That Moment When Technology Ruins Supplier Relationship Management (Part 2)

We are delighted to welcome this post from Gemma Howard-Sandy, consultant at cost management solutions firm Procuright. Part 1 is here.

... If technology is slowly but surely encouraging procurement to increase suppliers, due to the ease of certain back-end processes, is it also leading to one large incompatible problem in particular, namely, Supplier Relationship Management? ...

Supplier Relationship Management for the Win

Supplier Relationship Management entails creating tighter, more collaborative relationships with key suppliers, in order to realise value and reduce risk. It allows all of this with the principal suppliers that have materialised as preferred partners during a supplier consolidation process. Supplier consolidation is considered to be strongly linked with SRM performance and has an even higher ROI than strategic sourcing, especially given the wider focus on innovation, growth and development that SRM helps facilitate.

The focus is very much on the relationship. Managing the supply base is about strengthening relationships that can make or break your business. Earning your suppliers’ trust with honest communication, listening to their concerns and involving them in your processes ultimately makes them a vested partner in your business. So essentially, you need to keep them happy. Which probably sounds like a complete oxymoron; after all, you’re the customer and therefore, King …

A key feature of SRM, in theory, is that it’s mutually beneficial to both supplier and buyer. This may seem counterproductive for your company but the reality is, if you’re aligned with your suppliers (to the extent of treating them more like partners) both businesses will experience higher success rates, decreased risks and enhanced innovation. The procurement teams that successfully align their organisation with their key suppliers, realise improved supplier capabilities of innovation, reliability, quality, stronger price reductions and the agility to decrease risk factors.

It also delivers big opportunities. Effective SRM produces a faster time to market, transactional efficiency, risk mitigation and large financial gains - all of which not only contribute to your bottom line, but also allow you to deliver a quality product giving you your competitive edge.

Collaborating or partnering with a select number of genuinely strategic suppliers and identifying what really matters will unlock their knowledge and commercial proficiencies. It will also establish trust and transparency. Which begs the question, why would you keep adding to the supply chain and watering down this collaboration potential? Because essentially, only through adopting true SRM can you start withdrawing from The Bank of Relationships.

The Bank of Relationships

The right innovative technology is a must for consistency and can certainly streamline the procurement process and establish more efficient finance processes along the way. But if that very same technology is masking the key principles behind SRM then we need to question how much value it’s really bringing to the party.

The key to success is picking the right technology and suppliers for the job. Simply going down a process-driven route with no end result and recording what has been spent (not controlling it) will add to the process, slow you down and ultimately cost the organisation money.

Increasing suppliers beyond their ability to service your account effectively and deliver on their core innovation will result in damaged SRM and will likely increase spend too. And whilst lower purchasing price represents a significant part of supplier consolidation, reduced process cost and increased efficiency is often the largest opportunity for many organisations. With fewer suppliers, the number of separate transactions fall and ultimately, the amount of time it takes to manage those suppliers. Meaning we can engage in true Supplier Relationship Management: by paying into The Bank of Relationships, we can start withdrawing from The Bank of Relationships.

 

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