How to Excel in Supplier Relationship Management blog article by Market Dojo

Secrets of Supply Chain Success: How to Excel in Supplier Relationship Management

Supplier Relationship, SUPPLIER RELATIONSHIP MANAGEMENT, SRM
Rules, Blogs, 3. Reshape Supplier Relationships

Overview

In the latest eBook: Reshape Supplier Relationships, we asked leading industry changemakers to share their insight on why the world of SRM is changing and how to move on from focusing just on costs and using basic tools like spreadsheets. Instead, a new approach of Supplier Relationship Performance Management (SRPM) is needed which is centred on working closely with suppliers to create partnerships that benefit everyone involved.

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Why SRM is Changing

Traditional approaches to supplier relationship management (SRM) are failing in today’s increasingly volatile business environment.

Relationships built solely on transactional values will not safeguard companies against supply chain fluctuations and risk.

“SRM, or supplier relationship management, has been overwhelmingly a traditional approach; very adversarial; very binary; a numbers-driven approach to supplier management. Largely because, for many years now, the supply chain itself has been seen as an overhead and, as is the case with any overhead, the emphasis is generally going to be on driving costs down.” Sheldon Mydat, Suppeco

In a world where companies must constantly seek alternate suppliers, logistics partners, and new markets, the traditional approach falls short.

“Traditional approaches tend to lack agility and fail to address complex challenges businesses face today. These approaches predominantly focus on transactional interactions rather than collaborative relationships and they tend to neglect the broadest strategic considerations that encourage long term partnership.” Temeena Hussain, Market Dojo

SRM should aim to foster a supply chain environment where everybody wins. When everyone wins, everyone is invested in continued success. 

“From a pure business standpoint, those relationships are often very one-sided, meaning that one party has more at stake than the other. If both parties aren’t aligned, it’s difficult to work towards a common objective, which strains the relationship.” Pierre Laprée, SpendHQ

SRM needs to evolve. As with any relationship, there are many layers and nuances that require consideration. And in a business context, relationships must be steered by performance. 

Taking inspiration from Maslow’s Hierarchy of Needs, here’s a visualisation of the intricate work of what’s needed to manage today’s supplier relationships, or Supplier Relationship Performance Management (SRPM).

A pyramid showing the hierarchy of needs of supplier relationships

The ‘Hierarchy of Needs’ for Supplier Relationship Performance Management

Foundational Needs

At the ground level there are the foundational needs of supplier relationships—open and transparent communication, clarity of objectives and a commitment to providing value to each other—this creates a mutually beneficial environment in which both you and your suppliers can develop a trusted working relationship.

True Market Value

Level two is understanding true market value which requires a balance between best price or market value on goods and services versus quality and supplier value. 

Additionally, benchmarking against impartial third-party sources helps validate what you understand to be the true market value and what your supplier deems it to be, avoiding the echo chamber effect.

Once the true market value has been understood, procurement must consider demand management, competition, price spikes and any localisation requirements, and how each potential supplier can deliver against these conditions.

Supply Chain Risk

Mitigating supply chain risk is the next level in the hierarchy and is concerned with overall supplier resilience, financial stability, logistics management, as well as decisions on offshoring versus on/nearshoring suppliers or those based in countries with existing trade agreements.

ESG Compliance

Environmental, social, and corporate governance (ESG) is now a board-level issue and procurement is increasingly seen as the torchbearer to drive forward initiatives. In terms of SRPM, procurement needs to ensure suppliers can demonstrate:

1. compliance on ESG legislation, which directly impacts shareholder value and investment attractiveness,

2. compliance from an ethical point of view, which feeds into the importance of brand reputation, customer loyalty and empowering workforces with purpose.

Performance

At the top of the value hierarchy is performance. At this level, procurement teams see relationships with suppliers as a collaborative exercise beyond the supply of goods and services. Teams foster value driven partnerships, supplier communities or entire crowd-sourced supply ecosystems leveraging expertise from both sides. 

To reach this level of maturity, both procurement and suppliers must embrace the right technology, processes and talent with the right skills and culture.  

As AI permeates every job function (whether welcomed or not) the importance of innovation is more critical than ever before. 

