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Benjamin Ho, Deputy Procurement Officer, City of Chicago Department of Procurement Services
High Performing SRM Cultures Require Technology
By Ryan Nied, Executive Consultant, State of Flux
Chief Procurement Officers (CPO’s) that aspire to develop a high-performing Supplier Relationship Management (SRM) culture in their organizations must invest in technology in order to achieve maximum benefits for their planned transformations.
“Companies who practice contemporary SRM invest in their top-tier suppliers in the pursuit of rich relationships”
The concept of how to best define and achieve success with SRM in an organization has been debated among thought leaders, practitioners and executives over the past couple of decades. These discussions have been spurred by research and countless case studies that have demonstrated its benefits, such as greater value for spend, enhanced product offerings, reduced risk, improved access to innovation and increased supply chain efficiency.
These days, the benefits of becoming “customer of choice” with top-tier suppliers is often a topic of discussion at leading procurement and supply chain conferences, though achieving such status proves elusive for many organizations.
Despite the prizes from SRM that many CPO’s strive to claim, most are still behind the curve in adopting technology as a critical enabler for success. To move forward on the path to successful SRM, CPO’s should build a comprehensive business case for change to their executive boards, which includes a commitment to embrace technology solutions that enable consistent supplier management practices.
The Business Case for SRM
SRM can be defined as: “A discipline of working collaboratively with suppliers who are vital to the success of the organization–to build trust and maximize the mutual value of those relationships.”
SRM practices are leaps and bounds ahead of traditional purchasing tactics. The discipline of SRM is founded upon the judicious segmentation of suppliers across a range of relationship attributes including criticality, value proposition, risk, reputation, innovation, market conditions and others. Companies who practice contemporary SRM invest in their top-tier suppliers in the pursuit of rich relationships that carry the tone of shared goals, complementary values, and collaborations toward mutual long-term growth.
Perhaps some of the most notable research that supports the business case for SRM transformation is that of Dr. John Henke, President of Planning Perspectives, Inc. For the past fifteen years, Dr. Henke has directed the OEM-Supplier Working Relations Index, which has become the foremost measure of supplier relationships between leading auto manufacturers and their suppliers. Henke’s work has shown that effective SRM can contribute in the range of 30-70 percent of a company's gross profit.
Technology as an SRM Enabler
Figure1 is a model that depicts six pillars of a high performing SRM culture. Organizations that are generating the greatest returns through their supplier relationships work toward maturity in these six areas.
While shifts on the other five pillars of the SRM model are no doubt critical to success, the importance of investing in the information and technology pillar is equally as important. This is where many organizations struggle to gain traction.
Efforts to embed a high-performing SRM culture without the use of technology often lead to inefficient use of resources, poor planning, inconsistent performance management and diluted execution of sourcing strategy. Using spreadsheets, or other dated methods, as the primary interface between buyers and suppliers to manage relationship interactions, is not a valuable or sustainable solution for the modern procurement organization.
With interactive technology, a cross-functional team and its supplier are able to bilaterally share their goals, results, ideas, improvements, and commitments across all dimensions of the business relationship, such as new business opportunities, performance management, risk, innovation, corporate citizenship, sustainability and many others. Technology enables managers to drive a level of rigor, visibility, and efficiency in these areas that cannot be attained or sustained without it.
Despite its importance, most organizations still have a way to go on the SRM technology front. Figure 2 shows the findings of the 2015 Global SRM Research Report, administered annually by State of Flux, a global procurement consultancy, to a wide range of procurement practitioners across several industries.
Survey results from over 370 companies indicate that the large majority of organizations are woefully underdeveloped in the information and technology pillar. Only 9 percent use technology to drive SRM practices in a significant way, and a whopping 61 percent say they do not use it all for SRM.
By the very nature of their roles, CPO’s tend to have ample influence to drive change with people and process in their functional domain but are often stonewalled when bringing technology into the mix. The above data reflects this point. There are some common reasons for this:
First, procurement is not at the top of the list to gain access to IT spends, particularly in organizations that heavily prioritize customer-facing applications.
Second, there are myriad systems that often run peripherally to the procurement processes, including those of legal, finance, operations and others. For some stakeholders, the IT infrastructure of their companies is overly convoluted, which may result in inertia or passive opposition to an SRM platform.
Third, even if a CPO has support for IT investment into the function, she is pressured to pursue applications other than supplier management, which is perceived to add more value to the customer.
Lastly, the real power of SRM technology is generated through its adoption by cross-functional supplier management teams. Championing efforts to drive adoption across multiple functional groups requires strong executive sponsorship.
Leading CPO’s are Resolute in their Vision of SRM.
Despite the challenges, there is a business case to be made for technology as part of a comprehensive SRM business strategy. Progressive CPO’s at leading organizations know this and do not wither in the adversity that is inherent in driving important change toward SRM.
They state an SRM vision, which includes the adoption of technology, and they go on a crusade with their executive boards, stakeholders, and suppliers to garner support. Their vision is supported by fact-based projected benefits of value, risk, and innovation that can be achieved with steady changes in people, process and technology.
Most importantly, they see the large potential for shareholder value to be unlocked through a progressive SRM culture, and without technology to support it, they are keenly aware that their function will not be in a position create the competitive advantage through supplier relationships that their c-suite, stakeholders and shareholders demand of them.