Becoming a Customer of Choice For Your Key Suppliers

Presented by: Geraint John Executive Consultant State of Flux

CIPS Thames Valley Branch Meeting

28 March 2012

Todays agenda

1. 2. 3. 4. 5.

Introduction What is a customer of choice? Insights from the customer side Insights from the supplier side How to become a more attractive customer

CIPS Thames Valley Branch Meeting

About State of Flux

Procurement and supply chain consulting firm Founded in 2004, HQ in London

Focus on strategic sourcing, contract management and SRM

SRM services include: o Programme design, set-up and support o 360 relationship health checks o Voice of the Supplier studies o SRM System o Learning and development SRM clients include:

OLLOWERS

LEADERS

2012 State of Flux Ltd

Our view of SRM

OLLOWERS

LEADERS

2012 State of Flux Ltd

Desired outcomes
Successful collaborative customer-supplier relationships are likely to include the following features: Compelling mix of hard and soft benefits (added value)

Shared accountability, risks, rewards

Close alignment on strategy, objectives, expectations Joint innovation and cost/efficiency improvement projects Excellent communication, openness, honesty, trust

OLLOWERS

LEADERS

2012 State of Flux Ltd

Strategic collaboration
To what extent are you working collaboratively with your strategic suppliers?
Always business as usual 13%

What form does this collaboration with your strategic suppliers take?
64%

Rarely 9%

Never 1%

Don't know 2%

70% 60% 50% 40% 30%

OLLOWERS
44% 40%

Occasionally 36%

20% Often 39% 10% 0%

17%

16%

11%

10%

8%

LEADERS

Source: State of Flux 2011 SRM survey

2012 State of Flux Ltd

Todays agenda

1. 2. 3. 4. 5.

Introduction What is a customer of choice? Insights from the customer side Insights from the supplier side How to become a more attractive customer

CIPS Thames Valley Branch Meeting

Why be a customer of choice?

Top management support Willingness to invest/ take risks First refusal on innovations

VALUE
Priority for scarce resources/ capacity Preferential pricing

Access to the best people

LEADERS

2012 State of Flux Ltd

The business context

Excellence in the management of strategic customer-supplier relationships is now business critical. Reasons include:

The growth of major outsourcing deals

The growth of open innovation programmes Supply networks becoming a key source of competitive advantage

Dependency on a smaller number of key suppliers (eg, Tier 1)

But... time, resources and management attention are scarce.

LEADERS

2012 State of Flux Ltd

Customers response SRM

The segmentation of suppliers into different tiers:

LEADERS

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Suppliers response KAM

The segmentation of customers into different tiers:

Strategic customer: strong relationship, future growth collaborate Star customer: high future growth potential develop Status customer: large volumes, stable margins maintain proactively Streamline customer: large volumes, low margins manage for cash

LEADERS

Source: McDonald and Woodburn, 2011.

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Selecting key accounts

From a KAM perspective, there are three major elements that leading companies use to select their key accounts: 1. Financial outcomes current revenue/profitability and potential for superior returns and wallet share in the future. 2. Customer needs the degree of business alignment (based on strategic vision, growth plans, product/service roadmaps, length of the relationship, number of competing suppliers, etc), plus trusted partner status of supplier. 3. Customer attributes a host of different factors and behaviours that signal to LEADERS the supplier whether trusted partner status is a reality (degree of openness, collaboration, ease of doing business, long-term view, etc).

Source: McDonald and Woodburn, 2011.

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The alignment imperative

CUSTOMER SIDE: Suppliers of choice SUPPLIER SIDE: Customers of choice

= SRM

= KAM OLLOWERS

???
ALIGNMENT

LEADERS

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Defining customer of choice

We propose the following definition:

A customer of choice is an organisation that, through its practices and behaviours, consistently positions itself to receive preferential access to resources, ideas and innovations from its key suppliers that give it a competitive advantage.
LEADERS
What do you think?

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Todays agenda

1. 2. 3. 4. 5.

Introduction What is a customer of choice? Insights from the customer side Insights from the supplier side How to become a more attractive customer

CIPS Thames Valley Branch Meeting

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How customers think they are seen

What proportion of your strategic suppliers do you think currently view your organisation as a customer of choice?