Companies that embrace AI will be able to level-up productivity much quicker, make faster, better decisions, and ultimately gain competitive advantage. 

So we’ve reached the top, or better said, the pinnacle of SRPM maturity and value. However, in the real world, it’s never this neat and tidy. 

There will be cross-over and repetition, additions and movement between levels. It’s a framework, and just a framework, to create a common understanding of the many facets required to build successful relationships fit for today’s complex, global supply chains.  

Next, the changemakers share their professional insights on the current situation affecting the supplier/procurement dynamic.

THE NEED FOR A NEW APPROACH TO SRM

Today’s business landscape is incredibly complex with many supply chains spanning multiple time zones, cultures, languages, regulations, policies, currencies and processes.

Couple this with numerous stakeholders involved on the supply side, as well as the buyers, and ultimately the end customers.

This complexity dictates the need for new approaches to managing business relationships. 

“With more and more relationships, it’s harder and harder to dedicate meaningful time and attention to ensuring your operations are both thoughtful and effective.” Pierre Laprée, SpendHQ

Traditional methods of managing suppliers using spreadsheets and emails will, at best, hinder collaboration and at worse, fail.

These predominantly manual methods will not provide the necessary access and insight to supplier data, at the speed needed to match today’s agile business environment.

“Buyers find themselves with too much to do and zero insight. Often, getting the basic data they need to guide supplier relationships is a struggle. How often have we as the buyer had to go back to the supplier and say, ‘Can you tell me how much I’m spending with you, because we have a meeting coming up?’ That’s a huge issue in today’s world. You cannot manage supplier relationships properly when you have such limited access to data.” Pierre Laprée, SpendHQ 

“When you operate this [supplier ecosystem] using traditional methods; in a performance managed way; you can’t manage this complex environment with spreadsheets.” Sheldon Mydat, Suppeco

“In many cases, 80% of a company’s revenue is generated outside its immediate borders by its supply chain; by its suppliers. So how could something of such size not be an intrinsic part of digital transformation, i.e. the supplier relationship?” Sheldon Mydat, Suppeco

THE NEED FOR A NEW ATTITUDE TO SRM

Procurement’s success and in some respects its relevance is dependent on its ability to evolve. The other New Rules eBooks discussed extensively the need for Procurement to evolve from a reactive, back-office function to a proactive, strategic resource.

This new attitude, or mindset, extends to how Procurement manages supplier relationships. And it starts with truly understanding how things are different, that the situation is ever-changing, and that the challenges are ever-present.

“A change in attitude is required to drive better relationships. Understanding that there are multiple customers in the ecosystem gives rise to many different challenges. Understanding that the landscape is changing. Understanding that you can’t meet the chaotic, ebb and flow of activity within today’s complex environment with static processes.” Sheldon Mydat, Suppeco

But, Procurement does not have to tackle this on its own. Collaboration is a two-way exercise. There is enormous value, experience and insight within your suppliers that can be unlocked by building good, value based relationships.

“We’re going to need to find different ways to meet value targets because the traditional category managed approach to driving performance is going to struggle. As recession hits, business shrinks, and as business shrinks those predefined, pre-negotiated margins shrink too. The only thing that doesn’t shrink is value targets. So with that, we need to find different ways to meet the value targets, and our suppliers will probably relish the opportunity.” Sheldon Mydat, Suppeco

Hopefully this article has given you an appetite for exploring how you can improve and maximise the value from existing partnerships, and shape relationships with new suppliers.

In the next blog in this series, we’ll look at The AI Fast Track—how AI can be used to rapidly transform traditional methods of managing supplier relationships.

Can’t wait…? Download your copy of the Reshape Supplier Relationships eBook now!

Download Reshape Supplier Relationships eBook by Market Dojo

MORE SRM RESOURCES:

What is Supplier Relationship Management (And Why It Matters)

How to Improve Supplier Relationships: What do Your Suppliers Want?

MORE FROM THE NEW RULES:

Rule 1: Reimagine Strategy

Rule 2: Reevaluate Sourcing

Join the movement at the New Rules Hub

 

May 2, 2024
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