Supplier relationship management
“SRM is a discipline of working collaboratively with those suppliers that are vital to the success of your organisation to maximise the potential value of those relationships.” - Reference State of Flux
Overview
SRM is about developing two-way, mutually beneficial relationships with your most strategic supply partners that deliver greater levels of innovation and competitive advantage than could be achieved by operating independently.
What does good SRM look like?
Stakeholder engagement & business support
- Strong and active support for SRM provided by C-level/senior executives and senior management, and broad support for SRM from key stakeholders at a functional level.
- A realisation that SRM necessitates a consistency of approach and behaviours that foster trust over time.
- Alignment in business objectives with those responsible for managing the SRM programme and those responsible for managing day-to-day relationships with key suppliers.
- SRM practices are in place with half of the suppliers identified as strategic/top tier, with a plan to engage remaining suppliers during a defined time period. Suppliers demonstrate daily their commitment to a more collaborative way of working through their actions.
Governance & process
- The procurement/supply chain function owns the SRM governance model and processes and facilitates the development of a cross-functional SRM capability.
- Supply base segmentation has been conducted using multiple, weighted criteria and reviewed at least annually.
- For strategic suppliers, a clear and jointly agreed governance framework is in place.
- Process toolkits and templates provide relationship managers with ways to evaluate risk, create joint account plans, track joint performance using balanced scorecards and 360-degree feedback, report progress and facilitate workshops.
- There is a clear process in place to capture supplier ideas and innovations, direct them to relevant stakeholders, and ensure that they are evaluated for commercial suitability.
People & skills
- Cross-functional teams are assigned to oversee relationships with strategic suppliers and are led by the procurement/SRM function.
- Operational relationships are run by SRM managers who sit within the business. Some are full time, dedicated positions, although relationship management responsibilities may be part of broader roles depending on the type of business, industry sector and organisational philosophy.
- SRM managers should be responsible for managing no more than three supplier relationships, in order to devote sufficient time to each.
- Staff involved in SRM activities will have a good combination of commercial, technical and interpersonal skills. Commercial acumen, market knowledge, analytical abilities and project management expertise are important. But “softer” skills around communication, listening, influencing and managing change are critical to developing strong and trusting working relations.
- SRM managers understand their suppliers’ business and strategic goals and are able to see issues from the supplier’s point of view, while balancing this with their own organisation’s requirements and priorities.
Tools & systems
- IT systems are used widely and consistently across the organisation to manage the contract lifecycle and capture supplier performance data.
- For the most strategic and critical suppliers, a webbased portal accessible by key customer and supplier stakeholders provides a single point of information about the relationship.
Value & measurement
- Lower costs for both customer and supplier are delivered by tackling waste and inefficiency in the supply chain.
- Savings from joint efforts are shared with suppliers to incentivise and motivate them to come forward with ideas.
- SRM delivers a competitive advantage by harnessing talent and ideas from key supply partners and translates this into product and service offerings for end customers.
- A balanced scorecard includes a mixture of quantitative and qualitative measures, including how key participants perceive the quality of the relationship. Many of these KPIs are shared between customer and supplier and reviewed jointly, reflecting the fact that the relationship is two-way and collaborative, and that strong performance on both sides is required for it to be successful.
Relationship characteristics
- A high level of information sharing and trust, recognition that working collaboratively can produce superior results over the long term, and a willingness to engage and learn from people outside your immediate function and organisation.
- Humility, openness and honesty are considered to be virtues.
- Tough negotiations continue to take place periodically for new requirements and contract renewals, but they are conducted in the spirit of a long-term relationship.
- Co-development and innovation is actively encouraged and supported, product visions and roadmaps are shared and discussed, and joint strategic planning takes place to ensure that objectives, timelines and resources are properly aligned.
- Just as the supplier is viewed as strategic by the customer, so the customer is viewed as strategic by the supplier.
Other Considersations: Challenges
- Creating the business case
- Executive sponsorship
- Calculating ROI
- Developing an SRM sales pitch
SRM versus Performance Management
Please note: There is blurring of Supplier performance management (SPM) and SRM. SPM is a subset of SRM and a simple way of expressing the difference between SPM and SRM is that the former is about getting what you have been promised in the contract with the supplier, whereas SRM is about collaboratively driving value.
Current research
- State of Flux conducts an annual global survey on SRM best practice. The 2011 survey is now open - SRM Survey
See Also
External links