One of my former employer was acquiring companies several times per month. I have been integrating the procurement department of so many companies after acquisition, that I can’t remember them all. I could write a book on the Do & Don’t on how to implement a SRM-system in an entity that never was confronted with it.
But you are not here to read a book, but to get the best out of it. Here it is.
If you do not know what a SRM system is, have a look here before what is SRM?
1. What do you want to achieve with a SRM system?
Setting OKR (Objective and Key Results) is the very 1st step. Otherwise, your project will fail. Your management will ask you in a couple of month: “why are we investing so much resources? Can’t really recall. Please stop this.”
If you do not know how to build OKR, there are many resources on the web. Importance is, they do not become tiger of paper, but real business objectives.
Those OKR may vary. First depending on your career level. When being at the beginning, they will more project related and probably more operational. As an example, “Saving 2% of spend by reducing the number of supplier by at least 2% by the end of the next 6 months”
Refining your OKRs
When you will have reached a certain experience and complexity in your daily work, those OKR are going to be more transverse. The metrics part of it will be more tricky. Such as “Set-up a SRM system this year to manage at least 80% of my direct spend”. Sounds OK, but probably does not depend only on you… And what is 80% of your direct spend? Needs fine tuning.
If you are a trading company, managing a huge amount of vendors of hardware, you will have other targets than a niche software company. The latter will focus more on innovation than the former. So get a look at your company vision & mission, and see how your brick will add value to the overall strategy.
This will not influence the structure of the Supplier Relationship Management System, but surely will lead to different choices when choosing parameters such as segmentation, and Key Performance Indicators.
You can find here some SRM Excel Template
2. Segment your vendor base
What is a supplier segmentation?
A segmentation is classification that will be used for data consolidation. It helps to group your supplier depending on how you approach them. You do not talk the same way to your main core supplier as you would do to your pencil vendor.
How to implement a suppler segmentation?
The most usual segmentation for suppliers are among those, but there is no limitation. We recommend 3 to 5 maximum:
Strategic (usually size and/or innovation)
- Long tail
- Direct materials
- Indirect Materials
You shall not decide this by yourself, but really align with your organization about what makes sense.
The idea is to set the correct pareto to focus on what impacts your supplier base.
If you supplier database is not clean yet, this is too early to think about starting a SRM. Have a look here on the 5 steps to clean your supplier database
3. Measure supplier performance and set targets
Like my German colleagues always said: trust is good but control is better.
KPI for supplier performance:
KPI (Key Performance Indicators) and metrics are the flesh of your vendor management system:
- Definitions (invoiced spend? received goods spend?…)
- Spend Categories (commodities, raw material,…)
- KPI (OTIF – On Time In Full, warranties rate, service performance…)
But do not forget the less obvious ones, such as:
- Innovation capabilities
- Environment and CSR (Corporate Social Responsibility)
- Financial risk
An early listing of your needs will lead to a robust and comprehensive SRM system.
I suggest you have a look at this article on scorecard for suppliers if you want to deepen this specific aspect.
4. Engage suppliers: get commitment while being transparent
There are 2 ways of seeing a supplier
- Power only: I WANT YOU GIVE
- Collaborative: a strong hand in a velvet glove
The second one has much more potential: you pull ALL levers available to get the best out our supplier base. For this, you need to focus on the most important ones: hence the segmentation in step2. Weighted with spend size, the segmentation will give indication on where your time should be invested.
Working in a collaborative way with a supplier does not mean being naive. You are still looking for a competitive advantage for your company, not the suppliers’… But in sharing dedicated insights on his performance, you will generate a virtuous cycle of continuous improvement.
You might be surprised on how much you reach by just being transparent and sharing 360° view on supplier performance.
5. Continuous improvement is the biggest lever
This is not about a one-time supplier scorecard. No, this is a process. Start it now, this is never finished anyway 🙂
Long term approach
You engage in a long term improvement, leaving step by step your competitors on the side of the road, while they are focusing on pricing only. Yearly, or every 6 months, you shall conduct sanity check about your suppliers. Become pro-active thanks to Supplier Relationship Management.
Well in a nutshell this it. The best way to start is in Excel, before investing too much energy in complex systems, or uploading loads of data in a SaaS you are not sure you will ever use. You are yourself part of the continuous improvement.
Key in this process of improving performance of supplier is to manage each of those as single projects:
- Project Meetings
You may delegate some of those project, but should always keep in mind that they all pay into your results. Furthermore, you can only manage as many projects as your workload allows, so points 2-4 were key to prioritize.
Change management in you supplier base
Imagine your biggest supplier has just change management and is not likely to take any decision the next 6-8 months. Even if this is your biggest lever, you’d better prioritize this supplier N°7, willing to invest time and money on you. He will be able to allocate as much resources as necessary to answer your requests in a fair way, and participate to Workshops, training or whatever is needed. Let’s say you have to solve a logistic issue. You need to put at least 5 persons around the table:
- vendor representative
- vendor logistics representative
- your logistics representative
- And probably the third-party making transportation
- (Quality Management)
- (Accounts payable)
This goes only with Commitment.
6. Start again from step 1 🙂 and improve your SRM
This is not a joke, this is a sanity check every 2 or 3 years.
As a summary:
SRM is nothing without a SRM strategy, and a clear view on why you are starting this journey
SRM is an empty shell without commitment. Commitment of your management, as this is a transverse project but as well commitment of your colleagues: without buy-in you will fight a lot.
SRM is a continuous performance process, a long journey towards ambitious targets