This is a new series on ‘the necessary and sufficient components of successful SRM deployment’ (published initially on the excellent Spend Matters website, and now replicated here). This introductory piece covers some familiar territory, but it’s my intention to go deeper into each of these ‘components’ and provide practical guidance for those with reservations on the efficacy of their current practice, and for those (who may mistakenly believe they’re) starting out.
Supplier Relationship Management (SRM) is fast becoming one of the core business functions in most organisations. It has emerged as such because of the relentless move towards the virtualisation of our organisations through outsourcing, at first indirect non-core services and products, to today’s landscape where core services are being considered for outsourcing to primary contractors and other strategic providers and suppliers.
Infamous cases of inadequate supplier relationship management of the likes of the horsemeat scandal, borderline-unethical treatment of suppliers by supermarkets, cost overruns on the Edinburgh Tram system and the Boeing Triple Seven, are all examples of where poor SRM has damaged reputations, leaked value, and resulted in adverse financial performance and share values. These examples represent the tip of the iceberg in terms of how value leaks from provider and supplier contracts through inadequate governance, systems, processes, skills and, ultimately, business leadership. Remarkably, considering the public profile of some of these failures, many business leaders still regard SRM as barely registering on the radar, despite third-party supply in organisations ranging from c.40% to over 90% by value, depending on the sector.
The impact of these deficiencies results in poor supplier performance, excessive staff and management time spent resolving problems, upward pressure on costs, reputational risk, and even supply market inertia. Financial damage to private sector companies is pretty obvious but, at a time when the public sector is dealing with huge funding pressures (while communities demand for good services continues to rise), every pound spent in wasteful rectification activity with suppliers and providers is a pound unavailable for improving the citizen or customer experience.
Some of these issues can be overcome by competent and diligent ‘category management’ processes but, in many organisations, these efforts typically ‘run out of steam’ following contract award. This is usually because procurement professionals have to contend with a conveyor-belt of new contracts to be let or existing ones renewed, leaving little or no capacity to manage supplier performance post-contract. In many cases, supplier performance and relationship management is passed to stakeholders who have to expertly-manage suppliers; a competency set they are all too frequently lacking.
In this series of articles I intend to go into some detail of each of what I believe are the necessary and sufficient components of successful SRM deployment. We will discuss leadership, cross-functional working, programme and change management, SRM tools and process, how to design metrics and track the benefits from SRM, the importance of negotiation as a business-wide competence, segmentation, stakeholder engagement, relationship analysis and strategy formulation, supplier performance management (SPM), supplier development, strategic alliances and innovation capture.
Experience and research has told me that SRM is a hard journey, one that has few shortcuts. There’s often misconception amongst practitioners along the lines that if only we collaborated more we would be engulfed in a wave of supplier innovation; that if we sharpen our interpersonal skills, then suppliers (and stakeholders) would be eating out of our hands. After spending many years advising the selling side, I’m more convinced than ever that suppliers are a lot savvier than procurement types give them credit for.
Suppliers aren’t always eagerly awaiting the buying organisation’s instructions and expert guidance; they’re successful businesses in their own right, often with very smart leadership and certainly with strategies of their own. And the best of them are getting more selective in which customers they choose to supply.
I will close this series introduction with what we believe SRM really means for organisations whose success is dependent on critical provider and supplier relationships. Following our extensive research into and experience of SRM over 30 years as practitioners and advisors in a wide range of business sectors, we can define both what effective SRM is, and what it is not. Here is our definition:
“SRM is the deliberate pursuit and systematic optimisation of value and performance from an organisation’s supplier relationships.”
I will expand on this definition in the next article, which will be on the importance of great leadership. In the meantime, thanks for taking the time and please leave your comments below.