Spend Matters welcomes this guest article by Chris McClory, manager of operations advisory at KPMG.
When organizations think about supplier relationship management (SRM) they often zero in on management of supplier performance and the enforcement of service-level agreements. This focus stems from a common assumption that SRM is primarily about direct interaction with the supplier.
However, KPMG’s experience, reinforced by our findings from a recent study conducted with Professor Robert Handfield at North Carolina State University, indicates that internally-focused activities require at least as much focus.
Figure 1: Supplier Relationship Management as part of end-to-end procurement
Figure 1: Supplier Relationship Management as part of end-to-end Procurement
Based on interviews with senior procurement executives conducted as part of our study, we found that major global organizations spend between 50% and 70% of their SRM efforts on internal coordination and management activities.
To get the most from a supplier relationship, organizations should present a “single face” to the supplier – providing clear, consistent messages, an aligned set of expectations and requirements, treating the supplier consistently across the organization and interacting efficiently with the supplier.
However, this can be a challenge given that many supplier relationships span business units, functions, regions, etc., within the buying organization; fragmented and uncoordinated are a likely result. In the absence of the active internal coordination that surveyed executives described, the multiple participants and stakeholders from across the organization are likely to send the supplier mixed messages on company objectives, on the nature and importance of the relationship, feedback on the supplier’s performance and joint improvement opportunities. Uncoordinated interactions can also be highly inefficient.
Thus, in deploying a successful SRM initiative, companies should focus on aligning the various stakeholder groups, including their objectives, priorities, plans and resources. Also, various internal stakeholder groups may assign a different priority to the supplier based on their differing needs and differing experiences with the supplier. To present a single face to the supplier, the organization should reconcile and align the priority or segment of the supplier across the organization to an enterprise view.
Our experience indicates that given the degree to which SRM relies on internal activities, a number of factors are critical for successful implementation:
- Standardizing to a single SRM model with a common set of SRM definitions, processes and tools provides a common basis for joint activities across the enterprise
- Incorporating key internal activities into the SRM model
- Selection of SRM participants with strong leadership and coordination skills
- Training SRM participants on the common model to enable more effective collaboration
- Conducting organizational change management to improve understanding and adoption of collaborative, cross-enterprise interaction
- Formally defined governance plan including roles and responsibilities of various stakeholders
- Investing in appropriate internal company resources and time
Perhaps this takes us full circle to our 70% figure and demonstrates why managing internal relationships is vital to SRM. Making the investment in those internal relationships may just pay dividends in your quest for successful SRM.