What is the purpose of Supplier Relationship Management?
The purpose of SRM is to organize, track, plan, analyze and support the processes between an enterprise and its suppliers on all levels (strategy and operations). Let’s analyze together the strategic supplier relationship management definition.
SRM – Supplier Relationship Management is a systematic assessment of suppliers:
Supplier relationship management (SRM) is the systematic method to evaluating suppliers that supply goods or services, defining each supplier’s contribution to company’s strategy and implementing actions plan to improve vendors’ performance.
- Systematic: this is a process and a system
- Comprehensive: all suppliers, all categories, all segmentations in all company
- Engaging: determining, planning and executing of all interactions with suppliers
- Coordinated: involving all departments and external partners
While having its origins within Supply Chain Department, it is largely used by procurement, strategic purchasing and project management. Although suppliers segmentation and supplier mix may vary from industries to industries, the goal of SRM remains the same: to streamline the procurement processes as a whole: anything between the organization as buyer and the organization that supply them. We are going to details what is a SRM.
Targeting to maximize the value of your spend:
- Soft facts
- basically 360 degree usage of your supplier
The principles are:
- Reflectiveness: this is a 2 ways & interactive process
- Focusing on Win-Win approach whenever possible
- Reaching towards innovation and business intelligence
What are the benefits of SRM – Supplier Relationship Management ?
Internal benefits of SRM – Supplier Relationship Management
With in internal benefits is meant you career, your interaction with colleagues and management. This is a paradigm change: from reactive to proactive vendor management. You steer, monitor and give impulse. You have heads-up from your supplier, you have immediate, accurate and up-to-date reporting at hand: all strong asset to support your management and get colleague commitment and trust.
External benefits of SRM – Supplier Relationship Management
With external benefits is meant anything in your relationship with vendor, or for any third party (transport company, service associated,…). In short, you get the utmost out of your supplier on any aspects possible. Consequently, you overperform compared to competitors and you remain lean with third party services which usually compensate deficient aspects of a vendor (e.g. re-packaging).
A short overview of – some – benefits of SRM
|Take advantage of supplier full capabilities||Mitigate supply chain risks|
|Secure innovations early on||Reduce supplier base|
|Reduce costs and generate savings||Increase responsiveness and service level of suppliers|
|Ensure supply chain continuity and establish alternative plans||Hedge price volatility.|
Supplier relationship management process implementation
Strategic procurement is usually the motor of implementation of SRM within an organization. This implementation is widely dependant on what kind business is targeted: large structure with worldwide sourcing, commodities or innovative products, growing structure or established business… All those factors influence the overall approach. IT will probably be strongly dependant on your (existing?) ERP.
When I was in charge of Own Brands, growth was the key metrics that i want to achieve, and I had some strategic supplier which could fulfill my growing demand. There were not the best in class, but were key to satisfy my customers. A few years later, I was partially switching those suppliers, when being more mature, whenever they were not adapting themselves to my new needs: innovation, business intelligence.
Whatever your situation, SRM implementation generally involves four universal steps:
- Create a supplier base. In this foundation step, you first consolidate spend across your organization, harmonize the definitions and secondly introduce safe-guards to keep your data lean and clean on the long term. This means introducing data ownership and supplier creation processes.
- Segment suppliers. Once you have a supplier base, you define all categories that i relevant for you and your business. With categories is meant criticality, size and profitability. this directly impact the amount of attention you are going to allocate to them. The rule of thumb is 80% of your attention on 20% of your suppliers.
- Define a supplier strategy. Before talking tactical plan, you need to define the big scheme. Based on metrics such as performance management and supplier scorecard on the one hand and on your overall internal product and customer strategy, you ensure to draw the ideal three years plan with your supplier as a whole. Always consider the relationships should be successful and mutually beneficial, else you are building on sand. In a transparent way, you can start to align business processes and assign business goals to stakeholders, both internally and at suppliers.
- Implement the supplier strategy. Now we are talking tactics. You and/or your team will implement all necessary actions plan inside and outside the organization to ensure that the strategy is put into action: you operationalize the SRM plans. Implementing always goes with monitoring and reacting: define OKRs, dashboard and any means necessary to reach your targets.
What is included in a Supplier Relationship Management Tool?
SRM is a system. A System made of tools, classifications, KPIS and activties. Next, let’s details the SRM tools and SRM segmentation criteria.
Part 1: Supplier Relationship Management Scorecard criteria and supplier segmentation
- Strategic suppliers. Usually brand sensitive.
