The ‘Massive Problem’​ at the Heart of Procurement?

I’m always supportive of people debating the merits (or otherwise) of Supplier Relationship Management (SRM) as the topic needs much better understanding amongst practitioners than it current has. Moreover, I still consider it to be the greatest opportunity for buying organisations to secure optimum value from their supplier relationships and, despite years of evidence of excellent practice in some sectors, most practitioners struggle to understand what it means, never mind be competent in deploying it. So I can see where a recent article ‘The Massive Problem at the Heart of SRM’ from Bertrand Maltaverne has come from. The article is definitely worth a read.

However, I don’t quite see the SRM challenge as he does.

For a start Bertrand suggests that SRM is a zero-sum game. I disagree. Even when practiced at a basic level, SRM is patently NOT a zero-sum game. Anyone who has been in a role where they are engaged in managing suppliers knows perfectly well that strong supplier performance is not guaranteed, that supplier enthusiasm and motivation need nurturing, and that supplier innovation is a potential source of significant value. Just because buyers have the capacity to be robust (and even adversarial) in managing suppliers, doesn’t mean they don’t understand the value of collaboration. After all, suppliers are grown-ups too.

Equally, his suggestion that buyers lack an understanding of bargaining power is bogus. I would say that buyers have an all too heightened appreciation of power in their relationships and negotiations. Five minutes in a supplier negotiation situation is usually enough to educate even a rookie buyer that they can’t simply demand what they want. The problem with a failure to understand power usually resides elsewhere in the organisation, with those at a distance from the frontline of supplier relations; specifiers, CFOs, and others assuming that ‘the customer is (always) king’. It’s a powerful (pardon the pun) reason why skillful stakeholder engagement is an important competency set for today’s buyers.

The well-known organisation models from the key account management (KAM) profession he presents (the ‘bow-tie’ and ‘diamond’) are, nevertheless, very useful for SRM practitioners. The ‘diamond’ depicting SRM ‘managers’ (often Procurement) and the Sales account manager sitting on the outside of the relationship (perhaps as something like ‘conductors of an orchestra’) enables colleagues from other functions to operate effectively across the relational divide. It is, in my view, a good way to illustrate the role of each leader from the customer and supplier organisations. The days of buyer and sales person being conduits for all communications are long gone.

We can often get hung-up on nomenclature when it comes to SRM, and I think Bertrand’s article doesn’t really help here. In my experience, practitioners and commentators tie themselves up in knots when it comes to labeling what SRM is. If we strip back Procurement’s role to its fundamentals, we see it as being all about value: protecting it (i.e. we get what we contract for), developing it (seeking to co-create incremental value through waste reduction and process improvement), and transforming it (through innovation and strategic alliances).

There is an undeniable hierarchy at play here:

At the top level: Procurement (and SRM) is fundamentally about managing supply chain VALUE.

Level two….is about the METHOD applied to securing and improving that value (in this case SRM, but it obviously also includes sourcing practices).

Level Three….is about what TOOLS are used within the SRM ‘method’ to securing and improving that value. These include Supplier Performance Management (to protect the value presumed in the contract), Supplier Development (to incrementally increase value), and innovation capture (to radically increase value).

Level four….is about the organisational set-up, skills and systems that support being able to OPERATE the tools at level three COMPETENTLY and EFFECTIVELY.

The ‘massive problem’ at the heart of SRM (and procurement in general) is not about the ‘customer experience’ or the methods being deployed; it is a failure to appreciate the difference between operational means (the practices, methods and tools we use – which would include ‘collaboration’) and ends, the desired ‘outcomes’ (i.e. the ‘why are we doing this’ question, leading to the delivery of actual value). Without a clear understanding of the cause and effect relationship between actions and desired outcomes, we’ll continue to hear pleas for trust building, intimacy, and collaboration, as if magically value will inevitably appear if we all behave nicely, all of the time.

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