"Ain't No Half-Steppin": Why You Should Still Be Focusing on SRM

Spend Matters would like to welcome an especially 70's rock-filled guest post today from Michael Fuller, Director at Archstone Consulting.

"If you want my body and you think I'm sexy
Come on, sugar, let me know
If you really need me just reach out and touch me
Come on, honey, tell me so"

If someone had told my young self hearing Rod Stewart's classic "Do Ya Think I'm Sexy" for the first time that I would, over three decades later, write an article about Supplier Relationship Management (SRM) and somehow tie in Rod's graceful lyrics, I would have simply ignored them and popped the cassette tape back in. But from today's perspective, it seems like a perfectly reasonable thing for me to do. Here's how.

Whether Rod's raspy voice makes you squeal or squirm, denying that the song or the outstanding music video is sexy is just about impossible. The same unfortunately can't be said about SRM. It's not a sexy topic. At all. The surest way to glaze someone's eyes over is to start talking about SRM -- and that's if you're trying to have a conversation with someone in sourcing or procurement, much less with someone in a business or other functional group.

SRM is not the sexy multi-million dollar deal. It's not about brinksmanship and tough negotiations, and there's no rush associated with getting in a critical contract clause. It's not even as exciting as an analysis of your spend baseline and the discovery of a new category or sourcing opportunity. It's the day-in and day-out management of the entire sourcing lifecycle.

Over the past five years, companies have developed what we typically call SRM shelf-ware. Existing procurement functions have been renamed category managers, whose responsibility it is to manage the relationship with each of the category's vendors, with a focus on only portions of an overall SRM framework, particularly governance and performance management (i.e., same people, same roles, different titles). In practical terms, what this means is that the fundamental relationship with suppliers has not changed. The performance review meetings have simply become more regular and the supplier tongue-lashings more frequent, rather than just at contract renegotiation or RFx moments.

As appealing as the thought of rebuking suppliers sounds, their efficacy in producing world-class results is limited. The advantages of a formal and effective SRM program include:

  • Improved understanding of supplier portfolio stratification, management requirements, and resources by supplier strata
  • Streamlined supplier management processes to reduce internal costs
  • Alignment of supplier agreements with business performance and cost objectives
  • Accountability in supplier contracts to ensure that performance targets and Service Level Agreements (SLAs) are realized
  • Improved collaboration with suppliers to address capability gaps

These objectives are all worthy, and even, I dare say, "sexy." However, success involves more than simply including SLAs within a contract as a part of an RFx transaction. Successful SRM program formally include each of the following four elements:

  1. Supplier Stratification: How should supplier relationships be stratified based on strategic importance to prioritize resources and tailor management processes?
  2. SRM Governance: How should supplier-facing staff be organized and internal collaboration and supplier interactions be conducted?
  3. Performance Management: How should supplier performance be managed across different supplier types and strata to maximize performance?
  4. Supplier Development: How should capabilities of existing suppliers be developed to deliver continuous improvement and ongoing cost reduction?

While the importance of SRM has been recognized, many companies and organizations have been slow to fully embrace all elements of formal SRM programs. A critical piece in achieving a World Class Sourcing and Procurement organization is SRM. It might not appear sexy, but the business results are. Our clients that have embraced SRM have seen faster time to market, increased capabilities, and lower operating costs. Maybe that Rod Stewart guy actually did have SRM on his mind 33 years ago...

-- Michael Fuller, Director, Archstone Consulting

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