Supplier Relationship Management: Cost, Risk, and Value (Part 1)

Every year, State of Flux's Supplier Relationship Management (SRM) report presents one of the more comprehensive non-sourcing focused takes and surveys on the procurement market. The 2012 report is truly phenomenal. Its sample size (while definitely slanted towards the UK marketplace) is significant, representing responses from 287 individuals across 224 companies and public sector organizations. Anyone involved in supplier development, supply risk management, supplier on-boarding/enablement or related areas should reach out to State of Flux and request a copy of the 100+ page report. I promise, you won't be sorry.

Before exploring some of the highlights, we'll start with State of Flux's definition of SRM (that organizations focused on traditional sourcing and cost management activity should take to heart): "Supplier relationship management (SRM) involves the transition from the traditional buying process that involved regarding suppliers as a cost and a risk to be managed at arm's length, to one that extends to treating suppliers as assets and managing them in a more collaborative way ... Effective SRM will take a longer term view looking at the relationship in the belief that the whole is greater than the sum of its parts. It will progressively move away from an emphasis purely on cost to the joint pursuit of additional value."

How does SRM manifest itself in specific activities? Consider how it can "involve changing from having supplier meetings dominated by apportioning blame for performance or service issues in the past and seeking to invoke penalties, towards a more collaborative way of working that focuses more on problem solving, joint organisational learning and the future."

In other words, SRM is not just about the flip side of sourcing and negotiation – vendor management. It's something more. It represents a new type of procurement operating model, a philosophy about how to engage with suppliers more broadly. Yet how widely is it being adopted in the field, and in what specific areas? Stay tuned as we further investigate some of the higher-level findings from the State of Flux report.

- Jason Busch

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