Supplier Working RelationsUnlocking the Strengths of Suppliers

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With companies typically spending 40 to 80 percent of their revenue on purchased goods and services, suppliers can have a significant impact on the overall financial and operational success of a business. While many companies appear to under-emphasize the importance of effectively managing their supply, a growing minority are harnessing the power of trusting, collaborative working relations with their suppliers and turning these working relations into a source of competitive advantage.

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The Forgotten TreasureTo realize competitive advantage from their collaborative supplier working relations, leading companies are turning to the Working Relations Index®, (WRI®). The WRI® is a powerful survey methodology that statistically assesses a company’s supplier working relations from the suppliers’ perspective. The WRI® identifies the current state of supplier-interfacing functions and activities, and pinpoints the working relations characteristics that will unlock the hidden value of trusting, collaborative relations.

Most procurement and supply chain executives understand the inherent value of trust-based relations with suppliers. They acknowledge the many levels of tangible value such relations bring, including increased supplier

sharing of new technology, increased quality and decreased costs, improved cycle times, greater supplier price concessions, in-depth understanding of the risk profile and increased supplier investments focused on the purchasing company’s strategic objectives, to describe but a few examples. However, at a practical level procurement executives struggle to realize these benefits because they find it hard to move beyond a focus on procurement or internal business matters (Figure 1). They also find it difficult to commit adequate time, focus, and resources to working with suppliers to access the value suppliers can provide. The primary reason for these difficulties is that these executives do not have reliable data to determine where and how to focus their efforts to deliver the desired results.

Figure 1. Moving procurement transformation to a SRM focus.

Progressive Procurement Transformation Focus

Procurement Focus Business Focus SRM FocusTotal Value Focus

Cost Focus

• Organization & Skills• Processes & Systems• 'Savings' Delivery

Procurement Focus +• Category Boards• Cross-Functional Teams• Customer Satisfaction• Business Services• Simplification / Standardization

Business Focus +• Supplier Innovation Process• Strategic Collaboration• Supplier Development• Supplier Performance Management• Executive Engagement with Key Suppliers• Joint Investment / Gain Share

Adversarial

Supplier Working Relations (WRI®)

Collaborative

Procurement

SuppliersCustomers

Procurement

SuppliersCustomers

Procurement

SuppliersCustomers

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The Working Relations Index®Accenture has teamed up with Planning Perspectives Inc. (PPI) to provide its clients with a unique capability that brings together the procurement, supplier relationship management (SRM) and change management experience of Accenture with the PPI Working Relations Index®. The WRI® is a proven approach to objectively assess a company’s supplier working relations and the impact that these relations have on a company’s overall performance. It provides a numeric ranking of how suppliers perceive working with their customers based on five components comprising 16 supporting variables that are the principal drivers of trusting, collaborative supplier working rrelations (Figure 2). Based on a 500-point scale, the WRI® enables companies to assess organization-wide SRM effectiveness and compare performance across purchasing areas, divisions, sites and even industry peers (Figure 3).

The WRI® methodology has been used by many high-performing businesses to further enhance their SRM capability. Created in 2002 by Professor John Henke, based on his extensive academic research and interviews with more than 100 purchasing and sales managers, the WRI® has been used to assess the supply bases of more than 50 companies and has involved thousands of suppliers globally. The assessment process, based on confidential Internet-based supplier surveys and supported by a rich comparative database and robust statistical analyses, helps a company to understand the strengths and weaknesses of its supplier working relations. This understanding helps identify specific actions to unlock the tangible benefits suppliers can bring the company.

Figure 2. Components and variables of the company–supplier Working Relations Index®.

Components Variables

Company–Supplier Relationship 1. Supplier trust of the company2. Supplier perception of the overall company–supplier relationship

Company Communication 3. Company open and honest communication with suppliers4. Company timely communication with suppliers5. Company adequate communication with suppliers

Company Help 6. Help company provides suppliers to reduce costs7. Help company provides suppliers to improve quality

Company Hindrance 8. Company late/excessive engineering/specification changes9. Conflicting objectives across company functional areas10. Flexibility provided to supplier to meet piece price/labor rates/element cost objectives11. Supplier involvement in company product/service specification development process

Supplier Profit Opportunity 12. Company sharing of savings from supplier cost-reduction proposals13. High-performing suppliers rewarded with new/additional business14. Company covers supplier sunk costs on cancelled/delayed programs15. Company concern for supplier profit margins when asking for price reductions16. Supplier opportunity to make an acceptable return over long term

Figure 3. Company–supplier WRI® scale and behaviors.

Very Poor Very GoodCompany - Supplier Working Relations

0 100 200 250 350300 400 500

Very Poor – Poor Adequate Good – Very Good

Adversarial

Limited & Questionable

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Mutually Trusting

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Company Communications

Company Help

Company Hindrance

Supplier Profit Opportunity

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Our SRM Diagnostic and Value Realization ProcessOur diagnostic and value realization process (Figure 4) creates robust and actionable results, typically within eight weeks of establishing the project approach and scope. More than just another survey, the WRI® process is specifically designed to engage key stakeholders in order to start the change management process from day one. The process focuses on developing actionable and practical recommendations, and in an optional fifth step, our teams of experienced consultants can support you in implementing changes identified by the process to unlock the hidden value of your supply bases.