Less than 25% 26-50% 51-75% 76-99% All None Don't know 0% 5% 10% 1% 2% 11% 15% 20% 25% 13% 19%

28%

26%

LEADERS

30%

Source: State of Flux 2011 SRM survey

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Customer of choice benefits

Which of the following customer of choice benefits has your organisation derived from suppliers during the past 12 months as a result of SRM activity?
Senior management commitment/support Preferential pricing Proactive ideas for continuous improvement Better market knowledge Access to the best people and resources Priority status for scarce materials and/or manufacturing capacity Greater willingness to invest/take risks in new projects Logistical support First refusal on innovations 15% 8% 3% 0% 10% 20% 30% 40% 50% 60% 18% 25% 24% 32% 30% 45% 42% 49%

LEADERS

None
Other
Source: State of Flux 2011 SRM survey

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Attributes that suppliers value

Which of the following relationship characteristics do you think your strategic suppliers value the most?
Profitability of the account Alignment on business strategy/vision Revenue - actual/potential Long-term perspective Your willingness to share information Alignment on technology/innovation roadmaps Brand value/marketing opportunities Pleasant to do business with

Openness to ideas
Payment performance (eg, on time in full) Process alignment Cultural fit Quality of communications Access to/engagement with your executives Trustworthiness

Your willingness to listen/collaborate

Length of the relationship Your ability to execute Your speed of decision making
Source: State of Flux 2011 SRM survey

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

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How suppliers fare...

What benefits have your key suppliers gained as a result of your SRM activities?
Access to new business within your organisation Sales/revenue growth Faster/better decision making Cost efficiencies Transfer of skills/knowledge/expertise Productivity gains Access to new geographic markets 0% Leaders
Source: State of Flux 2011 SRM survey

How often do you share financial savings derived from SRM activities with your suppliers?
Always 14% 8% 44% 35% 27% 28% 6% 18% 9% 11% 0% 10% Leaders 20% 30% 40% 50%

65% 63% 35% 39% 43% 39% 38% 30% 35% 27% 18% 20% 32% 40% 60% 80% 59% 54%

Occasionally

Rarely

Never

Dont know

Followers

Followers

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Supplier-driven innovation
How would you rate your organisation's ability to attract, evaluate and implement innovation proposals from your key suppliers? What, if any, are the major barriers for your organisation to attract, evaluate and implement supplier innovation proposals?

Very poor 2% Poor 29%

Very good 8%

No formal process in place Lack of time/resources Complexity of organisation Lack of clear ownership Good 38% Lack of internal communication/co-ordination Unwillingness to consider external ideas No major barriers Other 0% 14% 9% 7% 20% 32%

47% 45% 44% 40%

No opinion 23%

LEADERS
40%

60%

Source: State of Flux 2011 SRM survey

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Todays agenda

1. 2. 3. 4. 5.

Introduction What is a customer of choice? Insights from the customer side Insights from the supplier side How to become a more attractive customer

CIPS Thames Valley Branch Meeting

21

Voice of the supplier

Data collected from more than 225 suppliers and 50+ hours of interviews. In customer-supplier relationships where there is a high volume of business and good alignment, the following customer attributes appear to matter most: Willingness to engage Information sharing & communications Getting things done Approach to business Paying the bills

LEADERS

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Customer of choice attributes

1. Willingness to engage Open to feedback and continuous improvement ideas. Open to innovative products/services/solutions. Engages in regular dialogue and forums with key suppliers.

Involves the right type and level of personnel in discussions.

Prepared to invest in the relationship. 2. Information sharing & communication Shares strategies, organisation charts, demand forecasts, product roadmaps, etc. Helps supplier to understand needs and objectives. Provides timely feedback on ideas/innovations, proposals and bids.

LEADERS

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Customer of choice attributes (2)

3. Getting things done Clear decision-making process. Accountability/ownership of projects. Internal alignment.

Appropriate governance structures, metrics, etc.

4. Approach to business Long-term perspective (eg, on contract durations). Holistic view of commercial negotiations, value. Two-way performance measurement. Shares risks and rewards.

LEADERS

Treats suppliers in a fair and respectful manner (eg, behaviours, practices).

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Customer of choice attributes (3)

5. Paying the bills Respects and abides by payment terms. A simple, efficient payment process. Provides personal help/support to suppliers.

LEADERS

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How customers compare a real example

Top management commitment/support 4.50

4.00 Negotiations 3.50

Openness to ideas/ Innovations

3.00

Competitor 1 Competitor 2 Customer Competitor 3 Efficiency of decision making Competitor 4

2.50 Payment

LEADERS

Communications

Collaboration

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Todays agenda

1. 2. 3. 4. 5.

Introduction What is a customer of choice? Insights from the customer side Insights from the supplier side How to become a more attractive customer

CIPS Thames Valley Branch Meeting

27

Becoming a more attractive customer

Aside from awarding more business to a supplier, here are other things you can do to strengthen your customer of choice credentials: Take the time to understand your suppliers businesses, strategy, etc Share information and communicate openly

Think about how to incentivise/motivate suppliers

Adopt a long-term perspective (eg, in negotiations) Review/refine your governance and decision-making structures

Manage organisational and individual behaviours & practices

Ask suppliers for regular feedback and give it to them Pay invoices on time!
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Q&A discussion

Questions? Comments?
Geraint John Executive Consultant State of Flux geraint.john@stateofflux.co.uk www.stateofflux.co.uk/srm +44 (0)20 7842 0600

Read our customer of choice article at: http://bit.ly/pfTk0k

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