Supplier Relationship Management: Putting the “R” back in SRM
Supplier Relationship Management as a discipline has matured in the past few years. Everyone who buys goods or services from another entity does SRM in some form or fashion. The more mature companies have formal structures in place; but many are transactional and reactive. Most have an intuitive understanding of the benefits of good relationships with suppliers but its much more difficult to quantify the value that it brings. Hence the dilemma - what effort should you put into it and who should you focus on?
In this article I will discuss what I feel is missing in SRM – the “R” part of it - and my experiences on where it has paid off. I will start with a definition of SRM and end with some specific actions you can take in your organization’s journey.
SRM is generally defined to include the following activities and artifacts:
· Supplier on-boarding – including questionnaires on supplier safety standards, compliance with our rules and regulations, contract documents, insurance documents, IT security agreements, disclosures on competitive customers, bank information, and the list goes on. All of it is necessary, and stored centrally, somewhere.
· Supplier financial health – financial evaluation, last three years annual reports, D&B report, Z scores.
· Metrics – including Service Levels and Key Performance Indicators, and in some cases penalties and service credits.
· Performance reports – tons of operational reports, high-level reports and dashboards, many self-reported by the supplier.
· Governance framework - Relationship meetings - Operational: daily, weekly, monthly; Strategic – quarterly (QBRs), annually (Executive); topics, agendas, and participants for each type of meeting; and escalation structures.
You may be able to add a few that I missed…
Hard working teams on both sides of the fence diligently turn out reams (or screens) of reports. And yet, when disaster hits, we are surprised because supplier declares bankruptcy, a supplier facility is impacted by an “act of god”, you need the supplier’s A team, or just more of them.
The above mentioned activities are necessary for effective supplier management. You can’t do without them. But they are only one part of the story.
The problem is we end up “managing” even our strategic suppliers in a transactional fashion while checking off a few or even a lot of the above items. Quarterly Business Reviews and project updates end up being fighting matches where the supplier is held to account, or worse boring non-events where people are doing emails.
“Supplier Management” is there in bundles but “Relationship” is missing.
The missing “R”
Based on my experience in good and bad supplier relationships, I submit some concepts for your consideration, to reinstate the “R” in SRM. Where they have been applied, I have found them to be invaluable.
Principles that build strong supplier relationships are no different than principles that build any relationship – connectedness, trust, empathy, fairness, respect, transparent and open communication, being invested in each other’s success, building for long term success, tough love where needed, and ending it when that is required. Soft skills matter as much here as in how you lead your teams and how you interact with internal stakeholders.
Go back to basics and use foundational principles for establishing strong relationships. Make sure you connect with someone senior enough in the supplier organization who can actually influence events. There isn’t much point having a great relationship with a person who has good intentions and no power. The higher in the organization they are, the higher is the probability that they can wield influence on your behalf.
Invest in cultivating and growing the connection. Where I had success, the connections were friendly and professional. We stood for each other’s success AND for the success of our respective companies. Look past the supplier sales organization to folks in operations and delivery for this connection. Engineer connections between your stakeholders and supplier leadership. Some of the stickier portions of a multimillion dollar deal I have negotiated with my counterpart at Starbucks and resolved them quickly to mutual satisfaction.
Above all, be authentic.
I put all the supplier management activities in this bucket but in our successful relationships we took the engagement beyond these activities. For example, the CIO and his leaders would visit the supplier’s delivery centers, host town halls to speak about our company performance, thank the delivery teams for the work they do, and answer questions. These events went a long way in recognizing the value of the work these teams were doing for us and were viewed extremely favorably by supplier delivery teams.
During these visits we carved out time for joint fun activities like golf and sightseeing trips. At one such event the supplier was hosting dinner on a yacht in the middle of a lake, when a couple of us decided to order something off the menu. The caterers sent a speed boat back to the mainland to pick it up! These became folklore and set a new standard within the supplier organization in how they interacted with their strategic customers. People talk about it years later. (As an aside, we paid our way on these trips.) The important point is these events established a level of trust and connectedness that created tremendous tangible and intangible value to both supplier and customer. They don’t happen over one or two such engagements; they happen over time when both sides can see consistency.
