In a three part series, Trevor B Cameron, Mgmt., MBA(Distinction) explores a 21st century approach for strategic supplier relationship management (SRM). In part one he examines the archaic definition of SRM and the strategic view of SRM.
Archaic Definition of Supplier Relationship Management (‘SRM’)
The traditional view of SRM promoted by practitioners and consultants with self-interest (I want to sell you an assignment) involves a deep analysis of the supplier base and segmentation of those suppliers, typically into three to four groups – and to identify a different relationship management approach for each group. Going one step further and segmenting by type or class of course creates a key step in the Category Management process. Inevitably what follows is a series of contacts with selected suppliers – sound familiar?
Having decided on which suppliers to contract with, traditional procurement practitioners will insist that SRM is the on-going management of those contracts to deliver the value that is contained within the obigations of the Contract whether quality, price, performance – or any combination of these deliverables. Simply put, my view is that this approach is nothing more than Contract Life Cycle Management (‘CLM’).
Wake-up! We need to go beyond this traditional approach to try and see where Supplier value and benefits are possible.
The Procurement Leaders approach is articulated in its ‘Strategy Guide: Supplier Relationship Management’. In the guide, which by the way provides an excellent overview of the traditional segmentation and supplier analysis approach, there is also an important acknowledgement that SRM is a ‘Long Game Strategy which can deliver benefits as it is implemented’.
The Strategic View of Supplier Relationship Management (‘SRM’)
In direct contrast to the archaic approach, Due North in its White Paper ‘Supplier Relationship Management – Are your post contract value aspiration high enough?’ eloquently explains the traditional approach but follows through with commentary that organisations can get additional value from SRM and it notes that between 23% – 46% of additional value is being left on the table with suppliers.
This view is shared by Vantage Partners in its paper ‘Value delivered by Strategic Supplier Relationship Management in major Organisations’. Vantage Partners note that the same release of value of between 23% to 46% over and above contracted value. Other major consulting groups acknowledge the additional value – but tend to return to the traditional model of segmentation and analysis to define SRM, mis-define CLM as SRM, and of course sell you some time and materials work!
My approach is more pragmatic – why would a Company invest heavily time, resources and commitment over and above what has been contracted to be delivered, when the contract itself adequately defines the obligations and the deliverables that both customer and supplier are to achieve from the relationship?
This value approach is strongly argued by AT Kearney (‘ATK’) in its White Paper ‘Harnessing Supplier Energy: The Next Frontier in procurement’. ATK notes the difference between ‘Foundational’ SRM and Strategic SRM. This means managing supplier performance under a contract, and the ‘Strategic’ approach which involves working with selected suppliers, changing behaviours to seek competitive advantage as shown below in the ATK model below:
Table One: The Additional benefits of Strategic SRM
I would also argue that the strategic view of SRM is likely that, in working more closely with a supplier that is selected from the previously mentioned segmentation process, both the customer and supplier can achieve real and measurable value over and above what has been contracted. If value over and above contracted value is possible, then an organisation can use the return on procurement investment approach (‘ROPI’) and a procurement business case, to allocate time, money and resources to deliver that additional value.