Finalizing the Business Case for SRM Investment

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Spend Matters welcomes this guest series from Sean Harley, co-founder and CEO of LUPR.

In this final entry in our blog series on developing the business case for investment in supplier relationship management (SRM) capabilities, we bring together all of the various elements we’ve discussed in the preceding blogs. We’ll also be responding to reader feedback in the comments section.

The business case for SRM must be based on a diverse and complementary suite of benefits directly supporting your organization’s business strategy, whether through hard dollar estimates or other means.

First, by enhancing and assuring good supplier performance, we avoid the erosion of savings gained during the sourcing phase. The development of a cost of poor supplier quality (COPSQ) baseline is crucial when making this hard dollar case for change.

Second, by identifying waste in supplier management practices, citing specific examples — such as how much time is required to compile a supplier’s scorecard (often a week or more of effort) — we can make an additional hard dollar case for investment in a modern SRM platform that will present performance data in one place — no more time-consuming aggregation in Excel.

Third, we can pilot collaborative innovation with a small group of strategic suppliers. By agreeing that contract renewal requires jointly hitting a value improvement target and engaging suppliers to identify and vet innovation opportunities, we can showcase value improvement. When conservatively extrapolated to the larger supplier pool, we are able to demonstrate how supplier value will be enhanced through greater collaboration.

Fourth, SRM minimizes supply chain risk while optimizing benefits. By conducting a qualification pilot with “critical” suppliers, we can highlight both good practice and risk areas related to suppliers we rely on today.

Finally, ongoing assessment of stakeholder satisfaction is a key component of SRM. Using a dynamic SRM solution, stakeholders can be surveyed in order to better understand their perceptions of performance and risk, as well as to solicit input on improvements. We recommend combining online surveys with as many face-to-face stakeholder interviews as possible to build a more comprehensive picture.

You may not need to pursue all five of these sources of SRM value for your business case. Often two or three will suffice. Prioritization based on the concerns of senior stakeholders, management and customers regarding cost, risk, product innovation, and ease of use will quickly highlight those at the top of the list.

Please feel free to share the methods you have found practical when making the business case for SRM. Thank you!

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