Procurement's historic focus on managing categories of supply too often assumed that the category was comprised of interchangeable sources of supply to be manipulated to produce perpetual annual cost reductions at the category level. The new realization is that material cost savings are not an annuity and commodity suppliers are not a "commodity." The best suppliers, and the supplier's supplier, are the source of innovation and competitive differentiation, and a supply management, not category management focus, is needed to nurture them. While the orientation towards Category Management remains ingrained - the latest CAPS (Center for Advanced Purchasing Studies) Manufacturing Industry Benchmarks still show nearly double the amount of procurement resources allocated to Category Management as compared to Supplier Management (31% to 16%) - the shift towards Supplier Management has already begun. In a Zycus sponsored, December 2013 webinar in collaboration with The Hackett Group, titled, "Real-time Procurement Benchmarking," almost half of webinar attendees polled expect to get more than 10% of "total procurement value" from Non-Sourcing or Category Management activities - in other words, Supplier Relationship Management. More organizations are turning their attention to Supplier Management as a new source of savings - and value - as a matter of necessity. Hackett Group Benchmarks point towards a leveling off of savings achieved by World-Class performers, whose Total Spend Cost Savings as a percentage of Annual Spend (Cost Reduction and Avoidance), are forecast to decline by more than a full percentage point (7.56% to 6.46%) from 2012 to 2013. And according to Hackett benchmarks, Top Performing organizations are already realizing 3.4% savings annually as a percentage of Total Spend above and beyond savings from sourcing or category management, twice as much as their peer group. These Supplier Management derived savings, accrue in the form of additional cost reductions achieved through supplier measurement, development, and collaboration, along with top line revenue growth attributed to innovation support, new market entry, improved marketing campaigns and brand enhancement from sustainability efforts. World-Class procurement organizations are achieving much higher returns than their counterparts because they are focusing on Supplier Relationship Management. In 2013, 80% of world-class performers were utilizing a formal, supplier scoring methodology as compared to just 50% of the peer group in the Hackett benchmarks. By focusing on Supplier Performance Management, companies can rationalize the overall supply base and achieve:
- A Global view of supplier performance and solid retention of performance records
- Better adoption rates due to ease-of-use and process automation efficiencies
- Better collaboration with suppliers with improved process efficiency for procurement since feedback is automated online for suppliers
Richard Waugh, Vice President, Corporate Development, leads strategic initiatives in the areas of new product introduction, market development, thought leadership, analyst relations and strategic partner development programs at Zycus. Richard has an extensive background in B2B E-Commerce. He helped launch GE's Trading Process Network. He also co-founded B2eMarkets, and later covered the Supply Management market as an Industry Analyst for the Aberdeen Group.