copper-arrows

Strategic Sourcing: How to build a positive and sustainable supplier relationship management model and why this is critical to procurement outsourcing success.

Case Study / 09/09/2020

Our client was grappling with over-engineered legacy processes, high business demand for procurement support and a lack of capability in the supplier relationship management space.

 

Background

When we first engaged, our client had recently been divested from a much larger organisation. They were trying to keep the business running while working out how to right-size their teams, processes and systems. A company with an annual spend of over £5m per year across more than 150 suppliers, the procurement team had reduced from 15 to 8 as part of the business restructure. Their first job, to introduce a new finance system, had put pressure on a team who were already over-stretched managing their day jobs.

We were initially engaged to objectively assess the issues and recommend how to address them and it was immediately obvious the process was broken:

  • They were treating all projects and engagements equally without assessing third party risk or value, leading to too much work, a lack of prioritisation, poor decisions and missed opportunities.
  • Historically, they had addressed issues by adding more forms and process which didn’t join up easily with those in the rest of the business. This led to confusion in and outside of the team, and resulted in a lack of audit trail.
  • A weak understanding around the wider business of the Procurement team’s role and purpose was leading to frustration and protracted timescales.
  • Within the team, the focus was on sourcing activity rather than the full procurement lifecycle. There was no real supplier relationship management (SRM) activity or capability in place.
  • Without a formal SRM approach, they faced commercial exposure and third party risk. Their licensing was not being correctly managed, giving leverage to the suppliers and putting them on the back foot.

Our approach

There were several issues to tackle.

Step 1: Process improvement

The starting point was to design and implement a full end to end procurement lifecycle, including a risk-based framework. Split into a ‘two-speed’ process, the business was empowered to manage the low-risk, low-value projects, which allowed the Procurement team to focus on the high-risk, high-value activity.

This helped the business better understand and value the role of Procurement, and significantly reduce response times from the team on larger projects.

Step 2: Developing a toolkit

Underpinning the new simplified process was a straightforward toolkit, which included ‘how to’ guides, a risk assessment tool, new document templates and clarity on roles and responsibilities. We collaborated with key stakeholders to ensure the processes dovetailed with existing ones. Providing training in conjunction with the internal comms team was key to a successful implementation.

Step 3: Supplier relationship management

With only one supplier relationship manager who was operationally managing their largest supplier, they were significantly under-resourced. An SRM framework should be implemented to efficiently manage all strategic suppliers that represent high spend, risk or dependency. It should be a partnership in which both sides optimise value from the agreement. In this case, it was very much a blank sheet of paper for us to design from scratch.

The objective of SRM is to ensure all key stakeholders are consistently managing the supplier engagement to maximise the benefit from the agreement, improve governance and decision-making, and reduce exposure and risk.

  • Framework: The risk framework we developed helped identify their strategic suppliers based on value and the risk profile, measured across the criticality of the supply, the make up of their supply market and the business’ future strategy.
  • Data driven: The framework relied on key information such as historic investment, associated contracts, budgets, roadmaps, planned projects and issues. Much of this information had been pulled together by hand and was inconsistent and out of date. We worked with them to get one source of truth, which freed up resource time for management activity. The information could then be used to support:
    • Internal monthly management dashboards
    • Supplier performance reviews
    • Future strategy planning
    • Third Party Risk Management
  • Meeting framework: Stakeholders from each party should attend regular meetings, scheduled monthly, quarterly and bi-annually, with appropriate and ‘matched’ attendees at each stage. Part of the toolkit we developed was a complete framework to cover what ‘good’ looked like in all these areas, with suggested agendas and attendees.
  • Change management: Change is an inevitable part of any organisation. It must be managed well to maintain healthy supplier relationships and ensure they are still fit for purpose for both sides in the future. The new governance models and processes allowed them to contract for change and ensure successful delivery.

Step 4: License management 

We partnered with a specialist software consultancy to review their existing agreements and needs. We also assessed their supplier strategy, preparing them for supplier meetings that would deliver much clearer objectives and commercial results.

Collaborating with the company’s Legal team we helped align the fragmented contract structure, delivering a set of standard contract templates that could be applied to a variety of product and services purchases.

Results

The Procurement and SRM teams are refocussed, they understand their roles and can prioritise strategic, core activity that will provide the most value to the business.

They have a clear, simplified process which is speeding up delivery times, driving good decision-making and ensuring all interested parties are engaged at the right time. It has also empowered other parts of the business to manage some activity themselves, driving a more positive internal view of the Procurement team as both sides are set up for success.

The Procurement team has a robust toolkit that is reflected on their internal website, which can help drive skills and capability in the existing team and induct new team members going forward.

Centralised framework agreements are in place with the key software providers and a fully aligned SRM approach is operational. This has significantly reduced commercial and governance risk. They have also introduced a software asset management tool which is optimising the current estate and delivering flexibility for asset use across all parties. With visibility of their key suppliers and their performance, the team is now able to successfully drive value across the full procurement and SRM lifecycle.

They are delighted that their commercial arrangements now align to their business strategy.

target