Supplier Relationship Management: Here is your Checklist for Supply Chain Success!

Supplier Relationship Management (SRM) is management system and methodology widely accepted amongst procurement and supply chain management professionals.

It serves as a backbone for collaboration between buyer and supplier, during activities such as, but not limited to, pre-contracting, selection, contracting, production, post-production and review/evaluation.

As CIPS describes it, “SRM is a comprehensive approach to procurement, managing and capturing the post contract value from key business relationships” (CIPS).

Leveraging the competencies of suppliers, and building shared value within buyer-supplier relationships is a top priority of the majority of CPOs (Chief Procurement Officers).

According to CapGemini’s annual CPO survey it was determined that concerns that CPOs look towards SRM to address are: creating collaborative innovation, reducing the total cost of ownership and other advantages such as holistic supplier-related risk management.

In fact, the survey found that SRM’s popularity, amongst CPO’s surveyed, was nearly unanimous. Their results found that:

“Supplier Relationship Management is a key priority for 97% of respondents — for 60%, it is a current area of focus within their organizations, while 37% plan to focus on it in the future. And yet despite the focus on SRM and awareness of the value that it can deliver, only 15% of respondents had a unified corporate SRM strategy and associated processes in place. For 27% of respondents, SRM was applied only selectively and focused primarily on contract management, while 30% of respondents had no SRM processes in place at all” (CapGemini 2016).

Widely accepted, yet seldom utilized… Supplier Relationship Management is truly the dental floss of supply chain management systems.

All jokes aside, the acceptance, yet reluctance for utilization of a SRM strategy is puzzling.

Maybe it’s not a top priority. Maybe it’s not seen as a method for optimizing supply chain management. Maybe CPO’s know the potential capabilities, but just can’t figure out how to realize an SRM strategy...

Whatever the cause of the chasm, between popular acceptance and actualization, I am here to close the gap.

I would like to build a framework for recognizing the importance of Supplier Relationship Management, as a widely practiced supply chain strategy, and to build a checklist to keep in mind when implementing such a strategy.

Before I delve into my 5 parameters for building supply chain success through supplier relationship management, I want to assure that we’re starting from a place of common understanding for supplier relationship management.

This checklist is developed as ‘must haves’ for a supply chain management strategy.

Strategy: meaning a holistic approach to developing stronger management of supplier relationships rather than a mapping of operational procurement tasks. Strategy is of course the framework for action, and therein lies enhanced operational activities, but my main focus is providing guidelines for a systematic approach to SRM.

You can’t bake a cake without reading a recipe first.
  1. Pick a Digital Solution

Supplier Relationship Management, as most other management strategies under the scope of supply chain management, has become a part of the Digital Transformation of business-integrated systems and solutions.

Today’s demands on category managers for quality, sourcing managers for sustainability and CPO’s for enhancing top-line value are considered business-critical. To meet those demands, procurement teams require dynamic work tools to develop better insight into their suppliers’ activities, and truly build intelligence for further analysis and decisions regarding supplier-bases.

This is a bit of the chicken or the egg situation.

The parameters for selecting a digitalized SRM solution are based upon the key performance indicators your procurement team possess, but you can’t exactly develop those KPI’s without knowing the capabilities of said-SRM solution.

One way or the other, an SRM solution should be able to provide you with a framework for developing stronger, more collaborative, relationships with your suppliers; relationships of trust and transparency. One of the best ways to determine if a digital solution will be able to return this value to your organization is to remember this: It’s all in the data.

Integrate with an SRM solution that will assure, your traditionally, passive supplier-related data becomes the guidelines for intelligent supplier-related decisions in the future. A quality SRM solution, will ease/automatize daily tasks, and free up time for you to focus on developing stronger, more sustainable-supply chain strategy.

Do you want to be ruffling through files, or searching the depths of your computer to know if your supplier’s ISO certification is still valid? Or do you want to receive an automatized action reminder that sends out a notification to both parties, and serves as a platform for receiving, storing and verifying that certificate all from one solution…?

