Supplier relationship management

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Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. [1] The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. [2] Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management. [3]

Contents

The objective of SRM is to maximize the value of those interactions. In practice, SRM entails creating closer, more collaborative relationships with key suppliers in order to uncover and realize new value and reduce risk of failure. SRM is a critical discipline in procurement and supply chain management and is crucial for business success. [4] [5] [6]

SRM is analogous to customer relationship management (CRM). [7] Just as companies have multiple interactions over time with their customers, so too do they interact with suppliers – negotiating contracts, purchasing, managing logistics and delivery, collaborating on product design, etc. The starting point for defining SRM is a recognition that these various interactions with suppliers are not discrete and independent – instead they are accurately and usefully thought of as comprising a relationship, one which can and should be managed in a coordinated fashion across functional and business unit touch-points, and throughout the relationship life-cycle. [8]

Components of SRM

SRM necessitates a consistency of approach and a defined set of behaviors that foster trust over time. Effective SRM requires not only institutionalizing new ways of collaborating with key suppliers, but also actively dismantling existing policies and practices that can impede collaboration and limit the potential value that can be derived from key supplier relationships. [9] At the same time, SRM should entail reciprocal changes in processes and policies at suppliers.

Organizational structure

While there is no one correct model for deploying SRM at an organizational level, there are sets of structural elements that are relevant in most contexts:

  1. A formal SRM team or office at the corporate level.[ example needed ] The purpose of such a group is to facilitate and coordinate SRM activities across functions and business units. SRM is inherently cross-functional, and requires a good combination of commercial, technical and interpersonal skills. These “softer” skills around communication, listening, influencing and managing change are critical to developing strong and trusting working relations.
  2. A formal relationship manager or supplier account manager role. Such individuals often sit within the business unit that interacts most frequently with that supplier, or may be filled by a category manager in the procurement function. This role can be a full-time, dedicated positions, although relationship management responsibilities may be part of broader roles depending on the complexity and importance of the supplier relationship (see Supplier segmentation). Effective SRM managers understand their suppliers' business and strategic goals, and are able to see issues from the supplier's point of view while balancing their own organization's requirements and priorities.
  3. An executive sponsor and, for complex, strategic supplier relationships, a cross-functional steering committee. These individuals form a clear link between SRM strategies and overall business strategies, serve to determine the relative prioritization among a company's varying goals as they impact suppliers, and act as a dispute resolution body. [8]

Governance

The SRM office and supply chain function are typically responsible for defining the SRM governance model, which includes a clear and jointly agreed governance framework in place for some top-tier strategic suppliers. The ownership can as well be set in departments such as procurement, strategic Procurement or category management. Effective governance should comprise not only designation of senior executive sponsors at both customer and supplier and dedicated relationship managers, but also a face-off model connecting personnel in engineering, procurement, operations, quality and logistics with their supplier counterparts; a regular cadence of operational and strategic planning and review meetings; and well-defined escalation procedures to ensure speedy resolution of problems or conflicts at the appropriate organizational level. [10]

Effective supplier relationship management requires an enterprise-wide analysis of what activities to engage in with each supplier. The common practice of implementing a “one size fits all” approach to managing suppliers can stretch resources and limit the potential value that can be derived from strategic supplier relationships. [11] Supplier segmentation, in contrast, is about determining what kind of interactions to have with various suppliers, and how best to manage those interactions, not merely as a disconnected set of siloized transactions, but in a coordinated manner across the enterprise. [12] Suppliers can be segmented, not just by spend, but by the total potential value (measured across multiple dimensions) [13] that can be realized through interactions with them. Further, suppliers can be segmented by the degree of risk to which the realization of that value is subject. [8]

Joint activities

Joint activities with suppliers might include:

Value measurement

SRM delivers a competitive advantage by harnessing talent and ideas from key supply partners and translates this into product and service offerings for end customers. One tool for monitoring performance and identifying areas for improvement is the joint, two-way performance scorecard. A balanced scorecard includes a mixture of quantitative and qualitative measures, including how key participants perceive the quality of the relationship. These KPIs are shared between customer and supplier and reviewed jointly, reflecting the fact that the relationship is two-way and collaborative, and that strong performance on both sides is required for it to be successful. Advanced organizations conduct 360 degree scorecards, where strategic suppliers are also surveyed for feedback on their performance, the results of which are built into the scorecard.

A practice of leading organizations is to track specific SRM savings generated at an individual supplier level, and also at an aggregated SRM program level, through existing procurement benefit measurement systems. Part of the challenge in measuring the financial impact of SRM is that there are many ways SRM can contribute to financial performance. These include cost savings (e.g., most favored customer pricing, joint efforts to improve design, manufacturing, and service delivery for greater efficiency); incremental revenue opportunities (e.g., gaining early or exclusive access to innovative supplier technology; joint efforts to develop innovative products, features, packaging, etc. avoiding stock-outs through joint demand forecasting); and improved management of risk.

