Why We Can No Longer Pay Lip Service To Supplier Relationship Management

Supplier relationship management (SRM) is not a phrase you regularly see at the top of a procurement specialist’s job description, but it’s becoming a hot issue, as Ian Nethercot, supply chain director at Probrand, discusses in this guest post.

The growth in importance of SRM is partly the result of regulatory and governance issues. For instance, it’s now a requirement for businesses to monitor their supply chain as a requirement of the Modern Slavery Act. While the threat of cyber espionage has made it a prerequisite for companies with sensitive information to vet their suppliers to protect against data breaches.

These are not the only reasons to address the management of supplier relationships though. We are now living in an age of rapid digital transformation – and suppliers are a crucial source of innovation when it comes to improving products, services and business processes generally.

Despite the need for better supplier management, procurement often struggles with SRM. Commonly seen as a nice idea rather than a priority, it’s regularly tagged onto the bottom of the to-do list. Procurement is predominantly preoccupied with the desire to show the finance department it has had an impact on the bottom line to tackle SRM with any gusto.

Relationships with suppliers, therefore, tend to take a back seat. But it’s time for a rethink.

Building better relationships

Managing relationships with suppliers can help organisations gain so much more than short-term savings. And there are two main ways to achieve this; through better contract management and access to innovative solutions.

  1. Better contract management

A huge part of SRM lies with managing contracts and ensuring you are extracting as much value as possible. Beating up the supplier for the length of the contract is not the best way to do this. If it’s a three-, four- or five-year contract, the strength of that relationship is going to wear thin before its conclusion.

The ideal scenario would be to maintain a close tie so that you can identify any inhibitors that may be preventing your organisation from extracting the savings negotiated at the start. This will help you understand what’s preventing a supplier from delivering what they promised.

  1. Access to innovation

If you can avoid exhausting your relationship, it also paves the way for collaboration. Working closely with your suppliers will allow your organisation to explore the innovative solutions that can deliver even greater efficiencies.

The benefits here can be huge. It could lead to cheaper production methods or system integrations that can speed up back-office functions. If this frees up your specialists to focus on strategic projects rather than administrative tasks, the gains will dwarf the cost saving brought about by battling the supplier on price.

How to solve the problem

While the gains are clear, the problem persists that procurement is judged on savings made within an organisation and not an ability to improve business processes or deliver transformation. But maybe that’s exactly what we need to change.

We still need to show savings from the outset, but once we’ve got that money in the bank we need to look at the next step. Value can be delivered in other ways. For example, if a supplier can help automate a process so that a growing company only needs to recruit two new members of staff, rather than six, that’s a huge efficiency saving. Achieving that kind of value requires us to change the way we do things.

  1. Early supplier involvement

If a department needs a computer hardware refresh, the way most procurement teams currently work is to ask IT what’s needed and draw up a spec. This request will be based on the way IT has always done things. The alternative approach is to get the supplier in earlier and talk to them about what’s possible before pulling the specification together. After all, they are the people with the expertise on new products and processes.

  1. Employ specialists

Contract and supplier management is a specialist job. Yet, as mentioned at the start, SRM is rarely mentioned in a procurement professional's job description. If we are looking to chase two targets – first to make initial savings and second to extract additional value from the suppliers – then it would be sensible to employ an individual to focus on the second and build long-term relationships.

Until organisations make these changes, procurement professionals may well end up paying lip service to SRM, and businesses may fail to realise the potential gains from better supplier management.

 

 

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