Governance in Supplier Relationships – Because Doing What you Said You’d Do Matters.
June 16, 2016
Darragh Toolan
1 minute

Earlier this year our co-founder Alex Short argued that SRM is dead. He highlighted that the unidirectional ‘management’ of suppliers that has taken place within traditional SRM practices simply doesn’t stand up in a business environment that is driven by a firm’s ability to innovate.

At Old St Labs we like to talk about supplier relationships through the lens of ‘Return on Relationships’. This phrase stems from our belief that for supplier engagements to reach their full potential, they must be mutually beneficial. With two thirds of business growth said to come from product and process innovation, the importance of unlocking the full potential in your supplier relationships could not be more pressing.

As Jim Hagemann Snabe(former CEO of SAP) points out in this great Linkedin Pulse article, businesses (whether Formula 1 manufacturers or procurement teams) need to constantly redefine themselves in order to stay competitive. The belief that doing what you did yesterday over and over will result in future success is foolish. The old procurement ‘tug-of-war’ mentality will not deliver the results our businesses require in the future. To succeed we must constantly pivot and doing this involves reimagining the way we engage with suppliers.

Yeah but how?

While the concept of redefining commercial relationships, shifting your focus away from being a cost controller and towards a partner that delivers business outcomes and innovation through the supply chain may make sense, the path to delivering on these objectives not an easy one.

Peter Drucker said “Unless commitment is made, there are only promises and hopes … but no plans.” It’s governance that takes these ‘promises and hopes’ and turns them into a sustainable, repeatable reality. Even the strongest, most effective theoretical models and frameworks are worthless without a structured system of governance to support them.

Governance is bedrock to any successful supplier engagement. It provides the mindset and operating practices that will set the path towards success.

The next step in the evolution of procurement teams is to start having conversations with our businesses about the full breadth of what our function can offer. Having these conversations will certainly lift the profile of our function but it will also create a rod for our backs. If you promise innovation from suppliers, how will you deliver on that promise? If you suggest that you’ll be able to help the business better manage its exposure to risk, how can you back that up?

The answer is governance. By creating visionary processes, practices and expected behaviours to support collaborative supplier relationships procurement can start to delivering on its aspirational goals.
To find out more about governance in collaborative supplier relationships, from creating a ‘shared vision’ with strategic suppliers through to developing a communications protocol, download our whitepaper on the topic below.

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Head of Global Solutions @ Vizibl
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