Beyond Sourcing: Focusing Purchasing Process on Supplier Engagement, Development and Tool Selection

Yesterday, I decided to hang out at BravoSolution and Corporate United's joint event out by Chicago O'Hare, where BravoSolution's Mickey North Rizza paraded out a number of frameworks from the annals of great purchasing process and practice, including an old (circa 2007) chart from AMR Research exploring different organizational structures and designs for procurement. I'll come back to this framework in another post, but one thing that stands out around organizational design is another reference Mickey made that ties to group structure: the importance of supplier relationship management (SRM) and the delivery of overall savings.

Citing Hackett data, Mickey references that "top performers deliver nearly 2X SRM savings as peer organizations," with an average ROI of 5-24X for SRM for most firms. This ROI can be attributed to both cost savings/avoidance from SRM as well as growth-related benefits (e.g., engaging suppliers in new product development and new product introduction - NPI - initiatives). This is a key point to consider when thinking through all the areas of potential SRM engagement, starting from basic supplier performance monitoring and progressing through to comprehensive risk management and value engineering initiatives.

Our own experience suggests that a data management framework is a key underpinning of just about all successful SRM programs. But companies must think beyond the supplier management box as a technology foundation (e.g., Aravo, Hiperos, HICX, CVM, GXS/RollStream, SAP). Tools to track and manage supplier information are critical, as are tools to enable certain types of initiatives, such as tracking conflict minerals compliance (an area BravoSolution noted recently they're targeting, among other solution providers).

But just as important are foundational spend analysis solutions, savings tracking tools (e.g., Sievo), specialized supplier performance management capabilities, data-driven supply risk management tools, and engineering/design collaboration capabilities (for manufacturers) – not to mention a range of other areas – for creating a sustainable foundation for SRM success.

Following the implementation of the right set of collective tools (not just supplier management!), it becomes far easier to leverage a common set of data and intelligence to implement and then foster the right collaborative processes to tackle supplier relationship management initiatives.

- Jason Busch

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