Supplier Relationship Management is not the same as Supply Chain Management.
SRM creates value through strategic internal and supplier partnerships as opposed to simpler management of supply chain efficiency and productivity
— By Lena Haram
The discipline of Supplier Relationship Management (SRM) is maturing as it becomes imperative to generate value from the supply chain. SRM is not the same as Supply Chain Management (SCM). SRM is a higher level process of developing partnerships with strategic suppliers and internal leaders, and aligning those partnerships with the organization's interests and goals to create value through untapped business opportunities.
SRM development begins with stratifying the suppliers based on what is delivered to the organization, with the lowest level being transactional or tactical suppliers and the highest level being suppliers who are strategic and critical to ongoing and future business operations. Focus is placed on developing partnerships with the strategic suppliers and aligning the program across the enterprise, meaning there must be full buy-in and proactive involvement of management for SRM to produce the greatest value.
There are challenges to achieving goals, but success can bring continuous innovation, among other important benefits.
From Simple to Sophisticated
SRM is a process that defines how an organization will interact with different suppliers. Some suppliers provide non-critical goods and services, and interactions with them are mostly transactional. Strategic suppliers are critical to the organization's ability to maintain competitiveness. Segmenting the supply base into groups of suppliers based on their current association with the organization is a first step.
Though there is segmentation, the SRM program includes all suppliers to some degree, but segmenting them based on risks and importance guides the investment of resources to promote desired results. The suppliers delivering goods or services in categories that are least important in terms of creating operational risks – should the supplier fail to meet the contract requirements or is bought out – are managed mostly via tools, like online platforms they can use to compete for business.
The caution is to not exclude smaller, diverse suppliers who were chosen due to their high potential to scale or produce innovation over time. SRM is a "living" process in that suppliers can move up the hierarchy, important to maintaining relationships with smaller, diverse suppliers.
For example, an organization may need innovative suppliers that can build scale in order to meet longer-term organizational needs and goals. Small suppliers often end up closer to the bottom of the segmented supplier list based solely on factors like cost and efficiency but are currently not participating in innovation sessions due to their size or current low risk to the organization. Developing a partnership with the innovative small and/or diverse suppliers to help them grow with the organization can move the suppliers from transactional to strategic.
SRM is a "living" process in that suppliers can move up the hierarchy, important to maintaining relationships with smaller, diverse suppliers.
Sourcing and Procuring in a Continuously Changing Business World
SRM is becoming more sophisticated in response to business challenges, like the need for continuous innovation, globalization, and a host of factors like increasingly scarce resources and changing government regulations.
In its early stages, the SRM model looks more like a basic sourcing function with measurable performance goals established. SRM programs mature as an organization's needs change. It is often a rollout program that grows and expands. A mature SRM model has features like structured meetings to review supplier performance and progress, regular communication about the organization's future needs, and supplier participation in product development.
The supplier becomes a true partner with its customer, so mutual business advantages are realized. Strategic suppliers prioritize the introduction of new products; ideas for product designs and redesigns for improvement; and suggestions for streamlining processes like logistics, production efficiency, and global management of resources availability.
An important characteristic of a well-developed SRM model is buy-in across the organization. The procurement team leads and manages the process, and uses measurement tools, like a scorecard, to track strategic supplier performance on a variety of activities that range from cost and performance to innovation contributions.
Regular formal meetings with suppliers to review performance are held and should include executive involvement. In fact, executive-level involvement includes attending business review meetings to discuss the organization's needs, consider supplier innovations, discuss market dynamics, and share product development roadmaps.
Across Organizational Functions
Procurement's role continues to evolve because it is one of the last functions to fully embrace a revised purpose as a proactive leader in business continuity. Category managers were some of the first internal people to develop relationships with suppliers with some even sourcing goods and services. Their role is limited though because their focus is on particular categories and spend buckets and are usually not coordinating with other categories.
Procurement is the liaison for category managers, but acting as a liaison is only one element of SRM. SRM is more coordinating and encompassing.
An advanced SRM process crosses functions. One of the key attributes of SRM compared to SCM is that procurement involves the organization's leaders in meetings, strategic planning, supplier goals, and supplier performance reviews. The involvement of people across functions in planning, meetings, and supplier reviews is crucial to establishing aligned and reasonable measurable goals, forecasting demand, and assessing performance.
One of the challenges is deciding how communication between suppliers and others in the organization will take place and how procurement is assured of inclusion. There is always a risk of people outside the procurement function over-committing the organization or misinforming suppliers
SRM is not only about reducing costs, though it may be one realized benefit. It is more about developing transparent buyer-supplier relationships that improve profitability, lower risks, generate innovation, lead to process or product improvements, and enhance competitiveness.
Adding Intelligence to Procurement Processes
The resources invested in SRM need to include the appropriate tech tools. SRM is not likely to reach its potential unless strategic suppliers can access more than transactional platforms, like source-to-pay systems, and procurement can access the data required for more than just tracking current performance and KPIs. SRM systems should track supplier sustainability, promote innovation, offer superior communication and feedback systems, and support collaboration.
So far, many companies still do not invest in high-performing technology for SRM process management that includes features like workflow tracking and real-time KPI data, automated progress reporting, and automatic promotion of collaboration.
SRM is an intelligence process that drives an organization's competitive advantage now and in the future. Procurements is more than a negotiating function. It is a proactive function that is business-centric, developing and promoting relationships with internal leaders and suppliers.
It is more than collaboration, category management and buying. It is all that and much more.