Supplier relationship management is the discipline of strategically planning for, and managing,
all interactions with third party organizations that supply goods and/or services to an organization
in order to maximize the value of those interactions.
In practice, SRM entails creating closer, more collaborative relationships with key
suppliers in order to uncover and realize new value and reduce risk.
Overview Supplier relationship management is the systematic,
enterprise-wide assessment of suppliers’ assets and capabilities with respect to overall
business strategy, determination of what activities to engage in with different suppliers, and
planning and execution of all interactions with suppliers, in a coordinated fashion across
the relationship life cycle, to maximize the value realized through those interactions.
The focus of SRM is to develop two-way, mutually beneficial relationships with strategic supply
partners to deliver greater levels of innovation and competitive advantage than could be achieved
by operating independently or through a traditional, transactional purchasing arrangement.
In many fundamental ways, SRM is analogous to customer relationship management.
Just as companies have multiple interactions over time with their customers, so too do
they interact with suppliers – negotiating contracts, purchasing, managing logistics
and delivery, collaborating on product design, etc.
The starting point for defining SRM is a recognition that these various interactions with suppliers
are not discrete and independent – instead they are accurately and usefully thought of
as comprising a relationship, one which can and should be managed in a coordinated fashion
across functional and business unit touch-points, and throughout the relationship lifecycle.
Components of SRM SRM necessitates a consistency of approach
and a defined set of behaviours that foster trust over time.
Effective SRM requires not only institutionalizing new ways of collaborating with key suppliers,
but also actively dismantling existing policies and practices that can impede collaboration
and limit the potential value that can be derived from key supplier relationships.
At the same time, SRM should entail reciprocal changes in processes and policies at suppliers.
Organizational structure While there is no one correct model for deploying
SRM at an organizational level, there are sets of structural elements that are relevant
in most contexts: A formal SRM team or office at the corporate
level.
The purpose of such a group is to facilitate and coordinate SRM activities across functions
and business units.
SRM is inherently cross-functional, and requires a good combination of commercial, technical
and interpersonal skills.
These “softer” skills around communication, listening, influencing and managing change
are critical to developing strong and trusting working relations.
A formal Relationship Manager or Supplier Account Manager role.
Such individuals often sit within the business unit that interacts most frequently with that
supplier, or may be filled by a category manager in the procurement function.
This role can be a full-time, dedicated positions, although relationship management responsibilities
may be part of broader roles depending on the complexity and importance of the supplier
relationship.
SRM managers understand their suppliers’ business and strategic goals, and are able
to see issues from the supplier’s point of view while balancing their own organization’s
requirements and priorities.
An executive sponsor and, for complex, strategic supplier relationships, a cross-functional
steering committee.
These individuals form a clear link between SRM strategies and overall business strategies,
serve to determine the relative prioritization among a company’s varying goals as they
impact suppliers, and act as a dispute resolution body.
Governance The SRM office and supply chain function are
typically responsible for defining the SRM governance model, which includes a clear and
jointly agreed governance framework in place for some top-tier strategic suppliers.
Effective governance should comprise not only designation of senior executive sponsors at
both customer and supplier and dedicated relationship managers, but also a face-off model connecting
personnel in engineering, procurement, operations, quality and logistics with their supplier
counterparts; a regular cadence of operational and strategic planning and review meetings;
and well-defined escalation procedures to ensure speedy resolution of problems or conflicts
at the appropriate organizational level.
Supplier engagement model Effective supplier relationship management
requires an enterprise-wide analysis of what activities to engage in with each supplier.
The common practice of implementing a “one size fits all” approach to managing suppliers
can stretch resources and limit the potential value that can be derived from strategic supplier
relationships.
Supplier segmentation, in contrast, is about determining what kind of interactions to have
with various suppliers, and how best to manage those interactions, not merely as a disconnected
set of siloized transactions, but in a coordinated manner across the enterprise.
Suppliers can be segmented, not just by spend, but by the total potential value that can
be realized through interactions with them.
Further, suppliers can be segmented by the degree of risk to which the realization of
that value is subject.
Joint activities Joint activities with suppliers might include;
Supplier summits, which bring together all strategic suppliers together to share the
company’s strategy, provide feedback on its strategic supplier relationship management
program, and solicit feedback and suggestions from key suppliers.
Executive-to-executive meetings Strategic business planning meetings, where
relationship leaders and technical experts meet to discuss joint opportunities, potential
roadblocks to collaboration, activities and resources required, and share strategies and
relevant market trends.
Joint business planning meetings are often accompanied by a clear process to capture
supplier ideas and innovations, direct them to relevant stakeholders, and ensure that
they are evaluated for commercial suitability, and developed and implemented if they are
deemed commercially viable.
Operational business reviews, where individuals responsible for day-to-day management of the
relationship review progress on joint initiatives, operational performance, and risks.
Value measurement SRM delivers a competitive advantage by harnessing
talent and ideas from key supply partners and translates this into product and service
offerings for end customers.
One tool for monitoring performance and identifying areas for improvement is the joint, two-way
performance scorecard.
A balanced scorecard includes a mixture of quantitative and qualitative measures, including
how key participants perceive the quality of the relationship.
These KPIs are shared between customer and supplier and reviewed jointly, reflecting
the fact that the relationship is two-way and collaborative, and that strong performance
on both sides is required for it to be successful.
Advanced organizations conduct 360 degree scorecards, where strategic suppliers are
also surveyed for feedback on their performance, the results of which are built into the scorecard.
A practice of leading organizations is to track specific SRM savings generated at an
individual supplier level, and also at an aggregated SRM program level, through existing
procurement benefit measurement systems . Part of the challenge in measuring the financial
impact of SRM is that there are many ways SRM can contribute to financial performance.
These include cost savings; incremental revenue opportunities; and improved management of
risk.
In a 2004 Vantage Partners study, respondents reported that on average, they could save
just over $43 million to their bottom line by implementing supplier relationship management
best practices.
Systematic collaboration In practice, SRM expands the scope of interaction
with key suppliers beyond traditional buy-sell transactions to encompass other joint activities
which are predicated on a shift in perspective and a change in how relationships are managed,
which may or may not entail significant investment.
Such activities include: Joint research and development
More disciplined and systematic, and often expanded, information sharing
Joint demand forecasting and process rengineering.
Technology and systems There are a myriad of technology solutions
which are purported to enable SRM.
These systems can be used to gather and track supplier performance data across sites, business
units, and/or regions.
The benefit is a more comprehensive and objective picture of supplier performance, which can
be used to make better sourcing decisions, as well as identify and address systemic supplier
performance problems.
It is important to note that SRM software, while valuable, cannot be implemented in the
absence of the other business structure and process changes that are recommended as part
of implementing SRM as a strategy.
Challenges Creating the business case
Executive sponsorship Calculating ROI
Developing an SRM sales pitch Finding vendors who have SRM capabilities
SRM and supplier performance management Some confusion may exist over the difference
between supplier performance management and SRM.
SPM is a subset of SRM.
A simple way of expressing the difference between SPM and SRM is that the former is
about ensuring the supplier delivers what has been promised in the contract, which suggests
a narrow, one-way process.
SRM, in contrast, is about collaboratively driving value for both parties, resulting
in lower costs, reduced risk, greater efficiency, better quality, and access to innovation.
This requires a focus on both negotiating the contract and managing the resulting relationship
throughout implementation, as well as systematic joint value-discovery efforts.
References