Step 1: Define survey scope and select suppliers. Accenture professionals work collaboratively with your team to define the scope and rules for the supplier working relations assessment, including the supply base or bases to be included, which suppliers will be targeted for the surveys and how best to obtain relevant supplier contact information. This can be typically achieved in one to two meetings with a knowledgeable member of your procurement team.

Step 2: Implement survey. We manage the survey process to minimize the disruption to your organization. To ensure maximum supplier participation in the survey, we work with you to create a pre-survey communication that, in addition to stating the purpose of the survey, emphasizes the confidentiality of the survey process and protection of the supplier response data. Suppliers typically have two weeks to respond to the Internet-based survey. Our team sends appropriate reminders to non-responding suppliers to maximize response rates, which are typically 50 to 60 percent.

Step 3: Analyze survey responses.The analyses will conform to a standard process to enable suitable comparisons to be made to an external reference group, but is flexible enough to enable analyses across different supply bases and company dimensions, such as purchasing areas, supplier classifications and supplier annual buy, consistent with Step 1 objectives.

Step 4: Report results and formulate action plans.A customized report, based on more than 80 different measures, provides detailed insights into how suppliers perceive working with your company, the level of benefits suppliers are providing to your company and the actions that are needed to take your supplier working relations to a level of trust and collaboration that will maximize supplier benefits. We review a sample report with you in Step 1.

Step 5: Implement changes.Accenture can work with your company to implement the recommended actions. Accenture has extensive experience helping clients achieve tangible benefits from SRM assessment activities. This experience enables Accenture to offer clients a range of flexible options, from supporting a pilot project to delivering large-scale programs, often working on a gain share basis. This flexibility is supported by an industry-leading SRM framework using proven SRM tools, deep category experience and unparalleled change management capabilities.

Figure 4. Diagnostic and Value Realization Process overview.

Define SurveyScope & SelectSuppliers

Implement Survey

Analyze Survey Responses

Report Results & Formulate Action Plans

Implement Changes

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Manufacturing Company Unlocks Suppliers’ ValueThis large manufacturing company in the fast-moving consumer goods industry has purchasing organizations in North America, Europe and Asia that support regional manufacturing plants. Its independent regional purchasing organizations operate under a ‘one company’ policy, follow similar company procedures and are supported by staff headquartered in Europe. Each regional purchasing organization works with three supply bases: direct (production), indirect (non-production) and logistics. To understand the firm’s current supplier working relations and to determine if suppliers were predisposed to providing expected supplier benefits, the purchasing EVP asked Planning Perspectives (PPI) to conduct a WRI® survey of the three supply bases of each regional purchasing organization.

During two meetings with headquarters procurement personnel over a three-week period, the PPI–company team

defined the survey scope, determined supplier selection criteria and identified the individual contacts for each selected supplier. The team also finalized the company’s pre-survey e-mail announcing the confidential supplier survey, which was signed by the purchasing EVP and the appropriate regional purchasing VP.

Following a two-week survey implementation period and two weeks of response analyses and report creation, PPI presented the supplier working relations findings for each supply base to the company’s purchasing leadership team.

The highlights of the findings included the overall WRI® for each supply base in each region (Figure 5). The WRI® for indirect suppliers differed significantly across the three regions, and the WRI® for direct and logistics suppliers differed directionally. These results show that each regional purchasing organization works differently with suppliers in spite of operating

under the same purchasing policies and procedures, contrary to the global purchasing leadership expectation of similar global supplier working relations.

In addition, the analyses found that the company does not work with its suppliers in a manner consistent with its supplier segmentation (Figure 6). The company segments its suppliers on the basis of the suppliers’ importance using three segments: strategic, maintain and hold. Strategic suppliers, which constitute about 20 percent of each supply base, are considered essential to the company’s long-term success and the company expects to experience Good to Very Good working relations with them, in the WRI® range of 400 to 450.

Figure 5. Regional supply base WRI®.

100

200

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Direct Indirect Logistics

Very

Poo

r - P

oor

Adeq

uate

Good

- V

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Good

Wor

king

Rel

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286 274304 312

335

376360 364

342

North AmericaEuropeAsia

Red numbers indicate statistically significantly different WRIs across the Regions.

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Figure 6. North American direct commodity area WRI®s by supplier classification.

Commodity Area #1

Commodity Area #2

Commodity Area #3

Commodity Area #4

Commodity Area #5

Commodity Area #6

100

200

300

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500 HoldMaintainStrategic

285 282 279258

336

278

463

379

326

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413394

345

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376

413394

North America Direct Commodity Areas

Red numbers indicate statistically significant differences across supplier classifications

Very

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The company expects to have working relations on the high end of Adequate, in the 300 to 350 WRI® range, with its suppliers in the maintain segment. These suppliers are important to the company but not essential. For its predominantly transactional suppliers in the hold segment, the company recognizes that it should do its best to have at least minimally Adequate working relations, in the WRI® range of 250 to 300.

