Benchmarking Business Relationship …'s...Benchmarking Business Relationship Management “The Four Faces of Building Value with Major Suppliers” FSPF BENCHMARKING BUSINESS RELATIONSHIP

Benchmarking Business Relationship Management “The Four Faces of Building Value with Major Suppliers”

FSPF BENCHMARKING BUSINESS RELATIONSHIP MANAGEMENT

FSPF 0608.ppt© Future Purchasing, 2008.

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Benchmarking ‘best practice’ ... central to emerging ‘next practice’

Leaders of the International Procurement Leadership Forum

Support Partners of theGlobal Benchmarking Survey 2007

Examples of IPLF Participants, 2006 and 2007

DefenceProcurement Agency

Beam GlobalSpirits & Wine

Purchex

Official Sponsor, 2008

www.futurepurchasing.com www.odgers.com www.cpoagenda.com www.henleymc.ac.uk www.xchanging.com


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Face 1: Business Requirements& the Value Drivers


Face 3: Operationalising StrategicSupplier Relationship Management

Face 2: Different Types ofSupplier Relationship Management

Face 4: Leadership, People& Behavioural Implications


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10,000 individuals were contacted, with c. 1,000 survey responses and interviews

Different types of value map exist - some are explicit,most are notRetail & Consumer Brands

Pharmaceuticals

Financial Services

Public Sector

DefenceProcurement Agency

Aerospace

Automotives

Sectoral Case Files

One theme is the ‘hard drivers’ of relationship management

Financial Performance Business Growth

• Cost management• Margin management• Capital productivity• Derisking supply

• Revenue and innovation• Operational excellence• Customer response• Reputation and CSR

Ways of Working Relationship Quality

• Control and governance• Strategic alignment• Consistent ways of working• Clear responsibilities

• Business-to-business commitment• Relationship trust and openness• Day-to-day support• Transparency and growth potential

Service Efficiency Service Effectiveness

• Cost management• Treasury funding• Capital productivity• De-risking the supply chain

• Customer responsiveness• Operational excellence• Delivery and innovation• Reputation enhancement

Private Sector

Public Sector


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•Average spend €28.5m

•Average benefitsavailable €6.6m

•Average spend €260m

•Average benefitsavailable €60m

•Average spend €7,600m

•Average benefitsavailable €1,750m

•Average spend €2,600m

•Average benefitsavailable €610m

Total €413,000mopportunity identified

by 816 surveyrespondents

< €150morganisations

N = 227

€15bn+organisationsN = 152

€1.5 bn - €15bnorganisationsN = 216

€151m - €1.5bnorganisations

N = 221

Survey respondents identified 23% incremental value across multiple factors

Cost down and value up potential with strategic suppliers is 20% +

1 Total costreduction

Revenuegeneration

2

3 Productinnovation

Processimprovement

4

5 Qualitylevels

Servicelevels

6

7 Supplyassurance

Speed tomarket

8

9 Suppliercontrol

Relationshipquality

10


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Benefits identified by survey respondents

The survey indicated that a broad range of additional value is available from strategic suppliers.

PercentageRating

Service Levels: 23%Quality Levels: 23%Supply Assurance: 22%Control and Dependency Reduction: 17%Relationship Quality: 22%Cost Reduction: 22%Total Cost Reduction: 25%Value Improvement: 25%Process Improvement: 22%Innovation: 25%Revenue Generation: 23%Speed to Market: 26%

0% 20% 40% 60% 80% 100%


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Face 2: Different Typesof Relationship Management

Face 2: Different Typesof Relationship Management



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StrategicImpact

OperationalCriticality

Example of typical supplier segmentsfor a company withc. 50,000 suppliers

Step 5SupplierEngagement,Mobilisation &Work Streams

Step 4Create &ApproveRelationshipStrategies

Step 3Facts & DataBaselining onStrategicSuppliers

Step 2Form StrategicSupplierManagementTeams

Step 1ProgrammePlanning &Project Governance

A limited number of suppliers will drive the largest sources of value

ResourceIntensity

Remaining Suppliers(c 49,750)

