Supplier Relationship Management – the Impact of Market Informed Sourcing and e-Auctions

Hot TopicThere are some interesting discussions to be had around Supplier Relationship Management (our Hot Topic for this month) and technology. Not in terms of the technology to directly support SRM, although that is becoming more capable and widespread, and more on that to come this month for sure. Rather, we’re talking about how various sourcing processes and the accompanying technology can influence your more strategic supplier relationships.

For instance, does using eAuctions necessarily mean a negative effect on your “relationship” with a strategic supplier? Some might think so – we have heard practitioners arguing that it is impossible to talk about innovation and partnership with an important supplier one minute, then expect the same supplier to compete in a brutal winner-takes-all auction the next? (The same would have applied pre-auction days to a tough face-to-face price negotiation of course).

That seems like a good point, but if you talk to Guy Allen of Real World Sourcing, ex CPO of Santander and Fujitsu, he will argue that it is perfectly possible to have both in parallel. Indeed, he was both a strong exponent of auctions and worked successfully in the SRM field in Fujitsu in particular.

To make that duality work, it may be a question of segmentation. So a truly strategic “partner” in a spend category such as IT might still be expected - not unreasonably – to be asked to compete aggressively to win the more commodity type IT hardware business. However, the negotiation and contracting approach might be (indeed, should be) quite different if a strategic outsource or a joint venture was being discussed with that same supplier.

But this needs to be managed. Having a SRM type relationship requires a high degree of trust and honesty on both sides, so we’d argue that auctions need to be used sensitively in that environment.

On the other hand, there is evidence that use of what we call MIS (market informed sourcing – or optimisation, advanced sourcing, etc) can actually strengthen the SRM bonds with key suppliers. I remember an excellent presentation at a conference, given by procurement executives from BP’s Lubricants division, talking about their use of MIS. (Rob Hemsley was a seriously early adopter of the technology whilst he was at Heinz and before moving to BP).

It highlighted the ability of MIS to allow suppliers to propose different options and make their own suggestions as to how the buyer’s needs could be fulfilled is seen by suppliers as very positive, and supports a more collaborative relationship. Even though MIS can also include pretty direct cost comparisons and focus, suppliers like being given the chance to put their own ideas forward.

Here’s what we said in a Paper we wrote on the topic a while back.

Principally, Market-Informed Sourcing provides the supplier the ability to offer what they know is the best solution, based on their own economic situation and the market, rather than purely what the buyer has narrowly defined. The speed of the process also helps reduce the resource required for suppliers, and it is interesting to note that a number of Market-Informed Sourcing users have commented to us that the ability of suppliers to offer alternatives increases the ability to build a truly strategic, collaborative and mutually beneficial relationship. The process is, for instance, seen by suppliers as less of a blunt instrument than a simple reverse auction.

If you are interested in looking further at MIS, you can download that paper here (free of charge, sponsored by BravoSolution) and another on the topic here (courtesy of Trade Extensions, another leading solutions provider in the MIS space).

And more on SRM shortly.

First Voice

  1. Nick @ Market Dojo:

    There is some great research from Bristol Business School in association with The Chartered Institute of Purchasing and Supply that can be found here:

    http://www.icompete.org.uk/includes/documents/iadapt.pdf

    This study determines the impact of eAuctions on the buyer and supplier relationship and actually concludes that eAuctions improve the relationship – and that’s feedback from suppliers too.

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