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Aside from all of the buzz and the pseudonyms and the studies, does supplier relationship management (SRM) as a business discipline really matter? Why does it matter to the supply chain, or the supplier, or the buyer? Why does it matter right now?
Surely in terms of value generation — for the supplier, for the buyer, for procurement — what matters is innovation, sustainability, digital transformation, resilience, agility, product and service continuity, and cost reduction.
In this series, part of our set of “Unconventional Wisdom” posts, we’ll be mining the heads of Spend Matters’ Chief Research Analyst, Pierre Mitchell, and our new Senior Analyst for Supplier Management and Sourcing, Bertrand Maltaverne, for their thoughts on why the day has come to take SRM more seriously than ever before, for all parties concerned.
We’ll explain why we feel it’s important for us to be discussing it now, why it’s important for procurement to fully embrace it now (if you haven’t already), and why it has become fundamentally important to buyers, suppliers, consumers and procurement alike. And we’ll show how all of the value-generating assets we described above come right back to supplier relationship management. Then we’ll throw in a bit of a take on the SRM tech landscape too.
Putting SRM into perspective for procurement
There are many studies (and very good ones at that) which look deeply into SRM: how it’s done in different organizations, how it’s measured and benchmarked, how tech can help, what CPOs think about SRM. Just two examples are the Deloitte’s CPO study and the State of Flux Global SRM Research Report. But, to put it all into context, let’s start with some foundational drivers for our SRM topic.
At the very core of procurement is “what value does Procurement bring to the organization?”
There are two basic answers to this question: spend management and supply management, or you might say, what/how we pay and what/how we source.
We can try to reduce our amount of spend by working better with Finance and the market. We might reduce spend through pricing or consumption and being smarter about how we spend to become more “fiscally fit” (as Finance functions would have it) so that money can be better invested elsewhere, like in the employees or acquisitions. We might decide to stretch payments to suppliers and be more selective about who we pay more quickly to keep them solvent and who we don’t. Smarter firms don’t just hold onto cash for longer, they have options to offer early pay and third-party finance. But there’s always risk.
Innovation
But ultimately procurement is about how we harvest value from the supply markets, their data, their innovation and their collaboration, to become a gate opener rather than a gate keeper. As P&G had it almost 20 years ago: innovation isn’t coming from the business, it comes from the markets, so we need to bring the “outside in.” The trick is — knowing how to tap into it.
Unilever and Bayer are just two examples of organizations doing well at this at the moment.
Innovation is where SRM really starts to shine. How does an organization go beyond its four walls and tap digital innovation from its suppliers. How do we get suppliers investing well in R&D to want to share it with us? We have to be a customer of choice. That’s how we influence the technology roadmap and the investments of our suppliers, so that we can focus on what we can do together to help all of our customers. We must be the conduit that connects our supplies with the market.
So innovation is one of the most strategic drivers of SRM for procurement.
Another is …
Value proposition
How does procurement evolve its value beyond cost savings? To make that evolution you have to be better at engaging with suppliers – it’s that simple!
Procurement must show it is in control of supply assurance, or keeping the goods moving. That’s not an easy ask right now. The congestion at ports, lack of container shipping, pent-up demand, parts shortages and so on — all these things are making it difficult for procurement to deliver. (The latest ISM report details that.)
And the supplier has to prioritise its customers just as much as procurement has to prioritise its suppliers — they have allocation rules too. It’s simply foundational thinking: you need good relationships with suppliers to get those preferential allocations when you need them.
But you need more than that — you need visibility from your supplier, you need alerts on lateness, financial early warnings, status of critical components (like semiconductors of late). You simply will not know when your supplies will be available if you don’t have good SRM in place.
So SRM is of operational (as well as a strategic) import too — that of staying digitally connected to your suppliers, so that you know when you are getting your goods, or at very least know that you are not getting them! In fact digital supplier collaboration was the number-one thing that helped companies cope through the downturn in the latest Deloitte CPO study referenced above.
The right price
Another driver of SRM is knowing you are getting a reasonable price and how that compares with the market. Having a handle on the likes of price risk and price volatility requires a competency to do things like total cost modelling, creating long-term agreements with key suppliers, and cost-smoothing. When pricing is up (like now) the smarter companies are making sure they have locked in some long-term pricing. (We’ll get into the importance of collaborative cost reduction later in the series.) To make good decisions and to do a broader supply chain risk assurance they are using multiple and alternative suppliers and are considering nearshoring, basically giving themselves more options.
So supply chain risk management (and sustainability and resilience) means having to do supplier risk and compliance management. And basically that requires SRM.
And so to sustainability
This summer Spend Mattes is having a big push on ESG – and particularly sustainability. Businesses, consumers and shareholders are witnessing (and driving) what is happening in the movement towards sustainability. The oil and gas, and automotive industries in particular, are seeing a huge groundswell of consumer preference for sustainable products. It’s having a massive impact on our supply chains, so solving the challenges and getting more value from those supply chains will take more innovation, more risk and compliance, and better SRM.
So that’s why we believe SRM has become such a hotbed right now. Whatever procurement initiative, process or strategy we look at, it all circles back to SRM. It’s the gateway to your supply chain and all the upstream things that are flowing down it — from your products to your services to your consumers.
According to our technology analysts, this is where companies are falling down. SRM is still a poor step-child to CRM. Companies still don’t have the SRM infrastructures they need, they have mostly basic supplier interactions and maybe a good vendor portal, but it’s still way behind the CRM world in terms of technology. So there is definitely room for that advancement in the market.
Join us for our summer series of posts as Pierre and Bertrand shed light on some of the most relevant SRM-related topics that are undergoing a renaissance right now for procurement leaders, including:
- Supplier innovation and collaboration
- Sustainability, risk and compliance
- Supplier information management
- Supplier performance/relationship management
Please feel free to weigh in with some of your own too.
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