Break-throughPartners(c 5-10)

Development Suppliers(c 30-40)

Performance Suppliers(c 200)

LimitedValue(4%)

ModerateValue(5-9%)

High Value(10-14%)

Very High Value(15%+)

Value-based segmentation drives relationship management


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501-1000

35%

30%

25%

20%

15%

10%

5%

00 1-5 6-10 11-50 51-100 101-

5001000+

Criteria for a Strategic Supplier1st:

2nd:

3rd:

4th:

5th:

6th:

7th:

8th:

9th:

10th:

Impact of the supplier on currentand future sales revenue.Importance of the supplier toproduct / service innovation.Access to business critical suppliercapabilities and competences.Ability to reduce current or futurecost base substantially.High level of expenditure with thesupplier.Expected length and continuity ofthe supplier relationship.High dependency and highswitching costs with the supplier.Access to proprietary technologiesand intellectual property.Quality of personal relationshipsbetween us and the supplier.Importance of the supplier for entryinto new markets / geographies.

Number of Strategic Relationshipsper Respondent Organisation

77%

Strategic suppliers are strongly connected to the value map

77% of survey respondents have 50 or fewer strategic suppliers


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Face 3: Operationalising StrategicSupplier Relationship ManagementFace 3: Operationalising StrategicSupplier Relationship Management




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Building real depth in SRM process, practice, tools and techniques

The IPLF benchmarking survey examined capability across five key steps

1. ExecutiveBriefing

6. SSMT Roles&

Responsibilities

13. HistoricSpend Profile

18. Power &Dependency

Profiling

23. Contract &Supplier Review

Meetings

30. PromotingTrust

2. SupplierSegmentation

7. SSMT Kick-OffMeetings

14. InternalRelationshipPerception

19. SupplierKey AccountManagement

24. ContractAdministration

31. ProjectCharter

3. SupplierConditioning

8. ChangeManagement

15. SupplierRelationshipPerception

20. OptionsMeetings

25. ContractManagement

32. ProjectOrganisation

4. SupplierCharter

9. QuickWins

16. SupplierStrategyAnalysis

21. RiskAnalysis

26. SupplierPerformance

Scorecard

33. ManagingConflict

5. SupplierConference

& Forum

10. Key AccountManagement

17. TechnologyRoad Map

22. RelationshipStrategy

27. BusinessRequirements

34. FacilitationToolkit

11. ProjectPlanning Tools

28.Statement ofRequirements

35. BreakthroughValue Creation

12. StakeholderEngagement

29. ProcurementBenefitsTracking

36. BreakthroughValue Project

Implementation

Step 5SupplierEngagement,Mobilisation &Work Streams

Step 4Create &ApproveRelationshipStrategies

Step 3Facts & DataBaselining onStrategicSuppliers

Step 2Form StrategicSupplierManagementTeams

Step 1ProgrammePlanning &Project Governance

GovernanceSegmentationMobilisation

Form SSMTsKick-off meetingsCommunications

Review strategiesSpend & performanceRelationship perceptions

Relationship analysisAvailable optionsRelationship strategy

Performance managementSupplier developmentBreakthrough value creation


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Early days - lots of gaps - driven by problems - lack of business backed process

Strategic supplier management is in its infancy ...

1. No training in strategic supplier relationship leadership

2. No documented relationship strategies for our strategic suppliers

3. No quantification of the benefits and ROI of working with strategic suppliers

4. No specific budget or resources allocated to strategic supplier initiatives

5. No regular, board to board review process between us & strategic suppliers

6. No guidelines or frameworks to share benefits with strategic suppliers

7. No focus with strategic suppliers on radically restructuring ways of working

8. Focus is on purchase price and reducing costs through negotiation

9. Contracting focuses on conventional contracts and performance to contract

10. Performance improvement is driven by problems

0 20% 40% 60% 80% 100%

Agree Neutral Disagree

N = 788 survey respondents


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Top executives are interested - lots of opportunity - some leaders in place

