Supplier Relationship Management: Does it really deliver?

Supplier Relationship Management has been talked about for years and is considered "the right thing to do." But is SRM more than just warm and fuzzy feel-good business fluff or does it actually deliver the goods, so to speak? What does successful deployment of SRM look like? How well are firms implementing SRM? What kinds of benefits and rewards are firms reaping from SRM? Or, as politicians like to say, are we better off than we were last year?

Alan Day, Managing Director at State of Flux, recently shared with me their 2010 Supplier Relationship Management (SRM) study, which surveyed over 300 companies worldwide and which addresses the overall concern: why should firms care about establishing relationships with their key suppliers? This comprehensive study divided the respondents into leaders, who have optimized or at least established SRM in their firms (23%), to the followers, whose SRM processes were less developed, or in many cases, undeveloped. The leaders were able to enjoy results such as lower costs resulting from removing waste and inefficiencies and saving from joint customer-supplier initiatives and projects. The biggest SRM benefit and driver from that 70% of the respondents see as important is cost reduction, followed closely by risk reduction, cost avoidance and service level improvements. The survey showed that the leaders benefitted from average savings of 2-6% from SRM activities. While some may say that an aggressive sourcing program can readily obtain cost reduction, SRM, in my view, delivers sustainable cost reduction, by removing cost and waste drivers, not just pushing down the price to obtain savings, which may or may not stick.

If SRM can help address major concerns like cost and risk so well, why are the majority of firms in the survey so challenged by it? Some of it is the mindset embedded in many companies that supplier management is something you do to suppliers not with suppliers. These firms do not see SRM as a two-way flow of information (as I have described in many of my own articles and in my book). Thus they are missing out on opportunities for innovation, improved quality, improved performance and, yes, cost savings, which only a two-way relationship is able to bring.

Also, the leaders in the survey have strong executive and cross-functional buy-in and support. SRM, like most high-impact business processes, cannot be successfully done in the vacuum of purchasing. Other roadblocks include the ongoing challenges of company culture and attitudes toward procurement/supply management as well as the dearth of talent in procurement for relationship management. One point in the study that I found interesting is that some firms use their Key Account Manager (KAM) and Strategic Account Manager (SAM) techniques from the sales side to train procurement personnel in managing supplier relationships.

Another interesting finding in the study is that most firms have about 11-25 strategic or key suppliers, with only 5% having over 100, which, in the scheme of things, is not an overwhelming number of suppliers to develop productive relationships with, given the benefits of doing so.

State of Flux informed me that you can obtain a copy of the study and the opportunity to participate next year, by contacting: Geraint John at Geraint (dot) john (at) stateofflux (dot) co (dot) uk.

Sherry Gordon

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