SRM: Process and the ‘Day Job’ – Part 1

David Atkinson, ex CPO, SRM expert and Managing Director of Four Pillars Consulting, continues his series on successful Supplier Relationship Management deployment. Part 2 of this post is tomorrow.

“If you can't describe what you are doing as a process, you don't know what you're doing.” (W. Edwards Deming)

In an earlier piece on SRM here and here I described the importance of any SRM change programme to have a clear over-arching purpose. Before CPOs even think about objectives and targets, they need to be really clear about why they believe SRM can make a positive impact on their organisation.  To be frank, many of the programmes I come across lack this clarity, and perhaps it’s one of the reasons why CPOs find enthusing stakeholders often such a challenge.

Instead of that clear articulation of purpose, we too often find leaders using words like collaboration, partnership working, innovation-capture, and performance management to describe SRM. What we don’t hear are explanations of the ‘how’ – how are we going to select suppliers for more of this suggested collaboration, or partnering, and innovation? This is a particular problem for organisations with immature SRM practices: how do we describe the activities we need to excel at in order to secure continually improving value for money?

I find the quote above from Deming perfect, as it lays down a challenge to the CPO to think beyond high-concept, and get into the definition of what an SRM process needs to be for it to be successful for their organisation.

This is so important, especially when you think of the investment companies are increasingly making in SRM training. Unless an organisation’s SRM process is clearly defined, then what should it train and coach their staff to actually do? Glibly suggests improving influencing and negotiation skills, although important, is not enough. Training needs to reflect what people are going to be asked to do, and that means technical SRM skills as well as interpersonal nous.

So what does the SRM ‘day job’ look like?  I have a preference for describing the SRM process as having two distinct phases: (1) Relationship Analysis and Strategy, and (2) Supplier Engagement.

Relationship Analysis involves the setting up of a cross-functional team to undertake analysis and develop the relationship strategy. There is a range of analysis methods (some of which are listed below) that help teams understand where to mine for value. Often the main challenge is securing that cross-functional working, as the idea of being locked in a conference room strategising is not everyone’s idea of time well spent. Yet without having a plan for how to get the best from a key supplier relationship, then the engagement phase risks becoming aimless and lacking in focus.

Supplier engagement is fundamentally about three things: protecting value, developing value, and transforming value.  Protecting value is all about ensuring the organisation gets what it contracts for, and so the fairly well-established practices of contract management, supplier review meetings, performance monitoring and management, all come into play here.  And although many CPOs (and some stakeholders) are more enthused by the prospect of SRM delivering supplier innovation, estimates of value leakage from contracts reported as high as 50%*, the disciplines around protecting value are, in my view, of primary importance. The idea of running supplier review meetings may not get the pulse racing, but protecting value is the most important and perhaps admirable activity within SRM.

The next level of supplier engagement is about generating incremental improvements in value through the application of lean and agile practices. Some organisations describe this as ‘supplier development’, although I prefer ‘value development’ as some improvements will come to changes to organisational buying behaviour within the customer’s business. This engagement type should be built on a solid base of rigorous contract and performance management, and comes about by working intensively with selected suppliers on specific initiatives that release additional value.

Finally, value transformation is where supplier performance standards are already high, a steady stream of incremental improvements is routinely generating value, and now the focus shifts to product/service and process innovation. The aim is look at ways in which working practices between buyer and supplier organisations can be fundamentally transformed. This is no longer about incremental ‘savings’, but radical thinking that could result in strategic alliances, outsourcing projects, and joint ventures. Relatively few supplier relationships will reach these dizzy heights, but CPOs and their teams should certainly remain open to transformative ideas from suppliers.

So there it is: SRM as routine practice. Tomorrow we make a few recommendations for CPOs.

* Estimates of ‘value leakage’ are wide and varied. I’ve heard commentators trade statistics from the low percentages, right up to 70%, and I suppose a catastrophic supplier failure, resulting in having to buy the service or product again, would represent a 100% failure. We just aren’t sure what figure to use. USA consultancy Vantage Partners has previously suggested that 46% of value can be left on the table through poor SRM, but that’s more about opportunity cost than it is about failure against contract. I’d welcome any sources that have, through robust analysis, confirmed reliable estimates of value leakage.

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