... but there are certainly pockets of excellence and good practice

1. Regular, open dialogue takes place with strategic suppliers about performance

2. A top executive sponsor owns strategic supplier initiatives

3. Business case and benefits of strategic supplier initiatives are identified

4. Forums and reviews take place to examine internal data about strategic suppliers

5. Strategic suppliers are frequently worked with to find new ways of reducing costs

6. Full-time, dedicated relationship leaders are in place for strategic suppliers

7. Cross-functional teams exist with clear responsibilities for strategic suppliers

8. Defined and structured processes exist for managing strategic suppliers

9. Future impact of strategic suppliers’ plans on the buying organisation are understood

10. Stakeholders are fully prepared to commit staff time to strategic supplier relationships

0 20% 40% 60% 80% 100%

Agree Neutral Disagree

N = 788 survey respondents


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Linking SRM to subcategory sourcing and category planning

Performance Management

Supplier Development

Breakthrough Value

Creation

Step 5A

Step 5B

Step 5C

FormSupplier

ManagementTeams

Facts & DataBaselining

on StrategicSuppliers

Create &Approve

RelationshipStrategies

Step 1 Step 2 Step 3 Step 4

ProgrammePlanning &

ProjectGovernance

SupplierSelection

StrategyDevelopment

EstablishBaselineTransition

Step 4 Step 3 Step 2 Step 1Step 5

OpportunityAnalysis & Project

Set-Up

AnnualCategoryPlanningActivities

Steps 1-X

Process 1:Category

ManagementCompeted Requirements

Process 2: Strategic Sourcing

Non-Competed Requirements

Do we need separate or connected procurement processes?

Process 3: SRM


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Control & governance demonstrated over major relationships

Control & governance demonstrated over major relationships

Strategic alignment enhanced - internally

& externally

Strategic alignment enhanced - internally

& externally

Supply assuranceincreased

& risk reduced

Supply assuranceincreased

& risk reduced

Consistent ways of working & improved knowledge sharing

Consistent ways of working & improved knowledge sharing

Clear internal SRM responsibilities

& resource focus

Clear internal SRM responsibilities

& resource focus

Innovation capturefrom major suppliers

strengthened

Innovation capturefrom major suppliers

strengthened

Process improvement &

integration

Process improvement &

integration

Cost reduction & value improvement

Cost reduction & value improvement

Service & quality performance to contract

& improvement

Service & quality performance to contract

& improvement

Hard BenefitsHard Benefits Soft BenefitsSoft Benefits

Clarifying desired benefits from SRM is critical in shaping approach

The specific benefits of SRM can be readily identified and quantified.Benefits need to be targeted for each relationship from both a hard and a soft perspective.Benefit measurement processes should recognise and reinforce benefit delivery

Individual behaviour, team skills and high quality influencing of key stakeholders are also central to maximising value from major procurement processes. There is passion as well as process.

11

22

33

Supplier relationship management deliversthe benefits only if there is a systematic, structured

and disciplined approach that is programme-managed as part of an agreed business initiative.

Revenue generation opportunities

Revenue generation opportunities


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SRM PROCESS ADOPTION

SRM SRM PROCESS PROCESS ADOPTIONADOPTION

Process education and key skills buildingKey meeting coaching and skills transferCapability profiling and behavioural skillsEvaluate learnings and behaviours

Executive support and sponsorshipBusiness resource commitment Stakeholder education and awareness buildingJoint supplier segmentation and prioritisation

Deliver a number of demonstration projectsRigorous progress reviews of each projectResource prioritisation and capacity planningPlanned migration to new way of working

Stretch benefit targets for each supplier teamMeasure hard and soft benefits deliveredStrategic supplier targets in team objectives Cascade relevant objectives to stakeholders

Programme ManagementProgramme ManagementPerformance & RewardPerformance & Reward

Learning & DevelopmentLearning & Development

Business AlignmentBusiness Alignment

Successfully launching strategic supplier initiatives needs an approved approach

A change management approach is required to fully anchor SRM


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A short, persuasive summary of future strategy

Major internal and external issues and potential sources of risk and vulnerability

Sub-category strategy, supplier strategic contribution and all critical data

Financial detail of business case, return on investment, value delivery and cost reductions

