Supplier Relationship Management (SRM) has many different definitions. A quick internet search will return hundreds of explanations and a lot of software ‘solutions’.
SRM done properly is not a tool or a quick fix.
Having been a Procurement Director at Microsoft for the last eight years, I view SRM as “a strategic way of differentiating and managing your suppliers to ensure the right balance of cost, quality and risk is achieved through the life of the contract whilst also bringing innovation and additional value”.
The value and benefits from SRM should not be underestimated – it is not, as sometimes perceived, about having a nice ‘programme’ in place that dictates when you have strategic business reviews with your suppliers and what the agenda should be. It should be about how you get all your suppliers contributing to your success and using the precious resources (from your company and the supplier) to deliver maximum benefit.
The four basic steps that work to establish strong foundations for your own SRM program can be found below:
Share the Corporate Strategy:
You need to share your corporate vision and strategy with your suppliers. You cannot expect them to help you achieve your strategy if they don’t know what it is. Involve your suppliers and you will be surprised how willing they are to go away and think about how they can contribute.
It is in a supplier’s interest to make themselves important to your strategy.
If you are smart and fair, you can use this desire to generate sustainable benefits for you both.
Consider How You Approach Your Suppliers
You may have hundreds – some organisations even have thousands of suppliers, but your approach to them cannot be the same. You need to determine some form of segmentation. It does not matter what titles you use but it is important you can clearly articulate to your internal stakeholders the criteria used and why. Typically, there are 3 levels (as defined by Jonathan O’Brien in Supplier Relationship Management):
- Transactional
- Important
- Strategic
What Does Each Supplier Offer?
Not all suppliers can deliver the same value to your organisation. You need to decide what you want from each of your suppliers. Is it just to deliver on time, are you looking for performance improvement or for innovation and additional value?
If you are clear on what you want from each supplier and the supply base overall, you become more aware of when you are not getting it, enabling you to act.
How Should Your SRM work?
SRM is not a sequential process, but a combination of elements that are deployed to deliver maximum value. The parts that make up the “How” are topics in themselves – and we’ll look at these in future – but can include things like:
- Performance Measurement
- Supplier Management (the day to day interactions to achieve KPI’s etc.)
- Supplier Improvement Activities
- Supply Chain Management
- Strategic Relationships
It is often said that running an SRM program is like conducting an orchestra and this is true, especially when it comes to how you manage your suppliers. At any one time you may be deploying one, some or all of the key elements in managing a supplier to ensure you are achieving maximum value.
Once you have established the foundations you can continue to build your SRM program. Each element has multiple parts and each step has been the subject of hundreds of articles and books and even more conversations.
If you are just starting to think about SRM and the value it could bring to your organisation then I would recommend considering the four steps and the skills and resources you have to deploy to the effort. Think about the whole programme before diving too deep into any one area.
And one further piece of advice – keep it as simple as you possibly can. If you need additional support as you start to think about your SRM approach, please feel free to contact us to speak with one of our cost reduction analysts today.
Article by: David Rickard