Governance: pay-off

The fourth component of governance is payoff and is concerned with the arrangements to measure, monitor, report and publish the benefits secured from specific SRM interventions or projects. It could form part of a wider purchasing benefits tracking system or it could be specific to SRM.

SRM, and indeed any strategic purchasing initiative, requires significant investment so there must be a return on that investment and we need to be able to quantify the degree to which our interventions with important suppliers are adding value to the organization overall.

The problem here is around the definition of value. If we can reduce the price we pay then there is a clear and measurable benefit that can be seen on our bottom line and will satisfy any finance team. For category management, projected benefits, often largely price or cost related, are identified at the outset via an opportunity analysis, and as we move through the process, anticipated benefits turn into actual benefits which hopefully are then realized. However, for SRM the projected benefits for a specific relationship are usually quite different, it is all the different types of value we can secure for a given supplier relationship driven by the ways we believe the relationship can improve. It is typically about reduced risk, improved operational effectiveness, better supply base performance, innovation and any other forms of value we seek; in fact the VIPER reasons for a relationship with a supplier as outlined at the start of this book from which we determine the macro and the supplier-specific VIPER relationship requirements, informed by corporate aims, the needs and wants of the business and the segmentation process.

Most of these are less quantifiable and may not necessarily point to a number, but rather some sort of improvement: 'we eliminated that risk' or 'created this innovation', 'we have improved our competitive advantage' and so on. So for SRM determining the payoff means we need a benefits tracking system that must somehow allow us to measure, monitor and report value add benefits in a way that keeps the interest of the executive team to which we are accountable and shows progression against all strategic aims and objectives.

Key to establishing any benefits tracking system is to agree the approach with the finance team, and ideally have them manage it. In practice this might mean either converting less tangible benefits into a tangible number or instead have a means to tell the story in a compelling and unforgettable way that links intervention and effort to a particular outcome. In category management benefits are classified under just three headings of price reduction, cost avoidance and efficiency improvement. These are still entirely appropriate, but for SRM there are two additional classifications, which are value improvements and brand development. Table 15.1 gives examples of benefit types and qualifying factors mapped against VIPER.

TABLE 15.1 Benefit types and qualifying factors mapped against VIPER

Benefit types and qualifying factors mapped against VIPER

Once the arrangements for benefit determination have been agreed, then benefits tracking is simply a case of putting in place a regular reporting regime for each SRM initiative, either requiring individual supplier relationship managers to report benefits secured from time to time or a cross-functional team working on a specific initiative to report progress (eg against the 5A process) and benefits at key stages.

Governance: programme

Programme is the fifth component of governance and is the means by which all initiatives, interventions and projects are planned and managed for SRM or indeed all strategic purchasing initiatives. Programme is about identifying priorities and planning how these will be acted upon based upon available resource. This part of governance is managed using a dynamic programme plan identifying the key projects and activities over the short to medium term (Figure 15.4). For each project milestones linked to completion of key stages, such as the 5A SCR process, can be defined in advance, these can be linked to expected benefits delivery. Here a system of regular progress and benefits reporting is required, coordinated by good project management hence the need for a defined role here. A similar programme in the form of a 'category wave plan' is advocated within category management and so, given resources are finite for any organization, there is only room for one programme plan that manages and coordinates all the available resource, allocating it to either SRM, category management or other projects as appropriate. In addition the programme plan is most effective when used as the single planning tool for all governance activities and so should include key time bound activities such as steering group reviews, key communications and any key events on the supplier calendar. An example of a governance programme plan for SRM and other strategic projects is given in Figure 15.4.

The programme plan is determined, reviewed and updated by the steering group, informed by corporate strategy, aims and objectives, the outputs from segmentation (defined using supplier intervention mapping) and opportunity analysis (Figure 15.5).

Steering group reviews

The role of the steering group is to develop and maintain a current programme, meeting regularly to review progress and update the programme as appropriate. These reviews should cover:

• overall progress against delivering headline benefits;

• review of progress against benefits for individual initiatives;

• review of progress to milestones for individual initiatives;

• review of communication plan;

• ensuring availability of the required capabilities and resources; and

• review and update of the programme plan.

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