Benchmarking Business Relationship Management “The Four Faces of Building Value with Major Suppliers”
FSPF BENCHMARKING BUSINESS RELATIONSHIP MANAGEMENT
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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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FSPF BENCHMARKING BUSINESS RELATIONSHIP MANAGEMENT
Face 1: Business Requirements& the Value Drivers
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 1: Business Requirements& the Value Drivers
Face 3: Operationalising StrategicSupplier Relationship Management
Face 2: Different Typesof Relationship Management
Face 2: Different Typesof Relationship Management
Face 4: Leadership, People& Behavioural Implications
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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 1: Business Requirements& the Value Drivers
Face 3: Operationalising StrategicSupplier Relationship ManagementFace 3: Operationalising StrategicSupplier Relationship Management
Face 2: Different Types ofSupplier Relationship Management
Face 4: Leadership, People& Behavioural Implications
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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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FSPF BENCHMARKING BUSINESS RELATIONSHIP MANAGEMENT
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
Face 4: Leadership, People& Behavioural Implications
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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