Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management. The objective of SRM is 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. SRM is a critical discipline in procurement and supply chain management and is crucial for business success. SRM is analogous to customer relationship management (CRM). Just as companies have multiple interactions over time with their customers, so too do they interact with suppliers – negotiating contracts, purchasing, managing logistics and delivery, collaborating on product design, etc. The starting point for defining SRM is a recognition that these various interactions with suppliers are not discrete and independent – instead they are accurately and usefully thought of as comprising a relationship, one which can and should be managed in a coordinated fashion across functional and business unit touch-points, and throughout the relationship life-cycle.
Components of SRM SRM necessitates a consistency of approach and a defined set of behaviors that foster trust over time. Effective SRM requires not only institutionalizing new ways of collaborating with key suppliers, but also actively dismantling existing policies and practices that can impede collaboration and limit the potential value that can be derived from key supplier relationships. At the same time, SRM should entail reciprocal changes in processes and policies at suppliers.
Organizational structure While there is no one correct model for deploying SRM at an organizational level, there are sets of structural elements that are relevant in most contexts:
A formal SRM team or office at the corporate level. The purpose of such a group is to facilitate and coordinate SRM activities across functions and business units. SRM is inherently cross-functional, and requires a good combination of commercial, technical and interpersonal skills. These “softer” skills around communication, listening, influencing and managing change are critical to developing strong and trusting working relations. A formal relationship manager or supplier account manager role. Such individuals often sit within the business unit that interacts most frequently with that supplier, or may be filled by a category manager in the procurement function. This role can be a full-time, dedicated positions, although relationship management responsibilities may be part of broader roles depending on the complexity and importance of the supplier relationship (see Supplier segmentation). Effective SRM managers understand their suppliers' business and strategic goals, and are able to see issues from the supplier's point of view while balancing their own organization's requirements and priorities. An executive sponsor and, for complex, strategic supplier relationships, a cross-functional steering committee. These individuals form a clear link between SRM strategies and overall business strategies, serve to determine the relative prioritization among a company's varying goals as they impact suppliers, and act as a dispute resolution body.
Governance The SRM office and supply chain function are typically responsible for defining the SRM governance model, which includes a clear and jointly agreed governance framework in place for some top-tier strategic suppliers. The ownership can as well be set in departments concerned with operational or strategic procurement or category management. Effective governance should comprise not only designation of senior executive sponsors at both customer and supplier and dedicated relationship managers, but also a face-off model connecting personnel in engineering, procurement, operations, quality and logistics with their supplier counterparts; a regular cadence of operational and strategic planning and review meetings; and well-defined escalation procedures to ensure speedy resolution of problems or conflicts at the appropriate organizational level. Effective supplier relationship management requires an enterprise-wide analysis of what activities to engage in with each supplier. The common practice of implementing a “one size fits all” approach to managing suppliers can stretch resources and limit the potential value that can be derived from strategic supplier relationships. Supplier segmentation, in contrast, is about determining what kind of interactions to have with various suppliers, and how best to manage those interactions, not merely as a disconnected set of siloized transactions, but in a coordinated manner across the enterprise. Suppliers can be segmented, not just by spend, but by the total potential value (measured across multiple dimensions) that can be realized through interactions with them. Further, suppliers can be segmented by the degree of risk to which the realization of that value is subject.
Joint activities Joint activities with suppliers might include:
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