, PwC, the Netherlands
Tel. +31 (0)88 792 7262, hubert.verweij@nl.pwc.com
Hubert leads the Sourcing & Procurement practice in the Netherlands forthe commercial sector. He has a Master’s degree in Industrial Engineering& Management Science from the Eindhoven University of Technology.
His specialisation includes procurement transformations, supply chain
optimisation and supplier relationship management. Hubert has been
involved in and managed business transformations with a core focus
on realising performance improvement. He is a six sigma black belt
consultant and APICS certified (CPIM). In 2008, he led a Pan-European
study on Reverse Logistics.

Linda Peek
Senior Consultant Sourcing & Procurement, PwC, the Netherlands
Tel. +31 (0)88 792 3270, linda.peek@nl.pwc.com
Linda is member of the Sourcing & Procurement team in the Netherlands
with a focus on the commercial sector. She has significant consulting
experience with specialised expertise in process optimisation andorganisational design concerning the procurement function. She has
worked in various industries and completed NEVI 1 and Prince II. Before
starting her career, Linda studied Business Administration at the Erasmus
University in Rotterdam.

39

Appendices40

Appendix 1: Population profile of theonline questionnaire
A panel of 30 respondents
completed the online survey.

Figure 28. Revenue
6,7%
23,3%
23,3%

€ 0 - € 200 million€ 200 million - € 500 million€ 500 million - € 1 billion

26,7%€ 1 billion - € 5 billion

20,0%€ 5 billion or more

Figure 29. Spend

16,7%€ 0 - € 100 million

33,3%
16,7%

€ 100 million - € 250 million€ 250 million - € 500 million

13,3%

20,0%

€ 500 million - € 1 billion€ 1 billion or more

Figure 30. Function of participants

10%

Chief Purchasing Officer

23%
Procurement Director
27%

3%Procurement Manager
Category Manager

7%

Relationship Manager*Other functions are: Director Supply Chain
Management, Director Strategic Partnerships,
Operations Director, Section Manager SCM, Manager
Logistics.

30%

Other*

41

Appendix 2: Detailed SRM maturity
model
1. No SRM

2. Exploring

3. Established

4. World-Class

Strategy &Governance• Focus on ‘performance tocontract’• No alignment between businessand procurement and• No company-wide SRM strategy
and objectives• No SRM policies and guidelines• Focus on TCO reduction• Business and procurement haveinitial discussion on value• SRM strategy & objectives formulated but poorly understood• SRM guidelines & policies are
documented• Partial focus on value creation• Value mapping as input for SRM
strategy• SRM strategy & objectives
known and fully understood• SRM policies and guidelines
are communicated and fully
understood• Full focus on value creation• SRM fully aligned withcorporate/business strategies• SRM strategy and objectives
are frequently challenged andupdated• SRM policies and guidelines
are frequently challenged andupdatedProcess• No specific SRM process in place• All suppliers are treated the same
• Supply base is primarily
managed by contracts andgrowing• No defined supplierdevelopment/improvement
programmee• Documented SRM process withbasic process toolkit• Different views on relationships
but little differentiation• Basic supplier strategies, stablesupply base
• Regular review meetings
with suppliers to identify
improvement opportunities• SRM process known and fully
understood and advanced toolkit• Supplier segmentation drives
supplier differentiation• Advanced supplier strategies,
supply base is decreasing• Multi-functional teams meet to
discuss issues & opportunities
with suppliers on a regular basis• SRM process is frequently
challenged and updated• Same value drivers are applied
during entire supplier lifecycle• Partnership strategy jointly
developed and managed• Proactive supplier development,
Supplier is proactive in seeking
out improvement opportunities

Structure• Procurement not recognized asprocess owner• Divisions, functions
and business units run
autonomously• Unclear roles & responsibilities,
no partnerships or alliances• Procurement is taking the lead,
limited business recognition• Business stakeholder
involvement has not beenformalized• Roles & responsibilities areformalized and partially applied
for pilot projects but on an adhoc basis• Procurement seen to be ownerof process and is involved in the
majority of key relationships• Executive sponsorship ofindividual strategic relationships• Roles & responsibilities
are consistently applied atpartnerships and centrally
coordinated• Procurement seen to be ownerof process and facilitator. Fully
involved in all key relationships• Senior executive sponsorship ofindividual strategic relationships• All partnership are organizedaccording to standard structure
and centrally managed

People• Procurement staff low skilled
in SRM, focus on technical/
functional skills• No training in SRM• No knowledge management• Basic SRM skills are developed,
attention for relational/
developmental competencies• Training requirements known,
limited number of SRM courses• Internal knowledge
management process & systemdeveloped• Advanced SRM skills aredeveloped, relational/
developmental competencies
elaborated• SRM training curriculum
extended• External knowledge
management initiated• Procurement staff has broad
skills, focus on technical,
relational and developmental
competencies• Comprehensive range oftraining programme linked to
procurement and business needs• Joint knowledge management

Technology• ERP is available to support
supplier management• Supplier integration to sharetransactional data only
• No online collaboration anddecision-making• Basic eProcurement/APS/PLM
technology are available/used• Contract, performance andplanning data are shared• Limited online collaborationand decision-making• Advanced eProcurement/APS/
PLM technology are available/
used• Contract, performance, planningand engineering data are shared• Partially online collaborationand decision-making• Full process scope is supported
by appropriate technology• Operational, tactical andstrategic data and information
are shared on a real-time basis• Full online collaboration anddecision-making

Performance
management• Focus on operational
performance measures• Buying company measures andassess suppliers• Initiatives driven by issues• Focus on tactical/strategic
performance measures• Initial discussions on joint KPI’s• Basic continuous improvement
cycle, manual scorecards• Performance measures partiallydriven by value mapping• Joint discussion on KPI setting
and targets• Joint continuous improvement
cycle with basic reward system,semi-automated scorecards• Performance management fully
driven by value mapping• Joint balanced scorecard
measures partnershipperformance• System with full sharing ofinvestments, risks and benefits,based on fully automatedscorecards

Riskmanagement• No visibility on risks• Ad-hoc risk management• No planning of disruptional
events• Moderate visibility on main risks • Partner resilience monitoring• Basic risk management process, • Full risk management process
mainly qualitativewith quantitative measurement• Mitigation plans for most severe • Joint business continuity plansrisks• Full and online visibility on joint
supply risks• Supplier risk segmentation
strategy and approaches• Joint investments to create
flexibility42© 2013 PricewaterhouseCoopers Advisory N.V.(KvK 34180287). Alle rechten voorbehouden.
PwC verwijst naar de Nederlandse firma en kan soms naar het PwC-netwerk verwijzen. Elke aangesloten firma is een afzonderlijke©
2013 PricewaterhouseCoopers
Accountants N.V. Allevoorbehouden.
juridische
entiteit. Kijk op www.pwc.com/structure
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