ISM - Supplier Relationship Management Insights
Supplier relationship management (SRM), in simplest terms, refers to interacting with and managing third-party vendors that provide goods. Supplier Relationship Management (SRM) is a comprehensive approach to procurement managing and capturing the post contract value from key business. Supplier Relationship Management (SRM) is a systematic approach that can cut cost and boost profit. An important part of SRM is Contract Management.
In current times there is concern of supply price inflation from an economic boom and growing middle classes in China, India, and other developing countries.
The five secrets of supplier relationship management
Too, demands upon a shrunken manufacturing capacity base in the developed world, or weakened financial condition of many companies, causes worry about continuity of supply. SRM is useful in taking initiatives with upcoming needs and the condition of the supply markets that can reap rewards of problem avoidance. Cavinato's research revealed approximately different forms of formal and informal relationship links between buyers and suppliers.
Each one is a relationship supply chain. These roughly group into the following eleven relationships, listed from none to full integration: Don't know the supplier exists, no reason to use them Don't know they exist, might use them Arm's length price relationship Price relationship, informally cooperate on operating level for efficiencies Price relationship, formally cooperate for longer term efficiencies Total cost relationship Innovation and top-line, revenue-driven relationship Joint venture One invests in the other, gains benefits from having done so One purchases the other, vertical integration SRM is mostly found with relationship numbers 3 through 6.
The emphasis is on identifying performance attributes wanted from the supplier and managing those aspects of the relationship. Opportunity sourcing number 7 is the practice of scanning a supply market without a current need to source. This is a pure-discovery initiative to identify what is out there and determine what might be useful in an innovation or new application. It is common in high-tech industries as well as high-margin consumer product industries.
Increasingly, supply professionals that have new product revenue as part of their performance metrics visit trade shows and suppliers without an internal requisition waiting back at their desks.
What is Supplier Relationship Management (SRM)? - Definition from Techopedia
Each type of relationship requires different management and leadership and yields different benefits. As one moves from the arm's length price relationship toward joint venture, the linkages become closer, more defined, and the benefits are broader and deeper beyond just price.
Internal relationships are just as important as external ones. With SRM these links are common with operations, logistics, accounting and engineering.
Internal ones can work against a concerted effort with a supplier or it can create a strong consistency of purpose. There are two types of measurements: Targets are those end goals being sought price, cost, quality, specific logistics details, order cycle times, time to market, etc.
The five secrets of supplier relationship management - Supply Management
Means types of measures are those manageable sub-component activities that add up to accomplishing targets. For example, an order cycle time target has within it a transportation transit time as a means measure.Supplier relationship management (SRM) - explained
A common fault here is to over-require means measurements of suppliers. 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.
An executive sponsor and, for complex, strategic supplier relationships, a cross-functional steering committee. 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.
Further, suppliers can be segmented by the degree of risk to which the realization of that value is subject. Executive-to-executive meetings Strategic business planning meetings, where relationship leaders and technical experts meet to discuss joint opportunities, potential roadblocks to collaboration, activities and resources required, and share strategies and relevant market trends.
Joint business planning meetings are often accompanied by a clear process to capture supplier ideas and innovations, direct them to relevant stakeholders, and ensure that they are evaluated for commercial suitability, and developed and implemented if they are deemed commercially viable. Operational business reviews, where individuals responsible for day-to-day management of the relationship review progress on joint initiatives, operational performance, and risks.
Supplier Relationship Management Insights
One tool for monitoring performance and identifying areas for improvement is the joint, two-way performance scorecard. A balanced scorecard includes a mixture of quantitative and qualitative measures, including how key participants perceive the quality of the relationship.
These KPIs are shared between customer and supplier and reviewed jointly, reflecting the fact that the relationship is two-way and collaborative, and that strong performance on both sides is required for it to be successful. Advanced organizations conduct degree scorecards, where strategic suppliers are also surveyed for feedback on their performance, the results of which are built into the scorecard.
A practice of leading organizations is to track specific SRM savings generated at an individual supplier level, and also at an aggregated SRM program level, through existing procurement benefit measurement systems.