Analyses of the 80-plus variables for each supply base in each region provided insight into the reasons for the unexpected differences across commodity areas, supplier segments and regions. The analyses also indicated the actions the company needed to take to raise the various WRI®s to the company’s desired levels. For example, Figures 7

and 8 show how suppliers share new technology with the company and invest in new technology based on their working relations with the company, as calculated by the WRI®. This data, along with similar data, provided the basis for specific action plans the company is currently implementing to reach its desired supplier working relations and levels of associated benefits.

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Figure 7. Supplier willingness to invest in new technology in anticipation of future business.

Figure 8. Supplier willingness to share new technology without the assurance of a purchase order.

Commodity Area #1

Commodity Area #2

Commodity Area #3

Commodity Area #4

Commodity Area #5

Commodity Area #6

100

200

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500 HoldMaintainStrategic

285 282 279258

336

278

463

379

326

376

413394

345

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413394

North America Direct Commodity Areas

Red numbers indicate statistically significant differences across supplier classifications

Very

Poo

r - P

oor

Adeq

uate

Good

- V

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Good

Wor

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Very Little Little Somewhat Great Very Great

Very

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- V

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R2=,77

R2=,81

R2=,96

DirectIndirectLogistics

Supplier Willingness to Invest in New Technology

100

200

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500

Very Little Little Somewhat Great Very Great

Very

Poo

r - P

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Adeq

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R2=,83

R2=,95

R2=,95

DirectIndirectLogistics

Supplier Willingness to Share New Technology

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Accenture and Planning Perspectives: A Winning CombinationAccenture’s extensive client experience in supplier relationship management and High Performance in Procurement research has provided us with deep insights into the actions that create value, reduce costs, enable innovation, manage risk and drive growth. These insights have enabled us to develop a unique perspective on a definable set of actions that can help companies move beyond adversarial, cost-focused relationships with suppliers to integrated relationships that can create sustainable competitive advantage. By partnering with Planning Perspectives and accessing its WRI® methodology and extensive academic research in supplier working relations, Accenture can offer its clients an unparalleled, data-driven, action-focused approach to rapidly unlock value from a company’s supply base.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 244,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

About Accenture Management Consulting, OperationsAccenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 16,000 management consultants globally, Accenture Management Consulting works with companies and governments to achieve high performance by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Customer Relationship Management, Finance and Enterprise Performance, Operations, Risk Management, Sustainability, and Talent and Organization. Accenture Operations consulting services help clients develop more dynamic, innovative and high performing Supply Chain and service operations capabilities to enable rapid response to changing customer demands and market opportunities.

About Planning Perspectives, Inc.Planning Perspectives (PPI) is a 30-year-old consultancy headquartered in Birmingham, Michigan, USA, that works exclusively in the area of supplier working relations. Since 1990, when it implemented the first supplier survey to be conducted in the automotive industry for Ford Motor Company, PPI has worked with manufacturing and service companies in 18 industries to help them understand how their suppliers perceive working with them. Given the suppliers’ perception of their working relations, PPI then provides direction as to how the client can create and maintain more collaborative trusting supplier working relations that lead to realizing

greater benefits from suppliers, which can contribute to greater marketplace competitiveness and profitability.

The academic research conducted by the principals and academic affiliates of Planning Perspectives provides the foundation upon which the WRI® survey questionnaire content, survey implementation approach, and survey results analyses and recommendations are based. By applying the high standards required of academic research in the research of our clients’ supplier working relations, our clients can be assured of the reliability and validity of the outcomes of the confidential Internet-based surveys that PPI implements to gain insight into their supplier working relations.

Working Relations Index® and WRI® are registered trademarks of Planning Perspectives, Inc.

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ContactsAccentureKris TimmermansGlobal Managing Director, Sourcing & Procurement Email: kris.timmermans@accenture.com Tel: +32 2-2267232

Kai NowoselExecutive Partner, Sourcing & Procurement EALA Email: kai.nowosel@accenture.com Tel: +49 6173-94-67895

Manish ChandraExecutive Partner, Sourcing & Procurement APAC Email: manish.chandra@accenture.com Tel: +91 22-673-0521

Harlen PyleExecutive Partner, Sourcing & Procurement North America Email: n.harlen.pyle@accenture.com Tel: +1 703-947-1545

Per SegerbergPartner, Sourcing & Procurement, Nordics Email: per.segerberg@accenture.com Tel: +46 730514049

Andrew BrimacombeSenior Manager, Sourcing & Procurement Global Offering Owner, SRM Email: andrew.brimacombe@accenture.com Tel: +44 20-7844-5283

Planning Perspectives, Inc.Prof. John W. Henke Jr., Ph.D.President Email: henke@ppi1.com Tel: +1 248-644-7690

B. Vera RuseckasVice-President Email: ruseckas@ppi1.com Tel: +1 248-644-7690

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