Treat your “strategic” suppliers strategically
Most Sourcing organizations treat their strategic suppliers transactionally and frankly with little respect. Sourcing is often viewed as a power game, a zero-sum game because we focus solely on price and when we win by getting a lower price the supplier loses by getting a lower margin. Sourcing is typically institutionalized as the bad guy, and we like the power trip it brings. But this is a transactional view. Sourcing needs to be the consigliere and not a hatchet man. Sourcing contribution needs to be about value and not just beating up the supplier for price. Who would you rather be? There is much written about this, but when push comes to shove Sourcing assumes the role of hatchet man and internal stakeholders are happy to let them – then everyone complains about Sourcing not having a seat at the table (duh!). My earlier points on Connect and Active Engagement enable sourcing to be more strategic.
Invest in knowing your supplier and their industry - what is important to them? Articulate to the supplier how your business and industry fit in their landscape, and the value your spend brings to them even at lower than acceptable margins. Know that suppliers also look at the value of a relationship beyond price. Can you be an anchor client for the supplier? Can you be a reference customer? We did many reference calls for our strategic supplier, and these played a role in winning them big deals. Be transparent about what you are trying to accomplish, what the relationship can bring, and how they can play a bigger role.
Some supplier feedback that I got went along the lines of – you (sourcing) don’t play the bad guy (we negotiated hard but there is a difference between tough negotiations and beating up the other side); sourcing was treated as a valued partner by internal stakeholders; you do not allow the supplier to fail.
Which takes me to my next concept.
Be a champion
Be a champion for your supplier within your organization. Sourcing is in a unique position to secure facetime for the supplier with leaders across the company, and push for a consideration of their solutions.
Secure champions in the supplier organization who have the power and the influence to secure disproportionate mindshare for you compared to other customers. I don’t mean someone with the title of Executive Sponsor; in many cases this role becomes meaningless. It is used to signify the customer’s importance but in reality, it just reflects the supplier’s relationship map between them and your organization. Pair up a senior VP on their side with a senior VP on your side, and so on down the line.
We had a few instances where we had connected and engaged champions at very senior levels in the supplier orgs and they were able to secure that disproportionate mindshare.
These are marquis companies in their fields. We were punching way above our weight because of these champions.
One helped us get top notch resources to plan a deployment, another brought in additional resources to bring a project back on track when another supplier on the project failed to deliver, and a third wrote us a big check (with a couple of commas) when they screwed up, without recourse to contracts and arbitration; by the way we agreed upon the settlement in a bar, and not in a conference room. (Even in the best relationships, stuff will go wrong. A good relationship will help you recover faster.) These are just a few instances out of many. Having connected and engaged champions pays for itself many times over. As an aside, don’t restrict yourself to just one champion on the supplier side.
Recognize your suppliers
Most companies can do a much better job at recognizing their key suppliers and the role they play in our success. Sourcing is perfectly positioned to have that companywide view of supplier relationships and their impact. In my previous role, our organization would host an annual supplier day to which all the suppliers were invited for a day of charity fund raising golf and a day of supplier recognition and awards, and the opportunity to meet all the senior leaders of the company. The underlying theme was that we were the hosts, and the suppliers were our guests. Our suppliers were wined and dined and feted as a recognition of the important roles they played in our success. Supplier feedback was that this was a unique event and how much they appreciated being a part of it. It took a lot of effort from a lot of people in the sourcing organization to pull off this annual event.
SRM can be as elaborate or as simple as you wish to make it. It applies in small and large organizations.
Segment your suppliers and identify the two or three strategic suppliers that you and your stakeholders agree are the ones both of you will focus upon. Get to work on them.
All sourcing people in your organization don’t need to be relationship owners; you just need a couple who do this well and have them focus on selected key suppliers.
Most sourcing software providers offer some degree of SRM functionality – suites offer a wide swathe, niche eSourcing providers offer limited SRM functionality, and then there are niche SRM focused providers. Technology provides structure, transparency, and a consistent way to manage your suppliers. However, you need to do the “relationship building”. How good you are at it will make you more or less effective.
My sincere thanks and gratitude to the following persons for their inputs to this article and participation in the events that informed my views expressed herein.
Steven Zerby, Senior Vice President and Global CIO, Advisor to the Board, Owens Corning
P. R. Krishnan (PRK), formerly Executive Vice President, Tata Consultancy Services (TCS)
Sampath Rajagopalan, Co-founder Future Factor, (www.futurefactor360.com)
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