Supplier Relationship Management - Check-up

In the digital transformation, an elementary source of supply for innovations and solutions is the supplier. Continuous and excellent Supplier Relationship Management (SRM) is an important factor to be first at the sources of innovation, to identify and realize them.

Before we examine the value drivers and business benefits of SRM, it is important to establish a clear definition of the concept. SRM is:

• Company-wide analysis of what activities should be undertaken with companies from which goods and services are purchased.
• Coordinated planning and execution of all interactions with suppliers to maximize overall financial and strategic value.
• Leverage supplier resources and capabilities for competitive advantage.
• Not the management of suppliers, but the joint management of interactions between customers and suppliers.

Implementing an effective SRM has elemental benefits for digital transformation:

• Close interaction with its supplier base enables it to innovate quickly and effectively.
• Changes to your own operating model can be implemented much more easily and promisingly through structured cooperation with suppliers.
• Risky activities with suppliers or the identification of risky companies is done much faster and prevents critical situations.
• Fast phasing out and phasing in of suppliers enables faster go-to-market processes or eliminates and wanted partnerships much more effectively
• Good partnerships with suppliers enable effective joint further development

To implement effective SRM, the following challenges and practices must be addressed:

• All interactions over the lifecycle of supplier relationships must be managed systematically and holistically. In particular, this means maintaining a close link between supplier performance measurement and future procurement decisions. Negotiations shall be conducted in a manner that creates a basis for cooperation based on trust.
• All interactions with suppliers across business units and functions must be managed in a systematic, integrated manner. Target,
  – increase efficiency, maximize leverage(both competitive and collaborative), – increase trust (by speaking with “one voice” to suppliers), – systemically identify and implement measures, – supplier risks are identified in the supply chain.
• Balance between competitive pressures and collaborativeengagement. Companies need to move away from threats (e.g., penalties, loss of business) as the primary means to motivate suppliers to deliver maximum value. Procurement and supply chain organizations must employ a broader range of strategies to leverage supplier influence to improve supplier performance.
• Systematic management of the interpersonal dimension of supplier relationships. There are natural personal and professional boundaries to be established when it comes to vendor relationships. Nevertheless, the human side of supplier relationships must be managed – and not ignored or suppressed.
• Leverage all supplier resources, expertise and capabilities to maximize competitive advantage.

In principle, this sounds like a reasonable goal. However, given the complexity of supplier structures, this involves considerable effort. At this point, seven principles should help to realize an effective SRM in a targeted manner:

1. focus SRM efforts on suppliers where the greatest potential for value creation and risk mitigation exists. Implementing SRM involves significant investment in change management. These investments should be carefully aligned with opportunities to create new value and/or better manage risk with suppliers. Avoid implementing SRM in an undifferentiated manner with too many suppliers, as it will result in wasted time and effort, as well as reduced benefits.

2. Treat all suppliers with a high level of professionalism and respect. The tendency to treat some suppliers in a high-handed way (after all, we pay them) is deeply ingrained in many companies. A company that tolerates disrespect from even a few suppliers will find that this behavior inevitably spills over into its dealings with strategic suppliers. Interactions with strategic suppliers transitions – where it has a corrosive effect on realized value.
3. Invest in a better understanding of suppliers. Be transparent about their strategies, business models, organizational structure, cultures and capabilities. This improves your ability to influence suppliers and identify opportunities to create more value with them.
4. Give your suppliers in a better understanding about your company. Suppliers also need to understand your strategy, priorities, organizational structure and culture, and policies and procedures. Increase the ability of key suppliers to develop their resources and solutions and provide services that are optimally aligned with your needs.
5. Actively build and maintain trust with suppliers. Trust may seem like a “soft” factor. Yet there is overwhelming evidence that a lack of trust between customers and suppliers acts like a huge tax on productivity and a barrier to value creation. Conversely, a high level of trust between business partners facilitates the transparent and efficient exchange of information and a greater willingness to invest time, effort and capital.
6. Ask suppliers for feedback on your own company’s performance and track the benefits to your supplier. Although supplier scorecards are becoming more common, their focus is still too often on measuring supplier performance and the associated value to you. However, the causes of many performance problems do not only lie with the suppliers.
7. Invite suppliers and be open to their ideas and suggestions. Sourcing and procurement organizations often work to develop tightly defined requirements and specifications that allow (or force) direct comparison between suppliers. These tactics result in part from a tendency to rely heavily on competitive pressures to get the best value from suppliers and motivate optimal performance. However, this also prevents us from identifying specific supplier strengths and thus achieving a better result for you.

Overall, the goals, practices and principles of an SRM are a linchpin of an externally-driven transformation. Therefore, a methodical approach to optimizing the supplier relationship is desirable and necessary.