Supplier relationship management (SRM) is a discipline, programme, or school of thinking, focused on strategically planning for and managing all interactions with suppliers of goods and services, with a view to maximising the value of those interactions. The result is lasting relationships with suppliers who have proven their ability to deliver optimum value, within an environment, and which is mutually beneficial to all parties.
SRM is a collaborative effort with those key suppliers that are vital to the success of the buying entity, as they have direct impact on the financial performance and profitability of such organisation as they influence product development costs, inventory levels, manufacturing schedules and the timeliness of delivery of goods and services.
The nature of the product or service purchased (as determined by the position of the requirement in Kraljic‘s Portfolio Purchasing Model) as well as the degree of supply chain management maturity of the buying organisation will dictate the type of interaction that will take place with its supplier base.
Where there is also a need to share or combine knowledge with a supplier for joint cost targeting or development projects, mutual trust must be developed. This requires a level of openness and consistency, which can only exist with concerted longer-term efforts by both parties, which should be led by top management. The development of this environment is facilitated by the application of a SRM programme. Inappropriate actions by either of the parties will very quickly destroy the efforts put in to build such relationship and environment.
An effective SRM programme will facilitate an environment in the buying organisation which is conducive to:
· Work with suppliers to reduce direct and indirect costs and improve service
· Develop and manage service level agreements (SLAs) with key suppliers
· Maximise the goal for mutual benefits to flow to the suppliers and the buying entity
· Integrate purchase order transactions within the supply chain process to maximise value within these processes
· Strengthen the supply chain management process
· Select the best suppliers which will optimise the value proposition within the buying entity
· Minimise the risk in the overall supply chain
· Optimise all resources within the buying entity with key suppliers
Critical success factors
· Business requirements are used to drive all decisions made within the SRM process.
· Top management support is evident, reinforced and backed-up by appropriate interventions at key points in the process/relationship.
· Critical commodities are classified as requiring a clear SRM definition.
· Supplier relationship profiles are developed by commodity teams and tailored to specific customer-supplier scenarios.
· There is two-way alignment of objectives and overlapping activities facilitated by cultural alignment, top management liaisons, joint problem solving and ongoing communication at all levels.
· Benefit sharing is mutual and equitable, with both sides achieving stated objectives without damaging or sub-optimising the other.
· Joint reviews are held to continually re-align and refresh the relationship and its development.
· Application of a consistent decision-making process is evident at all times and at all levels of interaction.
· The development of trust and mutual respect is reinforced as a corner-stone of the SRM process.
How does this happen?
A key driver within SRM is the introduction of supplier performance management, a regime of jointly agreed targets and measures that track buyer and supplier performance, as they progress together towards a mutually beneficial business result.
In principle, it should be possible for suppliers to consistently provide 100% customer satisfaction in all aspects of product and/or service delivery and support. It is this level of supplier performance that should be considered the entitlement of the buying organisation. All targets and measures should therefore be constructed with this ultimate goal in mind. Since supplier performance is only one half of the transactional relationship, it will always be subject to the integrity of the customer-supplier interface.
The setting of measurement parameters and targets should not be done in isolation but is optimised if a joint working group is established with the supplier to establish the performance criteria which is applicable to both parties.
Preparing for success
· Suppliers must be capable of the required performance.
· Supplier performance measurement is honest and transparent.
· Business relationships are sufficiently robust to support joint projects.
· The business is sufficiently attractive to suppliers to support collaborative investments.
· Performance measurement protocols are standardised across the supply chain.
· Measurement data is available in real time.
· Statistical and analytical skills are sufficient to distil meaningful information from the data generated.
· Long-term business objectives are compatible between participating businesses.
· Real improvement in performance is seen to be achieved.
· Reward systems are equitable and recognise the contribution made by individual businesses.
Where does SRM fit in with enterprise and supplier development (ESD)?
Enterprise and supplier development is a critical aspect of all businesses, especially in South Africa. In order for such development programme to be successful, SRM is an integral part of this process. Whilst many ESD suppliers may supply goods or services which may not fall into the definition of strategic, it is necessary to manage these suppliers within a SRM programme supported by SLA’s and a performance measurement process.
Any deviation from the performance parameters contained in the SLA will require remedial action by the appropriate party. Without this intervention the ESD programme will fail. When the required level of maturity and performance consistency has been met by the developing entity, the SRM process may be relaxed for that specific entity which may then be managed similarly to other non-strategic suppliers. Alternatively, the developed supplier may be sourced for strategic type goods /services.
Lastly, we offer six tips to ensure the success of your SRM programme.
· Ensure that top management drive and support of the ESD programme
· “Blockers” of the programme must be removed
· Full and objective participation by key stakeholders is critical
· Management must understand that ESD is a process which absorbs time and resources, and provision must be made for these requirements
· Link management and executive performance remuneration to the success of the ESD programme
· Progress reporting is a fundamental aspect
Article originally appeared in Bespoke: http://www.bespoke.co.za/index.php/articles/373894-implementing-srm-for-maximum-success-by-mark-berndt
Contributed by: Mark Berndt, a Principal Associate at Bespoke CfSD Group and an executive director of Go Global Sourcing