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SRM-CRM Gap

CEOs Must Close the SRM-CRM Gap

Among Fortune 500 companies, 75% of spend goes to external suppliers. Yet CEOs spend only 1% of their time with suppliers on average. The conclusion is clear: from the top down, companies are massively underinvesting in managing their supplier relationships. At the same time customer relationships get significant attention. This is the SRM-CRM Gap.

What exactly is the SRM-CRM Gap?

Imagine a head of sales saying the following to his CEO: “We only have the tools and personnel to closely follow 10% of our customers and prospects. We need to segment them and focus only on the most significant.” What would the CEO do?

Probably one of three things:

  • Get better CRM tools
  • Get more people
  • Get a new head of sales

And whichever option they chose, they’d do it immediately. There is simply no way that any company would tolerate that lack of visibility into its customers and prospects.

Customer Relationship Management is so fundamental to modern business that it’s never a question of whether you manage all of your relationships, but how. 100% visibility is simply assumed.

Now consider the situation with Supplier Relationship Management in your own company. Do you have 100% visibility?

Now you understand the SRM-CRM gap.

Quantifying the SRM-CRM Gap

So we have a sense of what it is, but how big is it?

According to State of Flux’s 2021 Global SRM Research Report, most organizations have not invested in a dedicated third party system for any of the major pillars of SRM:

  • Supplier onboarding / master data (48%)
  • Risk management (29%)
  • Performance management (18%)
  • CSR/sustainability management (16%)
  • Relationship management (11%)
  • Innovation management (6%)

Can you imagine a world in which only 48% of companies invested in commercial software to track their customer data? Of course not. 91% of companies with at least 11 employees have a CRM system. That number quickly approaches 100% as the size of the company increases.

So one decent quantification of the SRM-CRM Gap is how much more the average company invests in CRM vs. SRM. For more than half of companies, that number will approach 100% of their CRM investment.

Why does the SRM-CRM Gap exist?

The reason this gap exists is simple: CEOs and CFOs see the value of CRM, and they don’t see the value of SRM.

CRM shows its value through obvious and measurable statistics:

  • Revenue growth
  • Short sales cycles
  • Higher customer retention

In contrast, SRM shows its value through more subtle measures, including soft costs and problems avoided:

  • Less time spent on routine tasks
  • Fewer adverse supply events
  • Improved vendor compliance
  • More supplier innovation

There is obviously significant value to gain from reducing those soft costs and risks, and from getting better results out of your suppliers. But it’s more difficult to quantify. Most organizations don’t do it.

Building the SRM ROI case

If quantifying the benefits of SRM are at the root of the SRM-CRM Gap, then one solution is to make SRM’s benefits more tangible. Organizations that invest in SRM save money and get more value out of their supplier relationships – a rare win-win situation.

According to data from Beroe Inc., best-in-class SRM programs deliver an ROI of 1100%. The ROI derives from the following efficiencies:

  • 50% FTE cost savings on operational tasks
  • 60% reduction in operational risk incidents
  • 30% reduction in supplier failure

Overall, organizations that apply SRM principles to at least 90% of their suppliers realize 30-35% more value than organizations that focus SRM only on their strategic suppliers.

The SRM prescription for senior leadership

The way forward is clear: executives must place a higher priority on managing their supplier relationships. But where to begin?

The first step is to define your goal. And the goal for any CEO ought to be visibility on 100% of supplier relationships.

Once you’ve established that goal, there are three stages on the path to full supplier visibility, and they don’t all need to be done at once:

  1. Develop a shared source of truth about vendor relationships. This means creating a centralized database of supplier information that can be accessed by the whole Procurement team and key stakeholders outside of Procurement and Supply Chain.
  2. Analyze supplier performance on quantitative and qualitative measures across the organization. This will help identify areas where improvement is needed.
  3. Apply business intelligence to data collected in steps 1 and 2 to visualize supplier performance and risk. Simply stated, data captures what is happening right this second, whereas business intelligence uses historical data to make predictions on future trends and problems. Early detection of issues and trends can help you avoid them becoming troubles later.

