Effective SRM: A Win- Win Situation?

Effective SRM: A Win- Win Situation?

k a Blog, SRM

With procurement functions under increasing pressure to deliver quick win savings, long term projects such as Supplier Relationship Management (SRM) are often put to one side. In addition, there is a divide in opinion regarding the involvement of buyers in SRM; in some business the functions are kept separate whereas in others SRM is part and parcel of the procurement process.

4C Associates brought together several leading procurement professionals to discuss the potential benefits of SRM. An animated discussion followed in which attendees discussed how to define SRM, how much value the process can bring to a company and what represents current best practice.

Defining SRM

A number of attendees expressed contrasting viewpoints as to what constitutes supplier relationship management. One opinion was that whereas procurement was purely interested in contract management and numbers, SRM deals with relationships with people. This claim was debated by several participants.

“I don’t separate SRM from my buyer, I don’t understand why you would.”

Procurement, it was argued, is perfectly placed to carry out SRM. There is no reason the function should delegate what is already an important element of its job description. In fact, as the days of “beating up suppliers” come to an end, SRM is likely to become an increasingly integral part of the procurement function.

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This claim was debated, and it was suggested that due to the recession, it is possible to demand that suppliers lower their prices by 5 – 10 per cent. This statement was tempered by the admission that regardless of the economic climate, procurement still has a lot to learn in terms of SRM. Sales was put forward as one department leading the way in terms of building relationships. Several attendees called for more SRM training to be given to procurement professionals.

“Until procurement understands the value of asking someone about their holidays, SRM in most companies will enjoy limited success.”

Another attendee added that in his business procurement is charged with running the SRM process. In his opinion the practice delivered incremental benefits to the business but no step changes. He did not view this situation as exceptional and asked if anyone could draw a clear distinction between good contract management and effective SRM.

SRM vs. Contract Management

“Have there been any revolutionary changes in the field since Toyota, almost 10 years ago?”

It was argued that contrary to contract management, SRM provides an invaluable opportunity to engage with stakeholders. One attendee explained how a thorough understanding of his supplier’s processes resulted in several manufacturing procedures being amended. These included increasing the size of batches for dispatch and adding barcodes to certain products. Each change rendered operations more efficient and reduced costs. SRM also facilitates the exchange of best practice solutions.

“At the end of the day there has to be a return on investment for managing suppliers.”

Rob Lees, Managing Partner at 4C Associates, explained how during his time at Vodafone, his team employed a number of systems to drive stakeholder involvement. A key component of this strategy was presenting awards to suppliers who consistently performed to expectations. These ceremonies not only served to drive spend towards top providers but also allowed suppliers to spend time with senior management. As a result, additional resources were attributed to the account and procurement’s profile was raised within the business.

Why Invest in SRM?

One of the principal difficulties in getting approval for an SRM programme is the seemingly intangible nature of the benefits it delivers. It is procurement’s responsibility to demonstrate the numerous benefits which a well-run SRM programme can produce. These include not only raising procurement’s profile and consequently fostering compliance, but also mitigating risk through more effective supplier management.

“We are trying to use SRM to punch above our own weight. A lot of our suppliers are actually bigger than us.”

The majority of those present were of the opinion that SRM was an important element of modern procurement. If effectively carried out the process not only allows the function to “up its game” within the organisation but also to shift its reputation from spend restriction to spend management. Several participants also agreed that keeping SRM separate from the procurement function could be a real issue.

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“[SRM] frames everything procurement does and is pivotal to stakeholder engagements.”

There was a general consensus that most buyers would want to be in charge of both sourcing and SRM. Giving procurement a responsibility beyond the negotiating process for a specific cost, represents an attractive proposition for the function. This will not only ensure increased value from contracts but also demonstrate the importance of procurement beyond simple savings.

“One of my clients has someone whose sole function is to manage a single supplier.  He keeps costs low and ensures the relationship continues to evolve for the benefit of both parties.”

As suppliers continue to struggle, effective SRM will become increasingly important for businesses looking to do well in a difficult economic environment. A well-run, collaborative process can ensure value for both parties, through lower costs, mitigated risks, increased efficiency, innovative methods, increased quality and faster time to market.

Implementing an Effective Process

When introducing a SRM programme, a key consideration is doing so through a systematic approach. A company must identify what products or services are essential and which suppliers provide them. These suppliers form the starting point for SRM.

One participant explained that in his experience it was best to start small and employ a “gentle learning curve”. The success of any SRM initiative is dependent on being able to ingrain the process into the organisation. The need for procurement to drive this process was again reiterated. Implementing SRM is a long, constantly evolving process which is based on building credibility with the rest of the company.

Supplier Fatigue around SRM

Based on the knowledge that not every procurement professional is convinced by the potential benefits of SRM, it is logical to conclude that neither are all suppliers. A participant questioned the enthusiasm suppliers must have for every SRM initiative that comes their way. Is it possible that suppliers are becoming disillusioned with the concept?

“We do so many surveys and strategy meetings, the likes of IBM must see them as just another meeting.”

The ideal solution to “supplier fatigue” would be to standardise SRM by industry, however, as this is near impossible, there must be a drive to focus on mutually beneficial projects. In addition, as well as rewards for high performing suppliers, there must be a “naughty step” for those failing to deliver. One participant detailed how his team does not issue invitations to corporate events for suppliers who perform below expectations, cutting them off from key market intelligence from the customer.

Collaboration not Coercion

One of the key points to emerge from the discussion was that there are many different views surrounding what constitutes SRM. Some feel the process is already an integral part of the procurement function whereas others believe it remains a separate entity. The general consensus, however, is that regardless of who currently carries out SRM, it will become an increasingly important element of the procurement job description.

“In business we are used to being cold – we need to start getting warmer and are currently looking to hire consultants with people skills.”

Until SRM becomes a two-way debate with suppliers as opposed to a one-way discussion, there will be opposing views on how to best carry out the process. Procurement needs to become more accommodating towards the needs of suppliers and recognise that there is value in making concessions.

Event Information

On the evening of the 4th October 2012, 4C assembled a group of procurement leaders from different industries at the St Pancras Renaissance, Kings Cross. The event was chaired by Ed Ainsworth, 4C’s Managing Director.

Attendees included Ian Claydon-Butler, Global Head of Procurement at Mercury Pharma, Neil Gilbertson, Strategic Sourcing Business Partner at Royal & Sun Alliance Insurance PLC, Dave Magrath, Head of Procurement & Major Subcontracts at Sellafield Ltd, Stephen Pearce, Global Head of Procurement at Arysta LifeScience, Nicki Perrott Head of Procurement at J Sainsbury PLC, Keith Taylor, Head Of Procurement at Odigeo, Nick Wilkinson, Purchasing Director.