Analysis of available options, using strategy development tools

Details of the plan, timings and change management requirements

Summary of breakthrough, performance managementand supplier development options

Roles and responsibilities for supplier engagement and the ongoing relationship

Cross-business, cross-functional and supplier impact of the strategy

Appendices of supporting data, project management tools and project charters

What to include in a relationship strategy and approval document

Producing a persuasive, compelling strategy with clear return on investment (ROI)

Part 1ExecutiveSummary

Part 2Key

Information

Part 3StrategicAnalysis

Part 4Relationship

Strategy

Part 5Business

Impact

Part 6Risk

Management

Part 7Cost : Benefit

Analysis

Part 8Implementation

Plan

Part 9Governance

Part 10SupportingInformation


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Differences in quality of external working relationships between companies inthe same sector appear to vary by at least 2-3 times’ order of magnitude

Assessing quality of relationship externally as well as internally

500

400

300

200

100

OEM

-su

pplie

r wor

king

rela

tions

Very

poo

r -po

orA

dequ

ate

Goo

d -v

ery

good

20072002 2003 2004 2005 2006

161

167175

227

297

314

177

161

156

259

316

334

150

163

186

302

384

409

114

157

196

298

375

415

131

174

218

300

368

407

162

174

199

289

380

415

Full acknowledgement to CPO Agenda and Planning Perspectives, Inc., 2007.


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Quantifying the internal and external requirements for leaders and change agents

Assessing the challenges of the ‘Influencing Zones’

5-10Break-

throughPartners

11-50Development

Suppliers

51-500Performance

Suppliers

1,000s ofVolume Suppliers

External SuppliersExternal Suppliers

The ExternalInfluencing Zone

BetweenSuppliers &Customers

CLevel

Executives

BusinessManagers

100s of KeyInternal

Stakeholders

1,000s ofInternal Customers

Internal StakeholdersInternal Stakeholders

OperationalCriticality

StrategicImpact

CPOs&

Procure-ment

Directors

ProcurementManagers

Category& SupplierManagers

Buyers &Procurement Support Staff

Procurement TeamProcurement Team

The InternalInfluencing Zone

with ‘C’ LevelExecutives &Stakeholders

How many top executives and key business managers need to be involved in sponsoringrelationship management initiatives in your organisation?

How many suppliers or customers should be the key targets for significant relationshipmanagement activity over the next two years for your organisation?


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A common theme throughout the IPLF, 2006 and 2007, has been the need formuch more sophisticated demonstration of influencing strategies

A different profile on influencing and relationship management

1. Strategic negotiation & relationship development

2. Personal values, ethics, integrity & trustworthiness

3. Relationship strategy creation & business case development

4. Persuasion & influencing skills

5. Deep knowledge of suppliers and markets

6. Change management & project management

7. Relationship manage-ment & performance measurement tools & techniques

0 20% 40% 60% 80% 100%

88%

87%

83%

81%

80%

79%

78%

What is strategicnegotiation?

What are the coreinfluencing skillsand strategies that need to be

developed?

How far are theydriven by

personality,thinking style and intellectual

ability?


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Agree Process, Tools & Approach

Complete Relationship Diagnostics Restructure & Relaunch Relationships

Create and approve the process and toolkit for

managing strategic suppliers as a business initiative

Organise deployment of an SRM process as a business-

wide programme and initiative

Identify scope for additional value and areas of relationship under-performance to impact

Launch and drive forward a plan of campaign to restructure the

relationships and address under-performance

Focus 1: Internal SRM Capability Building Focus 3: Supplier Value AccelerationFocu

s 2:

Pro

cess

& P

lann

ing

Focu

s 4:

Impl

emen

tatio

n

Manage the SRM Programme

Capturing value from strategic suppliers is all about change management

Four critical elements of SRM for procurement leaders to focus on

Documents

Benchmarking Business Relationship …'s...Benchmarking Business Relationship Management “The Four Faces of Building Value with Major Suppliers” FSPF BENCHMARKING BUSINESS RELATIONSHIP