Systematic collaboration

In practice, SRM expands the scope of interaction with key suppliers beyond traditional buy-sell transactions to encompass other joint activities which are predicated on a shift.

Technology and systems

There are myriad technological solutions which are purported to enable SRM. These systems can be used to gather and track supplier performance data across sites, business units, and/or regions. The benefit is a more comprehensive and objective picture of supplier performance, which can be used to make better sourcing decisions, as well as identify and address systemic supplier performance problems. It is important to note that SRM software, while valuable, cannot be implemented in the absence of the other business structure and process changes that are recommended as part of implementing SRM as a strategy. [8]

The main benefits are: [17]

The main drawbacks:

Challenges

SRM and supplier performance management

Some confusion may exist over the difference between supplier performance management (SPM) and SRM. SPM is a subset of SRM. A simple way of expressing the difference between SPM and SRM is that the former is about ensuring the supplier delivers what has been promised in the contract, which suggests a narrow, one-way process. SRM, in contrast, is about collaboratively driving value for both parties, resulting in lower costs, reduced risk, greater efficiency, better quality, and access to innovation. [18] This requires a focus on both negotiating the contract and managing the resulting relationship throughout implementation, as well as systematic joint value-discovery efforts. [19]

Implementation

Writer Lars Kuch Pedersen suggests that there are six key steps in implementing an SRM program. [20] There is a similar five steps approach described by writer Philippe Coution: [21]

  1. Segmenting the supplier base
  2. Setting the objectives for the SRM program
  3. Measuring the supplier performance against the objectives
  4. Make your supplier engagement and governance plan
  5. Engaging the suppliers, being transparent and getting aligned
  6. Collaboration and continuous improvement.

Related Research Articles

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

<span class="mw-page-title-main">Strategic management</span> Planning for a companys responses to external issues

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

Marketing management is the strategic organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of a firm's marketing resources and activities.

A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of value to an end customer. The concept comes from the field of business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The idea of [Porter's Value Chain] is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.

<span class="mw-page-title-main">Performance indicator</span> Measurement that evaluates the success of an organization

A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.

A strategic partnership is a relationship between two commercial enterprises, usually formalized by one or more business contracts. A strategic partnership will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship. Strategic partnerships can take on various forms from shake hand agreements, contractual cooperation's all the way to equity alliances, either the formation of a joint venture or cross-holdings in each other.

There is no agreed definition of value networks. A general definition that subsumes the other definitions is that a value network is a network of roles linked by interactions in which economic entities engage in both tangible and intangible exchanges to achieve economic or social good. This is close to the definition of Verna Allee, see below. Here are a few definitions that provide different perspectives on the general concept of a value network.

<span class="mw-page-title-main">Critical success factor</span> Management term

Critical success factor (CSF) is a management term for an element that is necessary for an organization or project to achieve its mission. To achieve their goals they need to be aware of each key success factor (KSF) and the variations between the keys and the different roles key result area (KRA).

Strategic sourcing is the process of developing channels of supply at the lowest total cost, not just the lowest purchase price. It expands upon traditional organisational purchasing activities to embrace all activities within the procurement cycle, from specification to receipt, payment for goods and services to sourcing production lines where the labor market would increase firms' ROI. Strategic sourcing processes aim for continuous improvement and re-evaluation of the purchasing activities of an organisation.

A supply network is a pattern of temporal and spatial processes carried out at facility nodes and over distribution links, which adds value for customers through the manufacturing and delivery of products. It comprises the general state of business affairs in which all kinds of material are transformed and moved between various value-added points to maximize the value added for customers. In the semiconductor industry, for example, work-in-process moves from fabrication to assembly, and then to the test house. The term "supply network" refers to the high-tech phenomenon of contract manufacturing where the brand owner does not touch the product. Instead, she coordinates with contract manufacturers and component suppliers who ship components to the brand owner. This business practice requires the brand owner to stay in touch with multiple parties or "network" at once.

<span class="mw-page-title-main">Demand-chain management</span> Management of relationships between suppliers &customers to deliver best value to customer

Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain management but with special regard to the customers.

Industrial market segmentation is a scheme for categorizing industrial and business customers to guide strategic and tactical decision-making. Government agencies and industry associations use standardized segmentation schemes for statistical surveys. Most businesses create their own segmentation scheme to meet their particular needs. Industrial market segmentation is important in sales and marketing.

The Supply Chain Operations Reference (SCOR) model is a process reference model originally developed and endorsed by the Supply Chain Council, now a part of ASCM, as the cross-industry, standard diagnostic tool for supply chain management. The SCOR model describes the business activities associated with satisfying a customer's demand, which include plan, source, make, deliver, return, and enable. Use of the model includes analyzing the current state of a company's processes and goals, quantifying operational performance, and comparing company performance to benchmark data. SCOR has developed a set of metrics for supply chain performance, and ASCM members have formed industry groups to collect best practices information that companies can use to elevate their supply chain models.