- Specialists suppliers and niche suppliers. Usually brand sensitive.
- Commodity suppliers, based on pricing, availability and data quality
- Integrated suppliers and importers that manages products they don’t directly supply
|Delivery lead time and date||Expertise||Certification, tests reports, norms||Payment terms||eProcurement|
|Shipping document accuracy||Price accuracy and validity||Product/service quality issues||Savings||PDM (Product Data Management)|
|Claim management (for supply chain issue)||Communication and reactivity||Claims management (for quality issues)||Currency||Service level (Software)|
|Import/export competences||Profitability / competitivness||Environment & regulations||Lead time impact on cash||Product features (Software)|
|Logistics data (size, weight,…) available||Accuracy and quality of information provided||Recalls||Credit Rating||Digital surveys|
|Quantity delivered / completion||Credibility and legal commitment||Audit results|
|Incoterms||Market Intelligence, Technology|
Part 2: Supplier Database including spend and communication management
I have been wondering what to write here, as if you are still reading me, you probably already know what is supplier database. But in short, this is a list of suppliers, with all there core data (Name, Number, Address,…) AND their Spend (LY, YTD, etc…) AND any other field relevant to you, such as contracts, rebates, currencies,…
What is strongly recommend is to split the core data from the variable data (Spend,…) and to pivot on Supplier unique Number. This way you keep two separate files, one for reporting, one for general usage. I myself implemented in my past:
- you minimize sharing sensitive data (Spend,…)
- you reduce the file sizes
- if some countries, you are not supposed to share personal information such a email etc… Which may be in this database (supplier main contact)
And save you thousand click of hiding /unhiding rows.
Part 3: Spends reports and Supplier Metrics
There is not limit to your needs and imagination. I know. Here, build what you want. From my experience of spending hours in powerpoints, Excel and PowerBI to find the right chart, I am convinced that 2 kind of charts are enough for supplier metrics:
- Row charts for spend (YoY,…)
- Spiderweb for score cards
In some specific situation, matrix are as well good, but you will survive without them.
Part 4: (optional) Contract Management
If you are looking for a supplier scorecard template in Excel, look here:
Beyond the tools, an efficient SRM strategy also requires cultivating trust and personal relationships with suppliers. For the most strategic suppliers, that may mean involving them in jointly developing innovations.
If you want to learn more about contract management.
Part 5: (super optional) Invoice Management
This can be either in your SRM or within your bookkeeping application. I tend to prefer leaving invoice in the bookkeeping application and just to refer to some data exports monthly, but this is a matter of point of view. This become too operative.
Part 6: (super optional) Procurement histories and Order scheduling
I do believe we shall split operative procurement from strategic procurement. And SRM definitely belong to the latter. Nonetheless, you may want to have control on this feature directly in your SRM, as big integrated providers do.
Part 7: (super optional) PDM (Product Data Management) and Catalog Management
As the name let it suppose, these are topics as a whole. Some comprehensive software include it in SRM. This is nonsense to me, as those aspects are usually done by Marketing or whoever in your company, which requirements (interface to web etc…) are fully different.
What tools are the most popular to implement SRM?
There are countless supplier relationship management tools. It would be really unfair to list some and forget others. Basically, you have different approaches:
- Consolidating: you have several tools, such as Procurement Dashboards, Spend reports, Claims Management,… and you consolidate your self in Excel or PowerBI for example (no, I have no Microsoft support, they just happen to be great tools…). Difficult to maintain, but adapted to decentralized organizations. Mostly quite manual. Not a winning strategy. Merely a step zero.
- SRM in Excel (with or without PowerBI extension): a central monitoring of information, while getting inputs in various sources you gather in the format you want. My preferred approach for small bis mid organizations or for professional change management. You keep flexible but implement a system. Extremely resistant to poor data quality. Adapted to any branch.
- SRM as SaaS: as I have only tested 2 myself, my benchmark is not enough to make ranking. Those are adapted to mid-big organizations, either as stand alone or as overlay to existing softwares. Pre-requisite is clean data. Do not think this is self-cleaning 🙂
- ERP system having SRM modules, such as SAP etc… (https://www.ariba.com/programs/transform-srm)
- Niche products such as SRM invoice management system or similar digital approaches.
The funniest is, even when you are under SAP + whatever module or SaaS, you always end-up making your own reports, adapted to your situation, in Excel. There is nothing better.