"Effective supplier management can provide step change impact to a business"

Jeremy Smith

Definition:• The discipline of working collaboratively with the suppliers that are vital to

the success of the organisation, to build trust and maximise value.

Objectives:

Scope:We are only discussing SRM in todays debate

Definition & Scope

Lower costs / increased revenue

Reduced riskImproved quality/

service levels

Enhanced supply chain

efficiency

Competitive advantage in areas such as

speed to market and innovation

Supplier Perform-

ance Manage-

ment

Contract Manage-

ment

Supplier Relation-

ship Manage-

ment

3

How SRM provides step change to an organisation

• Most organisations have significant external spend which requires management. Relying on contract and performance management alone will only retain the status-quo

• Step change in business performance requires Supplier Relationship Management

SRM Sustains and enhances sourcing benefits

Enables leverage of scale and volume

Moves beyond traditional procurement

Mitigates post contractual opportunism

Mitigates impactful events / risks

Sustains and enhances sourcing benefits

If supplier engagement stops at the point of contract signature then benefits to the buyer are likely to be restricted to the contractual requirement, but SRM assisted delivery is more than the sum of its parts

Collaboration on identification of mutually beneficial new value

Reduction in supply risk through combined ownership

Improved supply chain efficiency – process optimisation

Improved supply quality – TQM / Lean

Innovation / collaboration on new product development

1

2

3

4

5

Contract Management (incl. SPM)

Low

SRM (including SPM & CM)

Delivery of contracted requirements only

Relies on static KPIs, if any

Often, no incentivisation for added value

Consequences for poor performance not applied /

available

Risks allocated to specific party and not mutually managed –

blame culture

1

2

3

4

5

* Not to scale

Value Delivered*

High

5

Enables leverage of scale and volume

Traditional contract management, however well implemented, only focuses on that specific contract. It is not uncommon in complex organisations to have multiple contracts with the same supplier

Buying Org

Contract instance

Supplie

r

Org

Contra

ct Managem

ent

Acco

unt M

anag

emen

t

• Prevent business unit silo mentality

• Stop competing against each other

• Cross category or contract focus

• Coordinated approach to communications

• Promote organisation alignment

• Restricts ability of supplier to ‘Divide & Conquer’

• Leverage cross supplier P&L spend

• Provides single point of accountability for both parties

SRM

2012 winner of Best SRM at CIPS SM Awards

• Tarmac and Brammer held joint workshops to explain the benefits and deliverables

• First stage demand / compliance quick wins implemented

• Full service support and improvements delivered against clearly defined guidelines

• The benefits were numerous. - Total cost saving of (28%)- Supply base rationalised reducing risk

potential and internal management time- Transactions were reduced by 80 per

cent- Management information accurate

and relevant

6

Moves beyond traditional procurement

Traditional procurement is often short term and involves an up front battle over commercial terms following by contract management to ensure it is delivered. Some industries have identified this is not the best approach and that collaboration can provide competitive advantage

Sourcing approach not possible without SRM

Groningen Gas Field

• Formation of 5 supplier consortium based on long term contract selected from design competition

• Technical solution had no existing technological solution

• Each company in the consortium brings own specialist skills

• Direct interaction between buyer and supplier to drive innovation

• The benefits were numerous. - Year on year incentivised cost

reduction- Uptime above industry average- New product solution developed for

further use on other projects

Solves short term technical problem whilst developing innovative solutions for further

application

• Traditional procurement approaches are often adversarial- Work against each other to achieve their own outcomes

• SRM supports both parties to be working to shared objectives and mutual benefit- Incentivisation retains commercial focus throughout the life of the contract

• SRM enables greater post contractual control of suppliers - Beyond what was envisaged at the point in time of the contract- Power circumstance change over time – e.g. BP Gulf of Mexico- Good relationships allow organisations to adjust to the new circumstances

7

Mitigates post contractual opportunism

Suppliers are in business to maximise return on investment as well as the buyers having the same objective. With traditional procurement this is a zero sum game, SRM helps to increase the potential returns available

Without SRM – commercial tensions remain

With SRM – shared objectives removes commercial tension

Obje

ctive

Buyer

Obje

ctive

Buyer

SupplierSupplier

8

Mitigates impactful events / risks

The Japanese earthquake was devastating not only the people living in Japan but its knock-on impacts on Western supply chains. This was a wake up call for risk management but also for the implementation of supplier relationship management

9

Summary

SRM enables a step change in business performance by removing commercial tensions and building long term aligned relationship

Enables leverage of scale and volume

Moves beyond traditional procurement

Sustains and enhances sourcing benefits

Mitigates post contractual opportunism

Mitigates impactful events / risks

• Aggregate internal volumes• Aggregate within supplier

• Long term commitments • Mutually beneficial sourcing and commercial models• Shell / Tarmac & Brammer

• On-going cost and performance improvement, reduced risk, process optimisation, quality improvements and new product development

• Build relationships to prevent opportunism after change• BP Gulf of Mexico

• Japanese earthquake – Airbus• Boeing Dreamliner• Horsemeat – Marks & Spencer vs. Tesco

Benefit Examples

"Effective supplier management can provide step change impact to a business"

Vote Yes!!