Supplier relationship management
From Wikipedia, the free encyclopedia
Contents |
[edit] What is Supplier Relationship Management (SRM)
Overview: SRM is a discipline of working collaboratively with those suppliers that are vital to the success of your organisation, to maximise the potential value of those relationships.
Once the sourcing (procurement) team has engaged a supplier there is a real need to maintain a balance of control in the new relationship to ensure the benefits of that deal are delivered. Without proper control it has been suggested that the value of a contract can degrade by up to 30% in the first year (based upon typical industry benchmarks; post contractual opportunities – reference data: Procurement Strategy Council)
This can lead to not only the failure to deliver the projected on-boarding benefit but create frustrating and unsatisfactory relationships which in turn can impact service, cost and the ability to adapt to changing market influences.
There are of course other benefits to creating robust relationships with suppliers from a customers perspective especially if a stand alone SRM function exists. Cross category supplier measurement can take place, risk mitigation exercises (both reactive and proactive) can be undertaken and knowledge and innovation can be shared for mutual gain. Equally an SRM function can create a community for the SRMs (or Account Managers, Supply Chain Consultants, Supplier Performance Managers) in which they can centralise knowledge and deliver revenue generating opportunities for both parties through the exploration of additional, out of current contract business opportunities (i.e. the quid pro quo of a customer providing discounted goods and /or services to their ‘supplier’ in return for improved terms)
With regards to the tangible or financial benefits associated with the application of robust SRM it is generally agreed that savings of between 3% and 5% (State Of Flux – Value Added SRM - 2009) of addressable spend are achievable through collaboration on cost reductions.
There are a number of published concepts regarding effective SRM however it is generally accepted there are a number of key modules or building blocks. These are:
» Supplier Segmentation
» Accountability
» Process and Governance
» Technology
» Value
» Resourcing
1) Supplier Segmentation: In order to develop or improve SRM, an organisation needs to implement a supplier segmentation approach that considers the internal needs of the business, spend, and also accounts for all risk and business criticality factors. Segmentation traditionally uses 4 categories:
- Commodity - Where little or no SRM activity is undertaken as the suppliers provide infrequent one off goods or services
- Performance Management - Where focus is placed upon cost and service levels as the supplier is providing off the shelf goods or short to mid term services that are not strategically important and are provided from a competitive market environment
- Development - Where focus is placed upon continuous improvement to service levels and cost as the arrangements are more mid to long term, with some strategic value
- Partner - Where strategic long term goods and / or service suppliers are managed to secure supply and drive collaborative engagement with shared benefits
An additional part of Segmentation relates to assessing the 'Power Dependency' of a relationship where approach, strategy, engagement and messaging tactics can be identified for certain types of supplier.
2) Accountability: Executive involvement is critical to the success of aligning the respective organisations strategic objectives and forms the basis of building a partnership and ultimately unlocking value for both organisations. The key challenge is who owns the supplier relationship, with 9 ownership types having been identified.
Procurement functions should take the central role in coordinating supplier relationships, whilst owning and co-ordinating the process, governance and technology.
3) Process and Governance: Organisations have ‘pockets of excellence’ of clearly articulated processes and roles often led by the IT function. Organisations have often approach process and governance in a ‘one size fits all’ approach and are yet to tailor processes and roles and responsibilities to the different supplier segments.
4) Technology: Current SRM technology is limited although State of Flux has developed a Supplier Management System (SMS) which is used by a number of the worlds leading organisations.
Traditionally there has been confusion about SRM solutions available with organisations implementing contract management systems or supplier performance management solutions as an alternative (which are still important but not SRM).
Leading SRM organisations are using SRM technology as the ‘change agent’ to get stakeholders and wider business buy in.
5) Value: SRM needs to deliver both ‘hard and soft benefits’. That is cost savings as a ‘hard benefit’ and ‘soft benefits’ such as access to innovation and increased new product speed to market.
6) Resourcing: The three key skills required for procurement to implement successful SRM are: market & category knowledge, cross-functional working and commercial & contractual expertise. The current SRM role is viewed as a task to be performed in addition to the ‘day job’ and a lot of organisations have yet to implement a Supplier Account Management structure with dedicated resource and set roles and responsibilities.
[edit] The ABCD Method
A proven method for introducing SRM techniques is through the ABCD method. This method is scalable and flexible, allowing suppliers at different levels of engagement and maturity to be onboarded.
The SRM ABCD:
Phase 1 'A' – Assess:
The key activities in this stage are:
– Supply Chain Identification – Who are the Suppliers ? What is the scope of the programme?
– Supplier Profiling – A basic supplier profile including , size, spend, service and contact data
– The SRM – Who controls the relationship with the Customer organisation?
Phase 2 – 'B' - Build:
The key activities in this stage are:
– Contract Hygiene and Awareness – Is there a contract? Is it fit for purpose? (i.e. has the original business requirement for the supplier engagement changed?)
– Operational Performance – Is the service being received acceptable? Is there room for improvement?
– Power Dependency – Who is in control of the relationship, customer or supplier? (i.e. a supplier who has a high % of their annual turnover with one customer has less ‘power’ in that relationship (due to the reliance thay have on that customer) than a supplier who has a low %)
– Supplier Segmentation – What should our approach be? (see above)
– Stakeholder Mapping – Who influences the relationship and how should these people be managed?
– SRM Capability – How well equipped is the SRM managing the supplier – is training needed?
– 360deg Feedback – What does the Supplier think of the customer?
Phase 3 ‘C’ - Control:
The key activities in this stage are:
– Risk Assessment – A reviews of supplier solvency, IS Security and Corporate Responsibilty profiles should be undertaken
– Formal Meeting Governance – Opertional, Relationship and Strategic meetings should be formally scheduled
– Supplier Account Planning – Agreements on 30 /90 / 180 day activities should be developed
– Executive Sponsorship - Where appropriate senior stakeholders should be engaged in the relationship to influence strategy
– Reporting – Key improvement reporting (tracking the whole SRM programme) should be established
– Risks & Issues - Formal tracking of key risks and issues should take place
– SRM Training – Development of SRM’s should continue
– Benefits Assessment and Planning – Given the application of the above and the measurement of such reporting of benefits, be they financial or more intangible (i.e. service improvements, employee engagement etc.) should be tracked and or forecast.
Phase 4 – ‘D’ Develop:
The key activities in this stage are:
– Innovation – development of innovative ideas through workshops and structured thinking
– Business Process Reviews – both customer and supplier processes should be mapped and reviewed to identify improvements (i.e. LEAN)
– Revenue Generation – opportunities to drive more revenue should be explored with ‘quid pro quo’ arrangements put in place
[edit] Challenges with SRM
Creating the business case
Executive sponsorship
Calculating ROI
Developing a SRM sales pitch
Please note: There is blurring of Supplier Performance Management (SPM) and SRM. SPM is a subset of SRM and a simple way of expressing the difference between SPM and SRM is that the former is about getting what you have been promised, whereas SRM is about collaboratively driving value.
[edit] More information
A recent podcast on SRM can be located here SRM Podcast
Accenture survey ACN SRM survey
Oracle view on SRM SRM
Article on who owns the supplier relations ship A winning position
