Supplier Relationship Management: Cost, Risk, and Value (Part 2)

Companies prioritize what State of Flux defines as supplier relationship management (SRM) for a number of different reasons. Moreover, the SRM priorities of leaders and followers in the area, as measured by the State of Flux's annual survey, can differ slightly as well. The top focus of organizations participating in SRM activities is "collaborating with suppliers to jointly deliver value (cost reduction, risk reduction, innovation, etc.) that is beyond contractual obligations" [emphasis added]. In the 2012 survey, 57% of leaders cite this as their top SRM priority and 55% of followers do as well.

Next on the list is "defining and monitoring key performance indicators [KPIs] to ensure that suppliers deliver products and services as per the contract and also continuous improvement." Curiously 27% of followers cite this as their top priority relative to 20% of leaders. In other words, if we are to read into the data, perhaps traditional supplier performance management efforts alone appear to factor in more as a primary strategy in less sophisticated procurement and vendor management organizations. This may suggest that for leaders, SPM is simply a natural outgrowth of supplier relationship management programs given the need to always measure.

Finally, the third primary focus of SRM for buy-side organizations is "managing supplier contracts to ensure that negotiated terms and service-level agreements are adhered to." 23% of leaders cite this area, compared with 18% of followers, as their top priority. From this, we can deduce that a material percentage of leaders still view SRM as largely a compliance and measurement function rather than as a means to drive continuous improvement outside the letter of the contract itself. Perhaps this explains why "innovation" as a focus of SRM made State of Flux's "bottom 5 areas of progress – minimal or none" for 2012. But more on that in the next installment in this series.

- Jason Busch

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