Authored by Paras Sood
So continuing with my supplier relationship management self-discovery...
It’s apparent that procurement organizations are all in different phases of SRM implementation e.g. some will have established programmes, others won’t even have SRM on the radar. In fact, research commissioned by Procurement Leaders global intelligence group suggests that up to 76% of organizations make use of SRM practices (this was actually more than I was expecting). And as mentioned in my previous blog, the definition of SRM is up for interpretation dependent on the needs of the organisation, reiterating the fragmented starting points in the SRM rat race.
But for now, I’ll try to concentrate on the as-is position before we get into bluey-grey sky strategic thinking...
If we assume that an organization is trading with a plethora of suppliers (tut tut) in a dynamic supply-base, we can also assume that there is some level of ‘SRM’ happening – either formally or informally – albeit well or not so well. Ultimately, I think that there are 2 questions to consider here:
1) Where does SRM start
2) Does it ever finish?
The answer to question 1 has to be bi-lateral; SRM is split between an organization’s ‘as is’ supply-base and its ‘to-be’ supply-base. Ideally, organizations therefore need techniques for implementing SRM in two different ways, even if the underlying premise remains consistent.
For the ‘as is’ supply-base, a tailored two-by-two / Kraljic type segmentation is usually the starting point, which feeds into an appropriate tiering of suppliers (e.g. strategic, critical, bottleneck etc). Once you've determined which suppliers you want to focus on here, change management is the imperative enabler for both internal stakeholders and the external supply chain. For example, in a waste management contract, asking 450 business units to consider P2P process efficiency with the supplier that takes their bins away may not be an easy message to convey in terms of ‘supplier relationship value’.
For the ‘to-be’ supply-base, it’s more about long-term planning, strategic sourcing and appropriate supplier information management processes. Capturing the right information on potential strategic suppliers from the outset can only provide a lower-risk platform for SRM success. At market engagement, ‘sorcerers’ can determine a supplier’s capability within its designated market(s); during the tender specification stage, buyers have a real opportunity to understand a supplier's capability, culture, stability, strengths, weaknesses, cost of change, flexibility, innovation etc. which (once awarded) can lead to a fit-for-purpose contract negotiation and platform for which to trade in the correct manner, all of which can set up the right way to manage ongoing relationships and performance. Once the supplier gets through the sourcing process, they can feed into whatever segmentation model you’ve developed.
The answer to question 2 should be that SRM finishes at the point that you cease trading with your suppliers. I know what you’re thinking, "that’s obvious", but it’s an important point. If you have the benefit of maintaining long-term sustainable relationships, then this may not have as much of an impact. If, however, there is a need / requirement to move away from an existing supplier, then there is an obligation to maintain the relationship and business continuity of supply to the end of the term (and maybe beyond transition) so that there’s not a negative impact on internal stakeholders, the external supply chain and most importantly, customer delivery. SRM should therefore stretch the entire tenure of the commercial relationship.
To summarize at this point: SRM has different levels of maturity, has multiple entry points and impacts the entire lifecycle of a commercial relationship. Simples. For the next edition, I’ll focus on some of the interesting ways that I’ve seen when structuring an SRM programme.