This White Paper recounts the emergence of Supplier Relationship Management (SRM) as a core discipline within modern-day procurement practice. It goes on to present a framework for designing and implementing SRM – at the level of a change programme and right down to how SRM practitioners can design relationship strategies and engage with key suppliers in a truly effective way.
One of the key messages contained in the paper is that our typical procurement leadership isn’t bold enough in pursuing the addition value available from SRM, as evidenced by the sporadic nature of investment in process and tools, skills development and cross-functional training.
Poor SRM has proven to erode company value, and yet the potential for securing significant gains from its effective deployment remains high.
We hope you enjoy the paper….
The origins and emergence of SRM as a discrete discipline
In the last ten years the emergence of supplier relationship management (SRM) has seen significant development within the procurement profession. SRM has been presented as the ‘new way’ for organisations to capture more value and improve performance from the supply chain. Indeed, for many organisations, it has been a step into the ‘new’ (or unknown territory), but for others, SRM is the development of a well-worn approach to securing the continuous improvement of performance and value – a process recognised as the never-ending pursuit of optimum value for money.
This approach to ‘supplier development’ was pioneered by the automotive industry and its application is one of the key reasons why our motor cars are, in real terms, better value for money than they have ever been. Of course, in an industry where 80% of companies’ revenues are spent in acquiring component parts from the upstream supply chain, this approach to purposefully managing supply chain value makes perfect sense, as success here may well become a source of the company’s competitive advantage. Research undertaken has routinely confirmed that the likes of Honda, Toyota and Nissan have benefited from their recognised superior procurement and supply chain management; the same situation is evident for SRM although the traditional Western headquartered players in this market have made great strides in catching-up in recent years.
In the 1990s the practices of the auto industry began to be documented by researchers such as Womack & Jones, Lamming, and Hines. The latter reported:-
“Competitive advantage is increasingly a function of supply chain efficiency and effectiveness…. the greater the collaboration, the greater the likelihood that an advantage can be gained.” (1)
Other sectors soon followed a similar path, notably the aerospace and manufacturing sectors, both seeing a dramatically- increasing percentage of their revenues ‘bought-out’. Of course professional procurement had long been a mainstream activity in these organisations, but the focus had been on embedding strategic sourcing and category management processes rather than what happened after the contract had been signed. However, organisations following the auto sector’s just-in-time methods, reduced cash tied up in inventories while adopting more efficient risk management practices. This meant that supply chain delivery and quality failure became priorities and supplier development methods became established. In my own time at aero-engine manufacturer, Rolls Royce, the practice of supplier development was becoming well established by the late-‘90s.
Since then SRM has become de rigeuer, an increasingly mainstream activity for organisations in financial services, pharmaceuticals, and the public sector. The notion that we can work collaboratively with suppliers to achieve better returns is now so widely accepted that most large organisations have in place one sort of SRM programme or another. However, SRM proponents can’t say it has truly arrived just yet. There remains uncertainty and disagreement about what supplier relationship management is and what it means to practice it. Where category management approaches have matured and coalesced around common principles and standard ‘tools’, SRM is still in the early-majority phase, with no consensus as yet to its scope and methods. There may be less of an argument these days over the notion of supplier management but, there is also less agreement around the means of doing it….
Read more by clicking SRM Whitepaper: Are your post-contract value aspirations high enough? to download the full White Paper.