4C Associates‘ second debate of 2013, focused on the ability of effective Supplier Relationship Management (SRM) to deliver a step change to an organisation. Jeremy Smith, Senior Manager at 4C Associates argued for the motion, whereas a senior buyer working in the financial services industry debated against.
For the purpose of the debate, both parties agreed to define SRM as: “The discipline of working collaboratively with the suppliers that are vital to the success of the organisation, to build trust and maximise value.”
Effective Supplier Relationship Management Can Provide Step Change Impact to a Business
“SRM goes beyond sustaining a relationship with a supplier – if properly implemented it can provide a real competitive advantage”
In an economic landscape characterised by austerity, the most important contribution SRM can bring to a business is risk mitigation. As supply chains become increasingly complex and suppliers come under more and more pressure to cut costs, a working relationship can be the difference between a correctly and incorrectly labelled product. The process can also prove invaluable in the case of supplier failure where SRM is the best way to keep backup suppliers motivated and ready for an emergency.
“You can’t just park your SRM process and hope for the best, this is an on-going process”
Buyers are motivated by savings and salespeople by earnings. Traditional procurement is built on an adversarial model which forces each side to work against the other. SRM supports both parties and pushes them to work towards shared objectives. In this context, a well-managed SRM process ensures a sustainable relationship which is flexible enough to change over time.
Effective SRM implementation also pushes organisations beyond traditional procurement practice. Boeing’s recent launch of the “Dreamliner” jet, proved just how pivotal a well-planned SRM process can be. Despite having a sophisticated procurement operation in place, the airline manufacturer found itself exposed to significant risk as a result of not integrating demand management with supplier capacity. This lack of planning resulted in significant delays and losses.
In summary, although hindsight is 20/20, SRM can provide a step change within an organisation.
Effective Supplier Relationship Management cannot Provide Step Change Impact to a Business
Effective SRM driven step change is built on five pillars:
- Business value: The process delivers financial benefits
- Relationship quality: Supplier relationships drive co-development initiatives, innovation and joint risk mitigation
- People: Investment in dedicated resource and capability improvements
- Process: The introduction of a structured and mature system of SRM governance and process
- Systems: Continued investment in effective technology
“[With SRM] there is a huge gap between theory and practice”
The reality is that in terms of SRM, few companies can claim to have implemented a mature process. Looking at value delivered to the business, actual benefits are modest and often intangible. Research has also shown that innovation is rarely delivered and “Customer of Choice” (COC) benefits are only provided by a quarter of suppliers.
In terms of processes, a recent survey revealed that only half of relevant businesses have a robust contract and performance management system in place for more than 50 per cent of their critical suppliers. The same survey indicated that the majority of businesses do not view SRM as a separate business discipline. As a result investment, both in training and technology solutions, remains low.
There are several reasons for the gap between the actual and theoretical benefits of SRM. Firstly it is difficult to reconcile the conflicting goals of two organisations. This is further complicated by the complex structure which frames many businesses. However, the key setback for the implementation of an effective SRM programme remains the need for long term investment and the challenge of demonstrating tangible benefits.
“In summary, there has been some progress and there are isolated examples of benefits, but when you look at the key expected outcomes for SRM, the majority fall flat”
The floor was near unanimous in its support for implementing SRM, however many recognised the difficulties of translating theory into practice. One attendee highlighted his struggle to keep senior management involved in the process. The benefits of SRM are often challenging to demonstrate yet it is critical to keep all stakeholders actively involved in the process. Another participant agreed but added that it is procurement’s responsibility to “drag the right people to the table”.
“Some people still think SRM means taking a supplier out to dinner”
The need to demonstrate tangible benefits was one which resonated with many of those present. In terms of best practice, it was suggested that focusing on a pilot area and demonstrating value there, should be the first step of implementing SRM throughout an organisation. In this context a number of attendees made the point that value should not be purely judged in terms of savings delivered.
“The days of beating up suppliers are over, the advantages of creating a dialogue between both sides is paramount to dealing with a changing economic landscape”
The general consensus amongst attendees was that although SRM has the potential to drive a step change, much work remains to be done before this becomes the norm.
A show of hands saw the vast majority of attendees vote for the motion.
Supply Management have also produced a write up of the event.