This new series on ‘the necessary and sufficient components of successful SRM deployment’ (published initially on the excellent Spend Matters website, and now replicated here) now focuses on ‘Leadership’. It’s one thing to read the research, the chapters on SRM in one of the many volumes on procurement practice, or indeed follow commentators who blog on the subject; but it’s another thing to take the reins and lead your own programme. In the first of two parts presented here, I’ll cover the first three of what I believe are five critical challenges to any programme. The remaining two will follow in part two.
For some years now, establishing a systematic approach to sourcing has been one of the main goals for procurement pros, and progress in this has been steadily improving with most organisations now having a category management process at least worthy of that intention. Add in one of the numerous software applications that support category management, and supply market knowledge, supplier selection, and post-deal contract compliance all improve, giving procurement leaders a degree of control previously elusive. So far, so good. But it’s the post-contract supplier management that remains the best opportunity for significant improvement.
In the introduction to this series on Supplier Relationship Management (SRM) I suggested that SRM is a ‘hard journey, one that has few shortcuts’. But there are a number of reasons why SRM lags behind in practice maturity, with the exception of the usual procurement suspects in leading sectors.
Chief among these reasons is shortcomings in establishing sustained cross-functional working beyond the immediate post-contract award period. Another is the lack of SRM process, and the resultant reliance on individual competence, interest, and workload. Moreover, it’s the lack of clarity over what the organisation is seeking to achieve from SRM that I believe is at the root of many of the difficulties faced by CPOs aiming for successful implementation.
Let me return, for a moment, to the definition of SRM I proposed in this series’ introduction, and explain what I mean in more detail:
“SRM is the deliberate pursuit and systematic optimisation of value and performance from an organisation’s supplier relationships.”
I say ‘deliberate pursuit’ because value doesn’t magically appear simply because an organisation launches SRM. In reality, it’s a real challenge to identify and then harvest value from sometimes-complex supplier relationships. CPOs have to know what they’re looking for; they have to mobilise often a wide range of participants (on both sides of the relationship) and developing a method of doing it systematically and repeatedly is no ‘back of a cigarette packet’ exercise.
Here’s my advice to CPOs aiming to overcome the five key challenges to embedding SRM as a sustained business practice:
Challenge #1: How to ensure SRM has a meaningful purpose beyond some vague notion of collaboration
The first thing you need to decide on is why it makes sense for your organisation to do SRM. You may be surprised at the number of programmes that are launched on the basis that people simply think it’s the right thing to do, as if the Procurement operation is incomplete without some form of SRM in place. This would hardly be the most compelling reason for stakeholders to enthusiastically get involved (as they must). So, I’m all for CPOs introducing SRM, only I want them to think carefully about its overarching purpose. For me, it’s laid out in my definition – optimising value and performance through deliberate action, but CPOs should really define their own, ensuring that it’s appropriate, relevant and compelling to their organisations.
The clarity provided by a clear purpose will help with the necessary enlisting of stakeholders, generate enthusiasm in Procurement’s own staff, and will form the basis of the elevator pitches required to secure C-level support for the time and money investments required.
Challenge #2: Taking stakeholders with you
Without a compelling reason to become active participants in SRM, any stakeholder interest will be short-lived and superficial.
We’ve all learned that excellence in category management is, in part, based on securing the involvement of stakeholders in category teams. Such cross-functional teams bring expertise, deep knowledge of the varying business requirements of each function, and are more likely to collectively make wise sourcing decisions. Well, cross-functional SRM is no different, and success in managing supplier relationships is ultimately predicated on ensuring the key people are involved. And stakeholder involvement can be particularly important in the management of the supply of important indirect services to specific user departments.
So how do you encourage stakeholders to become willing and enthusiastic partners in securing optimum performance and value for suppliers? It must start with deeply understanding the requirements of stakeholders, and then mapping potential improvement activities to their needs; finding ways to bring suppliers and stakeholders together to collaborate on idea generation and then implementation. In the final analysis, we want suppliers to continually bring value improvements to the organisation in ways that enable internal stakeholders become even more successful in carrying out their roles, the judgement of which will be down to the stakeholders themselves.
Procurement’s place in this sequence is to provide facilitation and mentorship to stakeholders who may be closer to the day-to-day action, but typically lack supplier management expertise.
Challenge #3: Securing genuine value improvements as opposed to measuring activity
SRM is not only about having regular meetings with suppliers, or measuring performance, or the commonly reported desire to collaborate with suppliers. In my experience of supporting client organisations in developing their SRM competence, I find there’s no shortage of supplier engagement, only that such engagement is often of the fire-fighting nature, the urgent fixing of supplier (or indeed buyer) mistakes. Whilst such supplier engagement is obviously a necessary component of SRM, hosting more fire-fighting meetings is far from being the right prescription. It’s not about the number of meetings, it’s about the right type of engagement and, even more importantly, the measured outcomes from them.
It may be tempting for you to set targets for SRM before you are certain about stakeholders’ needs (indeed it may be a requirement from the C-suite, as the price for support). Although you will want to ensure those benefits are as tangible as possible, I recommend resisting sleepwalking into defaulting to ‘savings’ as the primary measure.
Despite the inevitable pressure for targets-driven activity, particularly from the CFO’s office, I don’t like this top-down approach as it rarely reflects the full range of interests of the various stakeholder groups and it’s also makes for a terribly difficult job in getting stakeholders engaged. Why would they, if they suspect all Procurement is after are additional savings?
So, define measures of ‘value’ acceptable to your organisation, ensuring that they remain relevant to stakeholders, whilst bringing the CFO with you. A tough challenge for sure, but one that shouldn’t be avoided. And in part two I will discuss the SRM ‘day job’, teamwork, and skills.
More at Four Pillars.
See also ‘SRM: Do This First’, which includes video.