Defining SRM
Clients often tell me they start out confused about what is meant by SRM – supplier relationship management. Is it about emotionally intelligent collaboration? Contract management? Performance management? Supplier development? Or something more aspirational, like ‘alliance-building’?
For another definition, how about ‘post-contract value management’? This is the task of ensuring that the buying organisation not only gets what it contracted for, but that additional value is secured through perpetual systematic supplier management practice.
Despite working in the SRM field intensively for more than 20 years, being able to identify those that have achieved the highest standard of SRM is a challenge, certainly beyond the usual suspects in automotive and aerospace. Yet everyone seems to be having a go.
Here are a few pointers for those that are aiming high:
- Sustainable SRM only really works when there is a high degree of independency between the ‘partners’. Choose wisely which suppliers you’ll include in your programme.
- The organisations that do it well are those that have to. For them, switching suppliers is either a prohibitively costly or time-consuming affair (for example aerospace, some pharma, automotive). Be realistic.
- SRM among the best organisations is a ‘whole enterprise’ competence. Enthusiastic cross-functional working is a given.
- Achieving and sustaining top management interest and support is a tough challenge, both at a programme level and in relation to specific suppliers. But these are essential if the SRM practices are not going to wither.
- IT solutions can help, but are categorically not the panacea. Consistency of application is rarely, if ever, achieved. You just have to look at the experience of firms using CRM systems. Many just end up being used as contact databases. Tread very carefully.
To make a success of SRM, you don’t need to be a ‘relationship junkie’. Many SRM-aspirants focus on collaborative behaviours, partnership-working and the like. What is needed is hard-headed facilitation skills, based on a comprehensive grasp of the theory, best practice, and demonstrable experience of implementing SRM for real. In my experience, that blend remains difficult to source.
If the organisation is focused on the few relationships that really matter, and is in it for the long haul, then SRM excellence can be achieved. Just don’t expect miracles.
![[Bloglines]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/bloglines.png)
![[del.icio.us]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/delicious.png)
![[Digg]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/digg.png)
![[Facebook]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/facebook.png)
![[Google]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/google.png)
![[LinkedIn]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/linkedin.png)
![[Twitter]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/twitter.png)
SRM has had such a broad definition that it has been difficult for many organisations to understand what best practice looks like.
One of the common features of aero, auto and pharma is that there are established models of supply behaviour and relatively clear positions of power.
Post-contract value management (how about PCVM as a new acronym?)better describes what many other sectors tend to seek from their longer term supplier relationships, yet the means to manage them have to be necessarily cost effective (and not resource intensive)and based around an interest to deliver more than simply the cheapest available price.
There are plentiful examples of long term supplier relationships, but too often these are a result of complacency and cosiness (or lack of alternatives) rather than genuine interdependency.
Maybe it is more appropriate to think in terms of adopting different levels of SRM to achieve realistic outcomes across a spectrum of supplier relationships.
I’m frustrated. Again. Not at the article as it is succinct and accurate, but at the fact that as a long established bunch of practitioners we still keep having to clarify and refine what it is we do. In keeping with the theme though, and as I’m here, I’d wholly agree on the ‘get what you pay for and more’ mantle but would add that it needs to be for mutual gain, otherwise it’s just a stick disguised as a carrot that any supplier worth their salt will spot a mile away.
I suspect that one of the reasons an accepted and recognised definition doesn’t exist is that as yet we have not wholly succeeded in delivering consistent mainstream SRM.
One of the problems here is the fact you can find SRM theory aplenty using a quick Google search but in my experience there is still a distinct immaturity in terms of how to turn these often regurgitated and re-hashed slabs of learning into a productive and resilient SRM programmes.
What often gets missed in these generic views of developing SRM is the immense effort it takes to get the basic foundations right in the first place (i.e. show me a successful SRM programme that doesn’t have an established Supplier Performance Management process) but we are told to dive straight into ‘segmentation’ and ‘stakeholder mapping’ and suchlike, things that individually add no value.
The truth is that due to the nuances of each and every relationship you bring into a Programme, with differences in product / people / process / appetite and the dreaded ‘politics’ all playing their part, even the most basic supply of good or service can get turned into an unique form that needs a mature SRM owner to analyse and get up and running. Without this you are more likely to fail and just ‘not get it’, compounding the lack of identity that SRM seems to have.
