An opportunity to grow the procurement function is upon us. The key to future success is to focus on value creation and move away from cost cutting. The creation of this value comes from the supply chain where there are many solutions to the endless challenges and unmet needs that sit within big corporates. Using SRM (Supplier Relationship Management) for value creation is an answer, but is it the right one?
MAXIMIZING THE SUPPLY CHAIN FOR VALUE CREATION
We had a plan at one point to get to a position where 50% of our total corporate innovation was coming from outside of P&G…That was a three year plan and we got there a year ahead of time – Rick Hughes, Former Chief Procurement Officer at P&G
48% of the company’s product pipeline now relies on third party innovation – Mr Berger, Chief of R&D at Unilever
These are two of the world’s leading companies highlighting how they are maximizing their supply chain to drive innovation, which in turn will lead to growth. Other businesses such as Apple seem to be ahead of the curve. The head of European corporate procurement at Apple, Adrian Turner, sees it as the norm to work with his supply base.
Therefore, it is not a question of if, but when and how your company will start to access third parties for their capabilities, in order to drive value creation. SRM tools seem to be the weapon of choice at the moment, with businesses using them with their strategic suppliers. For example, Premier Foods has adapted its SRM tool to manage a selection of its suppliers.
But what exactly is SRM?
We have seen a recent change in the way business leaders define SRM. Julie Digby, regional commercial head and global category lead at Mars, has said that her definition of SRM differs from what she reads in the procurement press. Instead of focusing on a group of key suppliers, she believes that SRM is about Mars being the best it can be for every supplier it does business with. In fact, she wants Mars to be the customer of choice for every single one of their suppliers.
While I agree with Julie and believe that to get the most from your supply base it is critical to be a customer of choice, putting yourself in a position to receive preferential treatment, I do not agree that this is or should be associated with SRM.
SRM is a buzzword that leaders use to talk about their general approach to working with suppliers, but it does not depict the change of focus from procurement to look at the value of the relationship. SRM has a management focus rather than a relationship focus.
David Rae, editorial director of Procurement Leaders, said the following:
One of the main benefits of SRM and SLM – it fosters greater communication and trust between buyers and suppliers. And from this type of relationship, true value can be achieved.
I do not mean to start a confrontation, but David is wrong. While SRM does promote communication, it tends to be one way from the buyer to the supplier with a core objective of reducing cost and with no focus on value. Many suppliers are weary of SRM for exactly this reason, seeing it as another approach from buyers to reduce cost.
Having originated from the buying side as a way to manage the performance of key vendors, SRM has unfortunately remained a mostly tactical exercise, and is often neglected in many companies – Sammy Rashed, Beyond Procurement series
While cost cutting will always play a large role in the procurement world, value creation is the key to the future success of the procurement function. Value creation needs to be re-packaged and not dragged back by old acronyms like SRM. What will be the new acronyms? Only time will tell, but value creation is the collaboration of both buyers and suppliers to drive unseen value and long term relationships through co-creation.
With most SRM programs failing to meet the lofty expectations set for them, it is time to shift away from this half-hearted approach and place value creation as a core objective.
Our very own acronym ROR (Return On Relationships) is one that is set to enhance and enable value creation.