Supplier relationship management

SRM is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. In practice, SRM entails creating closer, more collaborative relationships with key suppliers in order to uncover and realize new value and reduce risk of failure. Supplier Relationship Management (SRM) is first and foremost an approach used for engaging with suppliers on a level that reflects the priorities of the customer organisation and how best these needs can be achieved. It is a differentiation process that recognises that not all suppliers are the same and therefore not all customer-supplier relationships should be dealt with through a single strategy.

Whilst much of the emphasis is placed on the role and situation of the customer and supplier, the products and services being procured are extremely influential in how the organisations view and interact with each other. By understanding and responding appropriately to this triangulation it is possible to yield the greatest value from both the products/services and the enterprises involved.

The holistic nature of this approach requires the consent and engagement of the whole organisation. True SRM cannot be achieved through the Procurement Function acting alone. At the partnership level this means the involvement of the executive team; at the very minimum it means functions acting in a coordinated way so that the organisation does not appear disorganised or schizophrenic to the outside world.

Given the complexities described above, SRM needs to be considered as part of a much wider portfolio of procurement resources that collectively deliver the value and contribution that more and more organisations are demanding of the function. It therefore requires careful development at speeds often dictated by the activities of the organisations involved.

 There are several management implications that should be drawn from this discussion so far:

• The management of inter-firm relationships is complex; it is not sufficient simply to set up an agreement: action plans need to be followed to instigate change. The supply wheel demonstrates the complexity of areas that need to be considered simultaneously.
• It is important to consider what a ‘relationship’ is, i.e. defining the term; in this chapter, relationships are referred to as a process that drive or facilitate changes in behaviour. Naturally these can be positive or negative depending on how they are used.
• It is important to consider relationships at the level of the product or service and not at the level of the firm, e.g. it is impossible to say that the relationships is with firm X is good bad or indifferent, as there will be as many views on this as there are people involved. The point is that firms need to consider strategically what they buy and then apply the appropriate relationship which will deliver the maximum value for their business. Milton Friedman’s famous quote, ‘the business of business is business,’ applies here.
• Inter – and intra-firm relations. Relationship management should not begin with changing the way a firm manages its suppliers. It should start with how the buyer firm interacts with itself (intra-firm relationships). It is vitally important that relationships are aligned internally first, before any attempts are made at changing enhancing or refocusing existing inter-firm relationships. Building a business case. There must be business benefit from refocusing relationship approaches.
• Firms (both buyers and suppliers) need to think through clearly what these benefits are, and also if the cost of getting them outweigh the actual benefits. Whilst this may sound obvious, it has certainly become apparent during this research with major firms how few consider these important decision drivers. Firms tend to reduce supply bases with little cost knowledge, move towards higher dependency relationships without performance measurement or skill changes and so on. The point here is that if a firm is going to adopt a different way of working then it must consider all these aspects and build a business case for doing so.
• Relationship strategies are dynamic, they need to be thought through and managed over time. At different stages they may require different people/skills to manage them.