SRM Video Series: #3 Defining ‘Value for Money’

Previously in this short series of SRM videos I have discussed the importance of having a clear reason for doing SRM – I called it the over-arching purpose; and then the question of who benefits – what stakeholders are likely to be interested in from SRM.

In this third video I talk about how you…. Show them the ‘money’

Let’s be clear from the start, this is not just about savings targets.

Although challenging it may be – the focus must shift to a more mature discussion about value for money.

You’re going to have to work hard (and most definitely with the CFO) to define meaningful value-for-money measures.

Cost reduction is a given, but what else are you going to measure and manage as part of your SRM effort?

Risk is a major factor for most CPOs these days; covering everything from regulation, supply continuity, and reputation management. What measures are in place, or should be developed for those (and other) risk factors?

And what about suppliers’ contributions to the top line? How will you measure innovation provision, supplier brand value to the business, and marketing contributions from suppliers?

These are just some of the many value levers that can be improved through systematic deployment of SRM and, even though some are easier to measure than others, your measurement system should aim to be motivational; it should enthuse users to want to get better, to improve, not create fear of failure.

Perhaps it would be a good idea to provide recognition and rewarding those involved in SRM work, the effort they put in, and the progress they make (including the suppliers themselves by sharing some of the benefits of improvement).

Sustaining positive momentum and a pipeline of value improvements is key.

Whichever way your measures are developed, ultimately the arbiters of the value delivered are those stakeholders you will (hopefully) have already consulted. I’m not promising it will always be easy developing measures and negotiating who gets credit or that there aren’t organisational politics involved, but claiming savings and other benefits that are not endorsed by the internal stakeholders is a recipe for their disengagement and even conflict.

Once definitions of value have been agreed, then a mechanism for monitoring VFM improvements coming down the pipeline will need to be created, enabling the CPO to determine not only the aggregate benefits of SRM, but which SRM interventions with suppliers are the most effective.

Finally, through the diligent pipeline management of value for money improvement ideas, it will become possible to predict future benefits from SRM and enable the CPO to help shape budgets.

A word of warning: Because knowing what can be achieved from deploying SRM with each selected supplier cannot be precisely estimated up front, then setting top-down targets for SRM is a risky business. Arbitrarily imposing targets on SRM, potentially disconnected from what stakeholders (customers) need, will deflate morale and undermine the chances of success. My experience tells me that VFM improvements are emergent; they are the result of a range of SRM interventions with the supplier and the internal organisation.

Predicting which activities are going to yield the most benefits is an inexact science. That’s not to say, however, that we shouldn’t keep count.

In the next video in this short series, I’ll be discussing what the CPO and the team need to be good at. What are the critical processes that deliver the tangible benefits to the business and its stakeholders? In other words, what is the SRM ‘day job’?

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