Avoiding outsourcing failure part 2 - Supplier Relationship Management (SRM)

So you ran a great tender process, signed the deal and are good to go. In many ways the work starts now yet so very often businesses do not have a consistent supplier relationship management (SRM) framework for managing their various deals and relationships.

Procurement will often complete the contract and hand it over to the business (some would say throw over the fence) not getting involved again for 3 - 10 years or when there is a problem with the contract.

Most board members will be fully behind anything that ultimately gives them a competitive edge, drives innovation and increases revenue. SRM is a great opportunity to do this and move beyond the sourcing focus of some procurement teams.

In this article I cover the basics of SRM. I will provide you with a simple framework I have used several times that you could implement at your own organisation. The framework has a lot more detail so happy to discuss separately if anyone is interested.

Benefits

I could write a whole article articulating the benefits of investing in managing your supplier relationships and for the purposes of this article have picked out just a few :

• Drive innovation - through regular engagement with key suppliers you will get to hear about innovations and ideas for improvement potentially faster than your competitors.
• Aligned messaging - suppliers will often get mixed messages from your side which will leave them confused about where to focus. A proper programme ensures there is clarity on the initiatives you will work on together.
• Reward positive relationships - you should reward those suppliers who are performing well, helping you implement initiatives to bring more revenue and lower your costs.
• Address issues quickly - have clarity on peer to peer relationships in both of your organisations to ensure the right discussions happen quickly in the event of an issue

Getting started

For the purposes of this article I have simplified a framework I have used several times over the years into a three stage process : 

• Who is important?
• What roles are there?
• Making it all happen

Who is important?

A four box model is very useful in segmenting your suppliers broadly into 4 boxes. This allows you to prioritise your strategic relationships and put your energies where there is maximum impact. Suppliers in each segment should have a different management framework ensuring most investment in the top right relationships.

Getting into a room with stakeholders (virtually for now) with a matrix like this one and a post it note for each supplier is a great way to debate the relative importance of suppliers by sticking them on the matrix.  

You will relatively quickly identify suppliers in the top right quadrant which are the ones to focus and pilot an SRM programme initially. There is sometimes a temptation to implement SRM with too many suppliers rather than focussing on where you will get the maximum return.

You can also agree an approach to how you will manage suppliers in each box which I will cover later in this article.  

What roles are there?

In addition to identifying the most important suppliers to your organisation I would also recommend that you define and agree the key roles involved in your supplier relationships and broadly the expectations each role in managing the relationship.

• Exec sponsor - for suppliers in your top right quadrant I definitely recommend having a single board member responsible for owning the relationship. This might cause an interesting debate about which board member owns the relationship but one worth having. The exec sponsor is there to foster a peer to peer relationship with the supplier, to influence strategies and ensure positive escalation of future issues.
• Relationship manager - owns the relationship on a day to day basis.  Their role is to explore opportunities of mutual benefit, drive improvement initiatives and generally have their finger on the pulse of what is happening with the supplier
• Performance lead - managing the day to day operational performance of the supplier within the organisation. Service levels, improvement initiatives and other key information
• Contract manager - commercially and legally manages the contract
• Other roles - depending on the supplier you might have a commercial lead, technical architect lead etc.

So why formalise the roles? It is so important that people understand their roles in a supplier relationship. Suppliers will know who to speak to about particular issues and importantly get aligned messages from your business. 

Bringing it all together

Once you have decided how to segment your suppliers and the roles involved in the relationship it is time to bring everything together. Deciding on a standard way of working for each segment for example is a good idea for example : how often meetings should happen and whether an exec sponsor is needed. It is also worth building standard templates and eventually possibly a system if you prove the business case in your pilot.

Thanks for reading. I hope this is a useful basic summary of SRM. I have several examples of implementing SRM along with a more detailed framework. I would be happy to discuss this further with anyone.

Here is a link to part 1 of my article which covered the phase pre-contract

https://www.dhirubhai.net/pulse/6-outsourcing-mistakes-how-avoid-them-dave-jones/