I suspect that until we can nail not only a definition but linear best practice we may find ourselves going over the same old ground trying to convert the masses. Maybe (shock horror!) It’s time we recognised that SRM isn’t Frankenstein’s monster made up of left over bits of Sourcing / Procurement / Buying techniques, it is a stand alone skill set requiring it’s own place and standing. After all most companies have more ‘spend under management’ each year than that ‘negotiated’, but the in house emphasis tends not to reflect this… just a thought.
Surely the key word here is ‘relationship’ ? How do you manage any relationship, look at our personal lives, it’s not difficult to find the key things which maintain a good relationship such as trust, teamwork, co-operation, adaptability, respect and knowing boundaries.
Business is still about human inter-relationship, so why not use the ‘human’ factors to define what we are trying to achieve, then add in business models afterwards, rather than the other way around ?
Having spent the last 25 years in various roles within financial services and IT sectors I have found myself being recruited and consulted on developing SRM frameworks within financial services businesses. Why the sudden increased interest? Well the FSA has clear guidelines and requirements on the management of outsourced and 3rd party supplier engagements from the persepctive of understanding and managing risk. These are not new guidelines but there is an increased awareness of the benefits that proper sturctured and effectively managed SRM processes can bring to a business and in no small part due to the banking crisis this is taking a much more upfront role and receiving greater focus from the soon to be disbanded/reorganised FSA.
However when I am asked to describe SRM and what is involved and what it requires I find I stuggle to describe in a few short sentences.
All of the above I fully agree with and perhaps take a degree of comfort in the knowledge that I am not the only person who understands all that is involved and required but meets varying degrees of resistance due to lack of a clear definition when asked for one. Here is my stab at a definition for what it is worth;
“SRM is the employment of a structured and proportionate framework that enables the management of suppliers in line with the contract requirements, the organisations strategic objectives and regulatory requirements. This requires engagement with the supplier at the earliest stage possible, ideally during selection, to enable expectations from the contractual, operational and strategic perspectives to be communicated and agreed with a structured, proportionate and consistent approach being used across all relationships throught out the term of the engagement to ensure these are all achieved………..”
I could go on and cover Jamie’s comments on segmentation and stakeholder mapping plus MI, Balanced Scorecards, benefits realisation, risk assessment and mitigation etc etc, but I won’t.
I don’t think we will ever get to simple succinct definition so perhaps the focus should be on selling the benefits and not the features of SRM…people like benefits.
In 1990, just as Japanese techniques were being treated as worth adopting, the DTI and CBI set up Partnership Sourcing Ltd (PSL) to develop the SRM concept (including definition), evangelise it and provide guidance. I had a spell there between 94 & 98 and started providing consultancy too (to replace government funding whilst maintaining the not-for-profit status). Wind forward into this decade and PSL have collaborated with BSI to develop BS11000, the relationship management standard, which also provides key methodology etc. Also CIPS has provided relevant guidance material and courses to help practitioners.
All relationships are unique, whether in our daily lives (eg me & my wife will be different to other similar relationships) or in business, therefore all the definitions and guidance in the world will not be a panacea. To be cliche, relationships need to continually be worked on if we want them to be successful as relationships.
SRM can be as simple as companies recognising that the really do need suppliers to be successful and that on 20 /80 pareto basis it stands to reason that you need some more than others. It is these key suppliers that you need to develop SRM with not the many nuts and bolts commodity supplierts you may use. SRM is also about looking for mutually agreed objectives and targets. I agree with Roy Ayliffe, in that SRM like any relationship only grows if nurtured and respected on both sides.
Completely agree that definitions of SRM vary widely and that you need to think in terms of post-contract value management. The way you segment your suppliers, within the context and requirements of your business, should determine whether the focus is on contract management, performance management, strategic collaboration – or all of the above.
In our 2011 global SRM survey (still live here: http://bit.ly/d6nYC0), we’ve asked people which of these levels they are operating at. Of the almost 200 respondents so far, 70% say they are doing contract management, with 60% each focusing on performance management and strategic collaboration.
In my experience of working with large blue-chip companies on their SRM programmes over the past 18 months, I would say most are still primarily focused on managing operational performance (and hence the benefits are mostly around reducing costs and risks and improving efficiency). But there are also some fantastic examples of competitive edge-enhancing innovation beginning to surface.
I heard one from a well known consumer goods company on Tuesday evening, where the packaging procurement team worked closely with a key supplier and their marketing colleagues to introduce a new product feature. Sales of this product have trebled during the past six months, and it is this contribution to the company’s top line that the procurement guys are being measured on.
This is certainly pretty rare at the moment, but is exactly how things should be at the strategic end of the SRM spectrum.
Having worked for 20+ years on the other side of the fence helping suppliers improve their Strategic Account Management (SAM) programmes perhaps I can offer a slightly different perspective. Those organisations that I’ve seen achieve very high levels of SAM performance are those that:-
a) See it as being about business relationships and about maximising the value of those relationships for all parties involved. It is now about post contract value or cost reductions or negotiations.
b) Understand how both SAM and SRM works
c) Don’t exclusively recruit their practitioners from Sales, in fact many of them dont have a sales background at all.
How does this compare to the best SRM practitioners? Do they really understand SAM and how their suppliers operate? Do they still slavishly focus on ‘whats in it for me?’ and how often do they recruit from outside of the procurement line?
Some thoughtful and insightful comments here. Thanks everyone. A few comments in response;
Whatever you do regarding SRM has to take account of inevitable limits on capacity. Selecting the relationships to focus on is a key decision; spreading effort too thinly and initiatives run out of steam. Better to focus on the few, and build slowly and steadily, a record of success. Segmentation, therefore, does matter. A lot.
Jamie is right about Supplier Performance Management (SPM) being a core element of SRM. I’d go as far to say that it’s unrealistic expectations of what SRM delivers beyond SPM that is the cause of much frustration about SRM’s efficacy. Failures are often a classic case of organisations attempting to run before they can walk. Focusing on the basics of SPM is a critical success factor, for ALL relationships.
I also detect here some confusion about means and ends; a suggestion perhaps that relationship development is more important that value management. Both are important, but I argue that developing the relationship is a (legitimate) focus on ‘means’, whereas post-contract value management (PCVM – thanks Tim) is the true measure of an SRM programme’s success. It is outcomes (financial ones, in private sector organisations) that determine whether core business interests have been achieved through SRM. High quality relationships remain a helpful enabler to get there, but are not the primary goal.
A culture of win/win helps ‘oil the wheels’ and I’ve never known a contract or relationship yet that hasn’t been based on at least some mutuality. There has to be benefits for both parties; why else would they still be engaged? Let’s just ensure we don’t kid ourselves that relationship gains are shared equally.
Finally, Robin’s question on how often do (SRM practitioners) recruit outside of the procurement line. By my reckoning Procurement is miles ahead of Sales in terms of its cross-functional engagement with third parties, its key suppliers. Mature SRM practitioners deal every day with relationships that are led from outside the procurement function, most typically in ICT, professional services, etc. With such a range of people involved in SRM it really is becoming a ‘whole-enterprise’ competence, and with an emerging distinctive skills set. In this environment, the role of procurement is that of (trusted) advisor/subject matter expert. I’m optimistic that whole careers will be built on successfully deploying these skills, way beyond the supplier development pioneers of yesterday and today.
SRM within many procurement organizations this means “what’s best for me and my business now”. How can I build a relationships that delivers to me and my business all the benefits at minimal risk with minimal commitments, minimal time?
Across the Buyers desk there is another player who thinks Customer Relationship Management CRM, applying the same criteria as the Buyer.
However there are common threads. What effort am I (note, not the business) prepared to put into making this relationship work ? How will I react when things get difficult, where does the buck stop? How do I maximize the benefits, how do I reduce risk, Where is my get out clause?
So we have a number of barriers to breakdown before we start. Like all relationships individual personalities are critical to successful SRM. The phrase “would you buy a used car from this person applies” to both parties.
Companies must activity and continually review and determine the state of the relationship be prepared to make changes to their business approach at both process and people levels, develop or reinvigorate the relationship, often it’s too easy to blame the other party and apply the, get out clause.
At the end of the day business requirements dictate the importance of the relationship and subsequently the time and effort companies are prepared to invest.
I will immediately take hold of your rss feed as I can not find your e-mail subscription link or newsletter service. Do you’ve any? Please permit me understand so that I may just subscribe. Thanks.