Ever since I moved into the supply chain and procurement world, people have talked about Supplier Relationship Management (SRM). SRM has been a buzzword for as long as I can remember.
Despite all the talk, recently I’ve been wondering how many organisations run successful SRM programmes.
With budget cuts, quarterly fiscal reporting, and other financial pressures, it seems that cost reduction remains the key motivation driving the procurement function. Rather than digging in and creating valuable supplier relationships, procurement professionals more often than not turn into corporate firefighters.
I believe most practitioners truly believe in supplier collaboration and relationship building. But sadly, when it comes to turning it into action, delivering on short-term benefits always seems to take priority.
How to build for the long term.
Effective negotiations start with good relationships and understanding the business imperatives of both buyers and sellers is the key to success here.
Traditionally, performance management has been completed at the contract level and focuses largely on cost reduction commitments and meeting delivery times. Today we are seeing that these traditional buyer/seller relationships starting to blur. This is a good thing. Businesses are realising that there is more to be gained through collaboration with suppliers than arguing with them.
With organisations beginning to see suppliers as a source of competitive advantage, traditional performance management practices are starting to shift. Most large businesses now understand that investing in the right relationships with suppliers can deliver benefits for all players involved. Small, agile suppliers are challenging incumbents, and existing commercial models and large businesses are eager to tap into these new approaches.
Ask your CEO.
Most businesses focus on long-term, sustainable cash and profit generation. So, it stands to reason that procurement teams should focus on delivering long-term benefit as well. The function’s previous focus on delivering incremental year-on-year cost savings flies in the face of this logic.
To transition successfully to a long-term focus, I feel our profession needs to move away from a focus on year-on-year savings and turn its attention to value creation beyond savings. Concepts like the circular economy, cradle-to-cradle, and shared value are catalysts to re-think procurement’s proposition. Collaboration, sharing information and stimulating the dialogue with all players involved will drive SRM.
A good supplier relationship is like a marriage, a marathon rather than a sprint. Through focusing on long-term objectives and goals with suppliers, organisations can achieve true cost reduction and bring new products and services to fruition.
Let’s work collaboratively with all players in our ecosystem to deliver value beyond savings. If you’d like to learn more about supplier collaboration and value beyond savings, download our free white paper on the topic here.