Supply-chain sustainability is the management of environmental, social and economic impacts and the encouragement of good governance practices, throughout the lifecycles of goods and services. There is a growing need for integrating sustainable choices into supply-chain management. An increasing concern for sustainability is transforming how companies approach business. Whether motivated by their customers, corporate values or business opportunity, traditional priorities such as quality, efficiency and cost regularly compete for attention with concerns such as working conditions and environmental impact. A sustainable supply chain seizes value chain opportunities and offers significant competitive advantages for early adopters and process innovators.

Supplier risk management (SRM) is an evolving discipline in operations management for manufacturers, retailers, financial services companies and government agencies where an organization is dependent on suppliers to achieve business objectives.

Market Dojo is an e-Procurement software company based in Stonehouse, England. The company was established in 2010 by Nick Drewe, Alun Rafique, and Nic Martin. Alun previously worked at Rolls-Royce before meeting Nick Drewe at Vendigital, whilst Nic Martin came from Attensity. All three co-founders studied at Bristol University. The company's competitors include Ariba, Curtis Fitch, and Scan market amongst others.

Category management is an approach to the organisation of purchasing within a business organisation, also often referred to as procurement. Applying category management to purchasing activity benefits organisations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers. It is a strategic approach which focuses on the vast majority of organisational spend. If applied effectively throughout an entire organisation, the results can be significantly greater than traditional transactional based purchasing negotiations, however the discipline of category management is sorely misunderstood.

In commerce, global supply-chain management is defined as the distribution of goods and services throughout a trans-national companies' global network to maximize profit and minimize waste. Essentially, global supply chain-management is the same as supply-chain management, but it focuses on companies and organizations that are trans-national.

References

  1. ↑ "Maximising the Value of Supplier Relationships". CIO Leadership. 9 November 2009.
  2. ↑ Mettler T, Rohner P (2009). "Supplier Relationship Management: A Case Study in the Context of Health Care". Journal of Theoretical and Applied Electronic Commerce Research. 4 (3): 58–71. doi: 10.4067/S0718-18762009000300006 .
  3. ↑ New Aberdeen Research Highlights the Importance of Effective Supplier Management, Business Wire, published 9 June 2011, accessed 31 August 2021
  4. ↑ "Vizibl | What Is Supplier Relationship Management?". www.vizibl.co. Retrieved 2022-06-07.
  5. ↑ "Biztoolcase | What Is SRM?". www.biztoolcase.com. July 2022. Retrieved 2022-07-18.
  6. ↑ "SAP Ariba | Supplier Life Cycle Management" . Retrieved 2022-08-01.
  7. ↑ Duffy, R. J. and Gorsage, M., Facing SRM and CRM, Inside Supply Management, August 2002, page 30, accessed 24 February 2021
  8. 1 2 3 4 Hughes, Jonathan (April 2010). "What is Supplier Relationship Management and Why Does it Matter?". DILForientering. Retrieved 26 January 2012.
  9. ↑ Hughes, Jonathan (2008). "From vendor to partner: Why and how leading companies collaborate with suppliers for competitive advantage". Global Business and Organizational Excellence. 27 (3): 21–37. doi:10.1002/JOE.20201. ISSN   1932-2054. Wikidata   Q30048874.
  10. ↑ "Strategies for Better Collaboration with your Asian Suppliers" (PDF). Supply Chain Asia. 21 August 2010. Retrieved 12 August 2014.
  11. ↑ "Tiered Supply Chain Management". LTD Management. Retrieved 26 January 2012.
  12. ↑ "The Changing View of Supplier Segmentation". Inside Supply Management. October 2005.
  13. ↑ One, Source (2014). "Building the Case for Supplier Relationship Management".{{cite journal}}: Cite journal requires |journal= (help) (Journal and author required)
  14. ↑ BAE Systems, BAE Systems strengthens supply chain network in India with second annual Supplier Summit, published, accessed 24 July 2023
  15. ↑ UKOpenGovernmentLicence.svg  This article incorporates text published under the British Open Government Licence : Cameron, D., PM's speech at the Strategic Supplier Summit , 11 February 2011, accessed 9 July 2022
  16. 1 2 "Building the Case for SRM". CPO Agenda. Autumn 2009.
  17. ↑ LeanLinking ApS (May 2022). "Pros & Cons Of Using SRM Software". Retrieved 22 February 2023.
  18. ↑ Day, Alan. "6 steps to better SRM". Supply Management.
  19. ↑ "Getting the Most Out of SRM". Supply Chain Management Review. 19 January 2012. Retrieved 26 January 2012.
  20. ↑ "6 Steps To Implement Your Own Supplier Relationship Management (SRM) Program | LeanLinking | News". Leanlinking. 2019-05-23. Retrieved 2020-09-14.
  21. ↑ "5 steps to implement your own SRM program | News". Biztoolcase. 2022-02-01. Retrieved 2022-07-13.

Further reading

Capita (in conjunction with Supply Management) (2013), Guide to SRM, published by Redactive Publishing Ltd.

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