Part Two: SRM is Real
In my last blog “ Do we really understand SRM ( Supplier Relationship Mgmt)?” we defined Supplier Relationship Management" as a collaborative win-win business discipline of strategically managing the supplier engagement process to maximize the potential value of those relationships by providing seamless integration capabilities for smooth harmonized operations and aligned business goals with the partner supplier community”.
We had some valid questions coming up from the readers of how to address SRM in a bilateral relationship where the supplier is also a customer , how do we define a metrics model to track we are realizing what we planned etc but there were some very fundamental questions that needed answers to ensure the rubber meets the road. I have put my thoughts here to a couple of them for I believe this is essential to get to a solution which addresses this vision
Q.1. How SRM, typically considered a noncore process till now, helps business advantage to organizations?
Ans 1. We have to raise our expectations of the SRM organization. SRM is not about raising purchase orders. It is about creating an image of the organization – in goals and performance in every business community that it works with in furthering its business objectives. In other words replicating organizational values and capabilities in every of your supplier community, in some cases up to 40000 partners, often distanced by even geographies, cultures and continents. This is a pretty daunting task by all standards considering that one is not directly controlling the management of these organizations.
Effective supplier relationship management can really contribute to overall organizations growth.
- Drive competitiveness: 50-60% of the costs of the product in most organizations are the cost of material. Buying better and using this material better (in terms of better productivity in manufacturing) is all that drives product competitiveness. Better quality product at lower costs is definitely impacted by the SRM process.
- Enable scale and growth: as majority of the value chain managed by the supplier community is outside the organization, better managing the external partner operations can help organizations be nimble and enable business growth rapidly without self investment and efforts.
- Better brand positioning: The supplier community from 200 to as huge as 75,000 suppliers constantly engage with the buyer organization and are really brand ambassadors for the buyer organization. Better relationship and engagement with this supplier community creates a better market value for the organization. In this world of business interdependencies, it is not uncommon to have your suppliers as your customers as well.
- Essential statutory compliance requirements: SRM enables organizations in complying to statutory requirements like SOX compliance and HSSE
Q.2. Procure to Pay and other typical SRM processes are very internally focused. How can these internal processes enable the collaborative goals of as above mentioned by you?
Ans 2. Friend, this is the paradigm shift in perceptions we need to manage/ change. We have always looked at sourcing, contracting and procurement functions as internal transactional and operational functions internal to the organization, things that keep the day running. We need to make a start of looking at this process from an external collaborative mission and we will start seeing a different image
Let us take a process scenario and explore the effects of effective SRM processes based on supplier relationships ( Help Me Help u) and how that leads to the parent organization benefits.
|Scenario 1||Scenario 2|
|Requisition to Payment||Traditional purchasing organization, multi-location buying organization, for PO creating and payment||Multi location buying organization has standardized the practices and policies and have automated self service catalog for their indirect material procurement|
|Effects for supplier|
|Leading to Effects for the organization|
Table 1 : SRM Scenarios