2. Sustainability Focused

A quality SRM strategy has to have a focus on the element of supplier sustainability.

Serving as the main activity between buyer and supplier, supplier relationship management strategies have to assure suppliers are able to deliver on quality of production without compromising the values of your business.

This means, a SRM strategy should contain a systematic method of determining which suppliers in a supplier-base are performing, while upholding their duty to the values of people, planet and profit.

Source: Alcoa

Whether this be streamlining of supplier assessment, rating of suppliers, auditing of supplier actions, required document management of standards and certifications, following up with compliance requests, or all of the above. Your SRM strategy should serve as a basis for building long-lasting relationships with sustainably performing suppliers.

Above all, SRM should serve as a means for a cross-organizational upholding of your company code of conduct within all collaborative supply chain activities.

3. Quality and Performance

Concerning quality and performance, a supplier relationship management strategy should enhance the quality and performance of both entities (buyer and supplier) and deliver on business-critical KPI’s.

This parameter of SRM must be monitored internally within category and sourcing managers, all the way down to the ground floor where materials and products are prepared for production or retail.

Upholding standards of supplier quality and performance, gauged by members of your internal procurement team, creates a basis for shared responsibility between both entities. Shared obligation aids the production of top-quality products, increasing brand value, and gives your customers the kind of quality they expect and deserve.

“Effective management of the supply chain has been identified as being of significant importance in achieving and sustaining a competitive advantage” (Soh 2016).

This is why leveraging supplier relationships to better competitive advantage is crucial for driving collaborative innovation, and transcending value for all parties involved.

An interesting element to gauge when monitoring quality and performance in a supplier relationship, over time, is to develop segmented KPI’s for methods of measurement. Interestingly enough, one that I would consider business-critical to top-line value and innovation is Strategic KPI’s.

CapGemini’s CPO survey polled to discover the relevance and implementation of 4 separate KPI’s for supplier performance and management of that performance. These were the found results for Strategic KPI’s and Operational Performance KPI’s.

Quick-comparison reveals that CPOs have a good understanding on the importance of gauging bottom-line operational-performance, but lack that same concern within strategic KPI’s.

Balance is a key element to driving supplier quality- parallel to your own organizations quality and performance.

4. Risk Management and Resilience

Developing long-lasting relationships is heavily dependent on the predisposition for a relationship to be sustainable, quality and trustworthy.

Knowing the risk resilience of the suppliers you choose to collaborate with is a business critical element of developing a proper SRM strategy.

Typically, this is a matter of measuring inevitable risks and acting accordingly. If supplier-related risks are indicated before collaboration commences, action plans for prevention and materialized risk can be developed prior to a risk-related event.

Resilience of supply chain risk is a rather tricky parameter to gauge, considering most of the criteria for a low-risk resilient supplier is dependent upon uncontrollable attributes such as geopolitical, locational, governmental stability, natural disasters, market stability and so on.

Example of a 2015 Resilience Index from fmglobal.com

Avoid the risks that already exist by finding out exactly what and where they are, first!

5. Financial Stability

If you’re not checking up on your supplier’s financial stability, you’re opening yourself up to collaborating with failures, frauds or both.

Identifying suppliers and measuring their financial DNA is critical to building successful-collaborative relationships. Most supplier risks can be dealt with after the fact, but financial instability is one that you’d typically want to address before it becomes an issue for your internal organization. Working with suppliers that arefinancially stable provides a platform of safety, trust and leverage.

Do you really want to be profiting in parallel with a supplier that dips below industry standards or plays fast with their taxes?

Assure you’re working with a SRM solution that offers a financial reporting on your supplier base, and that the data is generated from a trustworthy source of information.

So…

I guess the only thing left to ask is,

Are you checking off all the boxes?

Until next week.


This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.