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Supplier relationship management (SRM) is a primary means through which the modern procurement function may add value to a company.
But what does SRM actually mean? It can be defined as follows:
The overarching strategic approach to determine and implement different supplier-based interventions, including the development of collaborative relationships with the critical few suppliers who can make the greatest difference; prioritised against available resources, applied as appropriate across an entire supply base to maximise value to the organisation, reduce supply chain risk and enable the organisation to achieve its goals and enhance value to the end customer.
It is important to understand that SRM is not a single linear process. Instead, it is an organisation-wide philosophy and concern that requires different functions work together. While it has a ‘supplier and supply chain’ focus, it is not feasible for a company to focus on every supplier or supply chain so, clearly, procurement teams must choose their priorities.
One of the reasons many companies don’t get SRM ‘right’ is that they fail to understand the complex nature of it and how a number of separate, yet interrelated things need to come together to make SRM work. These are unique to each organisation and are not sequential but, rather, each forms part of and creates the whole – like the individual facets of a precious gem.
The seven facets of SRM comprise the interrelated strategic components that enable, inform, direct and support each other and that surround, shape and determine the central facet, which is the specific interventions and what exactly a company will do with its chosen suppliers or supply chains to unlock value.
These seven facets are:
In other words, how SRM enables, supports, as well as flows from, our company goals and how we will achieve these. Any strategy will comprise the mission, aims and goals of the organisation and these must inform and be informed by our SRM programme as part of a cohesive, company-wide sourcing, satisfying and strategy approach.
We must be clear about the value that we need to secure from the supply base overall to realise our strategy and, therefore, the specific value we need from our relationships with our most important suppliers or supply chains.
How will we make it happen? The company-wide day-to-day arrangements that ensure we are organised and equipped for SRM and its ongoing management for results across the entire organisation.
How do we decide who is important? Segmentation is a structured approach to determine which suppliers are important if we are to unlock value from the supply base.
Who is important? Based on the answer to question four, for our important suppliers, we must decide how important they are – or if they are strategic – and what makes them so.
Where and when should we focus our efforts? Who takes priority? This helps buyers determine the suppliers or supply chains that hold the greatest opportunity and what they might need to do to unlock this value.
What do we need to do, with whom and when? The specific supplier and supply base interventions with those suppliers and supply chains we have determined to be important.
While there are seven very clear facets, SRM is complex. Every supplier is different and those that are important are important for different reasons; each requiring a unique relationship or series of interventions according to both parties’ circumstances and what each needs.
To use an analogy, SRM is like an orchestra.
Each section of an orchestra plays when needed and according to the piece of music, all working in unison and taking their lead from a single conductor. This is how SRM needs to work to be successful. Every component of the SRM orchestra must play as and when needed and according to what is appropriate for the circumstances, environment and point in time. The conductor, meanwhile, provides the governance framework that guides how the various interventions come in or drop back.
Every important supplier has its own piece of music and the melody changes constantly. This new mindset for SRM will help us understand how to build and develop truly effective SRM programmes.
This article is adapted from the second edition of Supplier Relationship Management: Unlocking the Hidden Value in Your Supply Base (9780749480134) by Jonathan O’Brien © 2018 and reproduced by permission of Kogan Page Ltd.
Jonathan O’Brien, CEO of Positive Purchasing, is a leading expert on procurement and works with global blue-chip organisations to help transform their purchasing capability.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.