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Supplier management: Maximum value from effective governance

The strategic art of driving enormous value through effective supplier relationship management

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How does supplier management create value?

Supplier management (SM) is the art of driving value through effective supplier relationship governance. SM is uniquely positioned in the supplier lifecycle to generate returns across both direct and indirect spend areas. Many procurement organizations have developed category management and sourcing capabilities that lead to realizable value at the time of contract. As they transition to the post-contract phase, effective SM benefits three main areas:

Contract compliance savings and value realization: Businesses often see contractual savings leakages of up to 15%¹ from friction factors such as supplier non-performance, invoice and credit memo errors, and redundancies. Through a structured SM framework, they can further enhance value by not only focusing on “cost” but also “value beyond cost”.
Customer of choice: Our experience shows that businesses can gain up to 3% in additional value by improving their supplier management program. Formalized SM framework helps businesses become a “Customer of Choice” of suppliers, leading to competitive pricing access (“favored nation”), top supplier talent, service, volume discounts, supplier thought leadership and lower labor rates.
Innovation: Supplier innovation impacts the entire company and improves revenue while reducing costs. An established SM program focuses resources on key strategic suppliers to brainstorm, crowdsource, and innovate new ideas.

Procurement Organizations with a strategic view of key relationships can better influence their suppliers beyond sourcing and contract awards to increase value in quality, service and timeliness.

¹Source: World Commerce & Contracting and SirionLabs. Faster contracts. Better contracts. Eliminating the friction points in contracting; January 2021, page 8.

What does good look like?

To achieve value from supplier management, companies must have an effective program run by teams that work well together to provide enterprise-level SM with these key goals:

Clarify roles
Reduce redundancies
Optimize costs
Improve supplier throughput and relationships

Good SM teams work through agreed upon standardized processes and use an integrated toolset capable of contract management, supplier relationship management, enterprise resource planning, and risk management. Teams should be cross-functional to enable diversity of perspectives, with representatives from:

Procurement
Risk
Legal
Finance
All other business units

To create or advance an SM program, an organization must:

Assess and optimize their current state
Design the right target operating model
Evaluate and enable technology to fit their needs
Build their program around the output from these activities

How KPMG can help

KPMG has developed leading practice technology and tools to fast-track companies on their supplier management transformation journey. Our services and professionals can help you establish an effective supplier management organization that delivers value to business in the following ways: