How encouraging it is to see SRM and risk management being recognised among the main levers of procurement’s business contribution according to the Supply Management 2011 Reader Research and this month’s news focus.
The responses of 3,000 professionals identified SRM as the second most important priority for 2012, after cost cutting. In the piece there were some interesting contributions from several experienced SRM advocates and I’d like to pick-up on the themes of a few of them.
To be clear; SRM focuses on post-contract performance and value creation; it’s not any more strategic than sourcing, only another important pillar of procurement-led practice. Furthermore, nothing should be off-limits; good old price reductions are part of the value spectrum and, whoever is leading the SRM effort with a particular supplier (procurement or otherwise), needs to pursue them accordingly. Solid relationship governance is a critical success factor but that certainly is a lot more than confidentiality agreements (mostly irrelevant if the supplier is a trusted partner in a genuinely interdependent relationship).
Internal costs should not be shared with suppliers? If this becomes policy, then how will your most strategic suppliers gain the understanding necessary to develop innovative value propositions that really work for your organisation? Leave them to guess and you simply risk them wasting effort producing something that misses your target. In some circumstances, sharing cost information is essential if you intend to capture the maximum value from a key relationship.
The vanilla approach to SRM doesn’t work. I always advocate ‘reality-based relationship management’ – as implied above, the approach used is always dependent on the specific circumstances of the relationship. Your approach to SRM needs to be modulated to accommodate supplier partners in the ‘strategic box’, as well as those in ‘leverage’ whom you choose to performance manage. A robust SRM process, with effective supply base segmentation, will make this distinction abundantly clear to practitioners.
SRM and risk management each speak to a broader definition of value, and will lead to lower total costs and sustainable improvement, if effectively implemented. Practitioners need to be equipped with tools, as well as the skills that help them develop insight into what and where their SRM effort should be. Unfortunately, neither SRM nor risk come with as much kudos or celebration as hitting savings targets do but are, nevertheless, business essentials that procurement professionals should encourage their organisation to continue to invest in.