Organizations simply must know their suppliers as well as they know their customers. Technology can help get there, but the first step is to commit to changing the status quo and making it a priority to get 100% of these relationships under management.

What's out there, lurking in the fog?

The Critical Importance of Supplier Visibility

One of our users – let’s call her Anna – won the assignment to head up a new supplier diversity program at her company. She had authority to drive actions, budget to get things done, and clear targets for diverse supplier spend. She got to work.

There was one small problem. When Anna asked “what are we spending with diverse suppliers today?” the answer came back “we don’t know.” How can you know how far you have to go to reach your goal if you don’t know where you’re starting?

Anna’s story isn’t unique. Procurement teams increasingly face mandates beyond cost savings. These include Environmental, Social and Governance (ESG) goals, risk reduction, supplier innovation, performance optimization, compliance enforcement, and other complex tasks.

However, they also frequently deal with poor or non-existent tools for understanding their supply base. Even basic questions like “How much of our spend is currently allocated to diverse suppliers?” are hard to answer without a lengthy manual data collection process.

In order to meet these new mandates, Procurement teams need better visibility into the supplier base.

Benefits of improved supplier visibility

Organizations enjoy several benefits from improved supplier visibility:

  • A complete picture of supplier performance and supplier risk. This includes a holistic view of financial stability, ESG factors, country risk, customer churn, and other measures.
  • Alignment between performance, risk and spend. As a result procurement teams make informed recommendations about where to allocate business.
  • Better goal tracking. Teams can take the guesswork out of whether they are meeting their objectives and monitor data in real time.
  • Improved compliance. Breaking down internal silos ensures that compliance enforcement is a global process.

Problems that arise from poor supplier visibility

Conversely, major problems can arise when organizations lack sufficient visibility into their supplier base:

  • Poor visibility into supplier performance: Vendor performance assessments are manual – with intensive Excel and email data collection work – if they’re done at all. As a result, assessments are infrequent, incomplete, ad hoc, or all of the above.
  • Poor visibility into supplier risk: Vendor risk management is reactive rather than proactive. Therefore risk management frequently addresses problems after they happen, and mitigates risks on an ad hoc basis.
  • Decisions driven by intuition rather than data: Because procurement and supply chain teams lack supplier visibility, they’re also working with incomplete data sets. This leads to suboptimal decision making around spend allocation as it relates to performance and spend.
  • Siloed supplier relationship management: Because of the lack of a centralized system or repository for supplier information, procurement and supply chain teams often end up managing supplier relationships in silos. This leads to duplication of effort, inconsistency in approach, and communication breakdowns.
  • Inconsistent or nonexistent supplier compliance tracking: Without visibility into supplier performance and a shared understanding of contract terms, it’s difficult to track whether suppliers are meeting their contractual and regulatory obligations. That puts the organization at risk if critical suppliers are not adequately monitored.

The path to becoming a supplier visibility leader

There are three stages on the path to full supplier visibility, and they don’t all need to be done at once:

  1. Develop a shared source of truth about vendor relationships. This means creating a centralized database of supplier information that can be accessed by the whole Procurement team and key stakeholders outside of Procurement and Supply Chain.
  2. Analyze supplier performance on quantitative and qualitative measures across the organization. This will help identify areas where improvement is needed.
  3. Apply business intelligence to data collected in steps 1 and 2 to visualize supplier performance and risk. Simply stated, data captures what is happening right this second, whereas business intelligence uses historical data to make predictions on future trends and problems. Early detection of issues and trends can help you avoid them becoming troubles later.

Organizations need to have visibility into their suppliers in order to manage them effectively. Without visibility, procurement and supply chain teams will suffer from several critical problems.

Conversely. organizations that improve supplier visibility will be able to make better procurement decisions, improve goal tracking, and ensure compliance. Procurement and Supply Chain teams can no longer afford to suffer from poor visibility into their supplier base.

By taking these steps, organizations can begin to improve their supplier visibility and reap the many benefits that come with it.