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Why is SRM under-delivering? Part 5.

Value creationSupplier relationship managementInnovationPharmaceuticalsSupplier PerformanceWestern Europe+-

In this guest post, Bill Young of Kestrel Ops builds on his previous post, to look at Supplier Relationship Management (SRM) in pharmaceuticals and where opportunities are being missed.

 

A bit of context: Giles Breault, Sammy Rashed and Michael Henke invited independently minded, leading experts to form a Think Tank. Its aim: to consider why SRM fails to deliver value. Events in London and Wiesbaden defined the problem, and the goal of the third and final in Basel was to develop solutions. Now read on… 

 

 

When you really need an answer, there are three tasks: seek out wise counsel; craft a penetrating question; listen carefully to the answer. The importance of the first task became clear when addressing the second: crafting the question. Is SRM about achieving greater levels of compliance, control and specified performance from supplier contracts; or is it about open, sometimes serendipitous partnerships that blur corporate boundaries in order to drive flexibility, agility and innovation? The former controls uncertainty and risk whereas the latter invariably increases them.   

 

SRM enterprise-systems follow traditional procurement thinking on control and compliance. They advertise enforcement of, and conformance to, workflows, contracts and rate cards.  This approach permeates into higher-level thinking, even when the vision is about partnership and dialogue. Tim Cummins, MD of the IACCM, has a quote: "We've decided that our relationship should be more collaborative, and here is the new rule book” and we noted that well-intentioned SRM projects, sometimes called alliances, are failing because their controlling structure and unbalanced terms cannot be trusted by suppliers.  

 

Even when clients' intentions may be honourable, suppliers are understandably suspicious. Think about it: these suppliers have to assess not only the benevolence of a customer, but also its ability to execute on the proposal. Unless they are confident on both, the risks of exposing commercial and technical information are too high.  Until a potential partner demonstrates both benevolence and ability, it remains unworthy of trust.

 

The Think Tank had no trouble identifying these barriers to partnership. Prompted by Giles Breault's tragic case-study of a lost opportunity for a drug application system, nearly every member had stories of similar failures resulting from unwarranted control, miscommunication, and inappropriate assistance. The organising trio had created a six-step maturity assessment for managing SRM with key suppliers and, if this provides companies with a realistic assessment of their SRM capabilities realistically, it is already a good outcome from this Think Tank series.

 

The third task when seeking an answer is to listen carefully to the counsel and this is when things got uncomfortable. The reasons for SRM failure sounded increasingly like the inherent characteristics of procurement. 

 

Is it possible, could it be: that procurement is the disease pretending to be the cure?  Nine out of ten Procurement organisations have cost-reduction as their primary target. Often it is the only one that gets reported regularly to the executive. Procurement governance aims to lock trade into standard transactions and to restrict information flow.

 

Executive and supervisory boards have an image of procurement as a defensive wall that protects the organisation's assets. Procurement solutions involve governance, process, formality and control.  They rarely mention trust and teamwork as behaviours; or agility, flexibility and innovation as goals.  According to a survey presented by Sammy Rashed, companies simply do not associate procurement with such open thinking.

 

One pharma company has turned conventional procurement ideologies on their head. Relationship managers on both sides of planned SRM partnerships sign undertakings that they will not communicate what they learn about the partner company to their own colleagues and are thus allowed remarkable access to the other party's commercial and technical data. It's working: eighteen months into a three year pilot, the project is delivering a pipeline of projects and has just been adopted as a permanent feature of the company's supply chain organisation.

 

Under-delivery of SRM in pharma has disappointed many who thought its natural home was in procurement. Productivity-in-Pharma has found that fundamental features of procurement may be the cause of the disappointment. 

 

 

In pharma, several functions (operations, clinical research and IT amongst them) have already built SRM teams of their own and these are pushing procurement back to the transactional margins where it started out two decades ago. The Productivity-in-Pharma Think Tank is a wake-up call for any pharma procurement group that wants to remain relevant.

 

 

Bill Young is the founder of Kestrel OPS.

Bill Young
Posted by Bill Young