State of Flux Releases SRM Report: What is Supplier Relationship Management Really? (Part 1)

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What business doesn’t want more innovative suppliers?

According to research from State of Flux, supplier innovation is a goal that eight out of 10 companies are actively working toward. From a study of 372 companies representing more than 25 industries around the world, State of Flux found that getting this innovation strongly depends on how well they manage their key supplier relationships.

Put more simply, businesses need to master supplier relationship management (SRM). State of Flux recently released a 50-page report, Entrepreneurial SRM: Solving the Value Puzzle, addressing this very topic.

As Alan Day, State of Flux chairman, observed, “If procurement departments and practitioners do not wake up and see what these trends mean, their future will be decided for them. They could be commoditized, outsourced and in the end replaced by automation.”

Defining the Terminology

SRM is not about abstractly improving your relationships with your suppliers per se. State of Flux defines it as “a differentiated approach to supplier management based on the importance of each supplier to the organization.” Every supplier is important, but to varying degrees. Once you determine the relative importance of each supplier, you can develop differentiated strategies that optimize relationships with these suppliers in order to maximize value.

State of Flux proposes six pillars of SRM: value, engagement, governance, people, technology and collaboration. We’ll give a brief summary of each below:

  • Value — This is the financial and non-financial value that a supplier offers. How does supplier X help your company reach its strategic goals?
  • Engagement — This includes engagement from the C-Suite, from business managers who are working with suppliers on a daily basis and from the suppliers themselves.
  • Governance — This involves determining which suppliers bring the most value to the business and hence are worth investing time in.
  • People — Without people, there is no supplier relationship management, so developing the SRM skills of procurement and supply chain professionals is crucial.
  • Technology — Software can help SRM initiatives by improving communication and collaboration among all parties, which brings us to the final pillar.
  • Collaboration — A collaborative approach to supplier management allows businesses to get more minds together on solving problems and innovating. It also makes the business a more attractive customer for the supplier.

Peer Benchmarking

Source: Entrepreneurial SRM: Solving the Value Puzzle

In the figure above, State of Flux divided survey respondents into leaders, followers and others, according to the success and maturity of their SRM programs and how well they are doing on each pillar.

The category of leaders is self-explanatory, of course, and it accounts for 10% of the response sample. The bulk of the response sample is categorized as “others,” or companies that do not yet have a clear SRM strategy and approach. Followers fall between these two categories, though the report notes that there is an increasing gap between leaders and followers.

But as you might have guessed from the report title, entrepreneurial procurement is the overarching theme of the report. How can procurement innovate and stay relevant, and how can SRM be a tool in doing so? How much savings can procurement realize through SRM?

In subsequent posts, we will address the topic of entrepreneurial procurement, as well as other findings from the State of Flux report. Stay tuned!

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