October 15, 2014
If you want to know what the next big thing in procurement will be, look across the enterprise landscape of shared corporate services. HR, Marketing, IT and Procurement departments are all being challenged to validate the strategic business benefits they deliver. It is no coincidence that the market leaders are all focused on engagement strategies. What is engagement? It is the demonstrated commitment that stakeholders have to organizational initiatives. Improving engagement requires segmenting stakeholder groups and creating programs to align self-interests within each group to drive adoption and behavior change.
Over the past several years, eHR, eMarketing and eProcurement platforms have used automation to reduce costs and improve cycle times. But in many ways, the broader, more strategic business benefits expected from these platforms have not fully materialized yet.
HR departments have discovered, for example, that simply making training available online, while much cheaper than other forms of training, doesn’t directly correlate to improvements in on-the-job performance. Marketing departments have learned that simply reaching more prospects and customers through electronic channels isn’t enough to significantly increase sales results. And procurement departments have discovered that simply automating manual purchasing processes doesn’t achieve desired levels of spend-under-management.
What we have witnessed is the classic “horse to water” syndrome. Technology has helped make a wider range of choices easier to adopt, but facilitating adoption requires the ability to motivate behavioral change.
Moving Beyond Automation to Engagement: Today, leading shared corporate services practitioners realize that, beyond automation, stakeholder engagement is essential to achieve transformational business results. The good news is that the data and analytics tools needed to facilitate effective stakeholder engagement are readily available today.
Marketing departments are using data and analytics to achieve more meaningful engagement with prospects and customers to create greater lifetime value. HR departments are using data and analytics to engage “high-potential” employees within the enterprise, facilitating personalized career development paths that increase performance and retention. Leading procurement departments are using data and analytics to engage in proactive, performance-driven relationships between business units and suppliers to reduce TCO and supply chain risk, while adding to competitive advantage.
The common link across all of these trends is that data and analytics are combined with segmentation and engagement strategies to improve performance. An engaged supplier, much like an engaged employee or engaged customer, yields a higher return-on-investment.
To be clear, however, engagement is a two-way street. Both parties must benefit in order for meaningful change to take place. And treating all stakeholder groups the same is a formula for failure.
Supplier Relationship Management (SRM) represents one of the most promising areas where procurement departments are using data, analytics, segmentation and engagement strategies to create significant business value.
At Shelby, we define SRM as a strategic and systematic approach for identifying, developing and managing partnerships for mutual benefit and growth through performance-based incentives. SRM uses a tiered approach to segment the supply-base, focusing attention and resources in accordance with the value-add potential of each segment.
Data from the procurement system is used to segment suppliers based on spend and critical value to the organization. This segmentation determines the supplier engagement strategy. For example, a transactional supplier (such as office supplies) would have a very different engagement strategy than a strategic partner. The engagement strategy for a strategic partner would create significant business value by reinforcing the overall business relationship and providing improved delivery, service, and efficiency.
Current State: Today’s eProcurement platforms enable the consistent application of enterprise procurement strategies and policies. However, business units tend to eschew what are perceived as “one-size-fits-all” practices, fostering instead “protectionism” for most favored suppliers. As a result, the leverage of enterprise purchase power is diminished and disparate definitions for supplier performance make it nearly impossible to manage the incentives that are vital for realizing the intended benefits of business relationships.
Future State: An effective SRM strategy facilitates engagement by utilizing data and analytics to create tiers of suppliers based on volume of category spend and the potential for added strategic value. Procurement departments facilitate collaborative discussion between business units and key suppliers to create value-added goals and incentives for each tier. These goals are translated into SLAs, contract clauses and terms that can be automatically tracked, measured and managed using quantitative and qualitative metrics via Supplier Performance Scorecards.
A well-designed SRM program introduces levels of truth and transparency where top performing suppliers are recognized and rewarded while underperformers are motivated to change. This is in stark contrast to a condition that is all too common today where less than stellar suppliers receive most favored terms and conditions because of entrenched personal relationships.
Embarking on a SRM program may seem like a daunting challenge. But it doesn’t need to be. SRM involves proven supplier segmentation and engagement strategies that can help transform your best suppliers into measurably better business partners by creating mutually beneficial conditions for success. Chances are, you already have the systems in place to enable such a program. It’s a matter of getting the executive-level support you’ll need to move from reactive to proactive supplier performance management.
For more insights on how you can take supplier performance to the next level with an SRM program, contact us at firstname.lastname@example.org.
Manager, Procurement Optimization
The Shelby Group