Supplier Relationship Management has taken on new meaning in the unprecedented times in which we find ourselves living. Now is the time to rethink supplier relationships for 2021 and beyond.
Supplier Relationship Management – time to rewrite the rule-book?
The shortages of certain products that we have experienced (gloves, masks, tests, gel etc.) in the first half of 2020 due to the explosion in global demand and broken supply chains have highlighted the key role suppliers play, as well as the critical need for effective supplier relationship management. In a market where production capacity has suddenly been saturated by exponential demand, these product suppliers, whether strategic or otherwise, preferred or not, are now the ones able to choose which customers to work with.
More than one Procurement department has learned this the hard way. Believing they have secured an order with one of their suppliers, only for this order not to be honored because a customer who is more strategic, more generous with the negotiated rates and quicker at paying, has been given priority. Conversely, some Procurement departments have discovered that non-strategic suppliers, or even tier two suppliers, offer them innovative solutions to alleviate the shortage.
What does this teach us about Supplier Relationships?
Supplier Relationship Management is not limited to identifying 1% of strategic suppliers and forgetting the rest. Knowing your suppliers is not limited to transactional information (number of orders, number of catalogue items) or to legal or contractual requirements. Finally supplier relations relies on more than one meeting per year which, if not prepared in advance, amounts to discussing the operational problems encountered several months late.
So, what avenues are available to rethink today’s SRM? First, it’s about broadening the target group of suppliers who need to be followed-up. As demonstrated by Gartner in its Follow Gartner’s 4-Step Framework to Implement an Effective Supplier Relationship Management Program, managing strategic suppliers is the key step. Nevertheless, an effective Procurement department doesn’t stop there. It knows that its most innovative suppliers are sometimes start-ups which spend amount classifies as tail spend.
Next, you have to review the data gathered on these suppliers. Most of the time, the data gathered on a supplier by a Procurement department is only intelligible to Procurement practitioners. It is rarely understood by business stakeholders. Additionally, this data really talks about the way in which this Procurement department buys. It doesn’t provide any real insight into the supplier. Of course, it is important to know the number of orders there are for a given supplier, if this supplier is financially dependent and if it complies with legislation and negotiated contracts. But does this tell us about the potential for innovation, the value that they add to the business or any new services they have to offer? Above all, this doesn’t give us our positioning among all of their customers. Are we high or low on their priority list, or even a nuisance? To whom will they offer their latest innovation? Who will they favour when there are shortages? Being able to gather information on the innovations available, the complimentary services offered and the potential for the business is critical for effective SRM.
Finally, it’s about enriching interactions with suppliers and not being satisfied with a mere annual review that often ends up discussing claims and issues that have built up over the year. Resolving operational issues as soon as they arise, throughout the year, is a prerequisite for getting out of this rut and starting to discuss innovation. Next, reciprocal satisfaction surveys on the relationship, themed workshops, site visits, multi-stakeholder meetings bringing together the Procurement department, supplier, sub-contractors and internal customers, are just some of the ways you can enrich the relationship and build mutual awareness. This is a methodology already applied by businesses that innovate jointly with their suppliers.
Of course, Buyers’ time is limited. Of course, the amount of information to process is huge. That’s why today’s Supplier Relationship Management available on the market are essential to effective supplier relationship management.
They make it quicker to gather the information and enrich it by increasing the number of collection points. So, throughout the supplier’s lifecycle (tender, contract, goods receiving, annual review etc.), the information is centralised from different sources, both internal (ordering system, stakeholders) and external (supplier, administrations, financial, environmental or risk analysis platforms). To offer such a large range of information, you need your Supplier Relationship Management solution to not only be integrated into a complete Source-to-Pay system, but also for it to connect easily to numerous external data systems. With this kind of platform, it is easy to keep valuable information stored during the tender phase and to re-use it to enrich the SRM. Tenders are an under-used source of information. They contain interesting data on products and services other than the selected items or on alternative suppliers among the candidates that have not been awarded.
Furthermore, SRM solutions help to analyse this information and even let you introduce innovative perspectives into this analysis. This obviously assumes there is a reliable and unified data model but also out-of-the-box reports that give you a complete overview at a glance, and report building capabilities to let the most experienced Buyers’ creativity speak for itself. As an example, in it’s 166 release, Ivalua offers a whole new view of the subcontracting supply chain that lets you identify subcontractors who present the highest level of risk in just a click.
Finally, SRM solutions help to enrich the supplier relationships through real collaboration and innovation processes. Of course, you need to be aware that the whole company is involved in the supplier relations: Procurement is responsible for the process and managing it but business stakeholders are equally responsible for the success of SRM programmes. Finally, successful collaboration relies on the benefits that the supplier has to get out of it. An effective SRM programme is not made to the detriment of the supplier. Having a unique tool that brings together Procurement, business stakeholders and suppliers around key processes and shared information lets you speak a common language, which facilitates collaboration and innovation. Ideas here are retained, refined, shared and transformed into services or products with real added value. SRM solutions also let you end the supplier relationship when it’s necessary and ensure that the relationship finishes in a compliant fashion and with the support of the company as a whole.
So, rethinking SRM for Procurement involves:
- managing a wider spectrum of suppliers,
- better-value information on these suppliers,
- and richer interactions with them.
The SRM platforms on the market unlock this value-added SRM universe to you…
Senior Product Marketing Manager
Arnaud has over 10 years’ experience in procurement across both sourcing and procure-to-pay. His experience comes from working with major international technology and media groups, where he was responsible for overseeing solution deployments as well as ensuring business value is achieved through technologies. Arnaud has a Masters in Finance from ESCP Europe – a top Business School in France and a European MSc in Management from London City University.