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Strategy inflation is back: The'me too' approach to SRM.

Supplier relationship managementBlog

In our current research into SRM, we are finding that buyers and category managers are more likely to proclaim their suppliers as ‘strategic’.

 

This not a new phenomenon. In fact, we noticed during our research into category management in 2011 that there was a tendency for category managers to edge their suppliers towards the top right-hand corner of the Kraljic matrix. For many CPOs, it was a challenge to discourage this. We reported one such executive as stating: "just because you spend a lot of money with a supplier, does not make them strategic".

 

It appears that procurement is still wrestling with the same issue. Buyers are on average reporting that just over a fifth of their suppliers are ‘strategic’ or ‘critical’; from the CPO-perspective, this drops to 18% of suppliers.

 

The reality is, however, that not all suppliers are strategic.

 

We have seen significant supply-base rationalisation occur in almost all industries over the last decade, and this has left the remaining suppliers with enhanced status and importance within the buying organisation, as they subsume a larger proportion of spend. It is tempting for buyers managing the relationships with these suppliers to encourage talk of them as ‘strategic’.Replacing them may be difficult and their tenders worth millions, but this fact alone does make them ‘strategic’.

 

Managing strategic relationships is resource intensive. Our research shows that strategic partners suck-in a lot of man power both in terms of the numbers of meetings as well as the relatively higher level of buyer that such suppliers require. It is a waste of resources is too many suppliers are treated in this way, when an automated approach may be equally as effective.

 

A challenge for CPOs is to control the impulses of their buyers in mislabelling the suppliers in their portfolio. Engagement in collaborative and ‘high level’ relationships can be seen as a stepping stone to an executive position. Buyers will be chasing these opportunities as a means to accelerate their careers.

 

A way to prevent this is by clearly communicating an SRM policy or structure which will effectively cap the level of strategic suppliers. Moreover, this should put into place a process by which suppliers are segmented, with a parallel approval process for categorising suppliers as strategic.

 

Not only will this act as a control on buyers’ ambitions, but install a more methodical means for looking at the entire supply base not only the ‘important’ few.

 

Jon Webb
Posted by Jon Webb