We all know what SRM stands for: Supplier Relationship Management. But do Procurement practitioners know what it really means? Definition is where we run into our first issues, so let’s look at common meanings:
- Wikipedia: SRM is “the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions.”
- CIPS: SRM is “the process for managing […]the interaction between two entities -one entity is the supplier of goods or services and the other entity is the customer/end-user organization.”
- The ISM: SRM is “an organized approach to defining what they need and want The from a supplier and establishing and managing the company-to-company (or procurement-to-sales) link to obtain these needs.”
In these definitions, it is interesting to see the words “customer” and “value” appearing only once, and also that SRM sounds very administrative.
The overall impression you are left with, is that SRM is self-centered and not reciprocal — that suppliers are things you use without real business reasons other than convenience. To me, these definitions and the actual practice of SRM show the reality of how suppliers are managed. It also explains why Procurement is considered a cost center and not a pro t center. What’s more, it is seen as an administrative function — not a strategic one.
Now let’s compare the definitions of SRM and CRM (from Wikipedia):
“Customer relationship management (CRM) is an approach to managing a company’s interaction with current and potential future customers. The CRM approach tries to analyze data about customers’ history with a company, to improve business relationships with customers, specifically focusing on customer retention, and ultimately to drive sales growth.”
The Flaw at the Heart of SRM
The problem shows how SRM is practiced in real life. The way many procurement organizations work with suppliers could actually be called “supplier management” — not supplier relationship management. Supplier management is characterized by its focus on convenience — it is a zero-sum game.
But a buyer’s bargaining power may be weaker than they think. Buyers often have a sense of power and control over suppliers, and there are signs of a superiority complex that comes with the profession. This is, in part, because they are in the crucial position to select who can work with their company.
This glosses over another truth — that is, suppliers can also choose who they work with. I always remember something I heard from a procurement colleague once, “it is often the case that suppliers have more options in terms of customers than we have in terms of suppliers.” So, when Procurement is the “squeaky wheel”, this can lead to difficult situations. Volkswagen has learned this the hard way.
All Procurement organizations have an Achilles’ heel. The example of Volkswagen also illustrates how an issue with or at a supplier can bring production to a halt and cost millions. And, this can happen with what might seem like the most insignificant supplier. The unilateral cancellation of a contract, such as what happened at Volkswagen, unrealistic requirements, as in the case of Samsung, or mistreatment, as illustrated by Tesco, are just some examples of the serious consequences of pursuing a self-centered and unidirectional view in business relationships.
The New SRM Revolution: Supplier Experience
Customer Experience (CX) is an approach that Procurement must integrate and adopt. Procurement also has to look at what Sales is doing — it’s about considering business as a series of reciprocal relationships.
Successful relationships involve innovation, growth and risk-sharing. They can only exist when there is mutual interest built on respect and trust. So, Supplier Experience (SX) is essential in any emerging SRM practice.
Procurement has to be the impulse for a change in culture and behaviors to embed the Platinum rule of reciprocity in its DNA.
“The Golden Rule (treat others as you want to be treated) has a fatal flaw: it assumes that all people want to be treated the same way. It ignores the fact that people are motivated by vastly different things. One person loves public recognition, while another loathes being the center of attention. The Platinum Rule (treat others as they want to be treated) corrects that flaw.”
Every day we use the acronym SRM without realizing that it has a vital hidden meaning: SRM as Stakeholder Relationship Management. This symmetry of SRM illustrates the purpose of the Procurement function: connecting the inside and the outside, and answering needs and business challenges of both sides. Procurement is a facilitator, a moderator, and a connector.
Traditionally, Stakeholder Management is seen as a subcomponent of SRM. In reality, Stakeholder Relationship Management is just as important as Supplier Relationship Management. Delighting internal customers is vital for Procurement — it is one of the deciding factors that will enable Procurement to be recognized as an important and strategic function. Which, in turn, will allow Procurement to manage more spend as it gains authority and credibility.
Procurement = SRM²
Procurement is SRM x SRM = SRM². It is characterized by:
- A customer/supplier of choice experience
- A customer/supplier experience approach
The SRM2 model is centered on relationships and is a collaborative one.
For the model to work, a certain number of conditions exist. One is trust, particularly between:
- The supply-side and the buyer-side
- The Procurement organization and the other departments
- The Sales organization and the other departments
These three circles of trust are the building blocks of a genuine dialogue — instead of one-way communication. This dialog is inclusive, not exclusive; it creates intimacy, and it delivers sustainable value.
For a printable pdf of The Massive Problem at the Heart of SRM, click here.
Originally published at www.ibisworld.com on December 14, 2016.