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Five reasons why supplier relationship management is important

John Hatton
Jun 29, 2015 10:34:00 AM

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Ask ten people to define “what is supplier relationship management (SRM)?” and you’ll get ten different answers. My version is that it’s a means of aligning your business appropriately with your suppliers. Yet it’s far less well understood (and adopted formally) than CRM. So why should we in procurement be bothered?

Here are five good reasons.

  1. Your business almost certainly spends more with suppliers than it does on internal costs, such as labour (a growing trend known as corporate virtualisation)
  2. Your suppliers’ salesforces are probably better equipped and trained than your procurement function
  3. Your colleagues don’t see suppliers as strategically important
  4. You might have screwed your suppliers down on the deal, but they are clawing back those lost margins now, just a few months later
  5. You are spending too much time administering small suppliers and tactical issues

So how can SRM help?

SRM, handled properly, provides focus on what is critically important to your business. And that isn’t just those suppliers with high spend: the smaller supplier can trip you up.

I like to start with a league table of all suppliers – ranked by criticality. This scoring is derived from a simple set of criticality factors against which each supplier is assessed. Then I draw a line below (say) the 20th supplier – hence defining the “Gold” suppliers. These are the ones into which the executives, managers and supplier interface functions of my business, will place most effort. The process is repeated to determine Silver and Bronze.

So what? How will we differentiate our treatment and management of these tiers?

The next step is to develop a governance model that ensures the Gold suppliers are proactively managed – with multi-functional input that starts at the top of both businesses. A single “relationship owner” is nominated – and for large businesses this may well be someone above procurement – possibly the CEO. Below this, the relationship counterparts are specified on both sides, at every level. There is no doubt as to who is accountable for the relationship, nor who is responsible for its various facets.

The model should define the frequency and nature of formal review meetings. These will take place regularly for Gold suppliers – whereas they may be deemed unnecessary for sub-Bronze suppliers. The agenda will include far more than operational and service matters: value and innovation should also be discussed at regular intervals. Performance will be a two-way discussion – with the buying organisation also accepting responsibility for delivering continuous improvement.

The relationship with Gold (and potentially Silver) suppliers becomes one wherein mutual benefit becomes the natural outcome of ongoing interactions.

Procurement’s role? The ultimate custodian of relationships with suppliers. Interested not only in cost cutting – but in delivering, through structured, excellent relationships with suppliers, improved value, supplier innovation and (ideally) top-line growth.

Does this resonate with you? Or is it a distant pipe dream? 

As always, if you have any thoughts or comments, please add them to the comment box below.

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