Corporate ethics are under greater scrutiny than ever before; any failing is rapidly exposed on social media and very soon hits the global headlines. Investigative media – be that online, on television, or on paper – will eagerly expose the latest scandal, whether it’s to do with child labour, slave workers or bribery in high places, while Governments, which must be seen to act, respond with public inquiries, new legislation, or prosecutions. But it’s not just about protecting brand reputation and adhering to regulations, it’s also about being able to reassure and cater for customers.
Daniel Weston, Chief Operating Officer (Europe), Adjuno, discusses how best to implement effective Supplier Relationship Management (SRM) to help avoid nasty surprises.
Conscious Consumers
Many of today’s shoppers want to know exactly where the items they buy come from and that they are sourced sustainably and ethically. Is that garden furniture made from illegally logged rainforest teak rather than the FSC (Forest Stewardship Council) variety from sustainable plantations? Can you trust the supplier to have honestly labelled it as such? As various scandals in recent years have highlighted, what certain suppliers say about their products is not always strictly true, and when the deception hits the headlines then most members of the public will remember the retailer’s name – not the lesser known supplier.
Our global world is also highly competitive: consumers are increasingly demanding with across to cross-border ecommerce commonplace, while product life cycles grow ever shorter. Add to that concerns over rapidly changing business-to-consumer (B2C) dynamics as well as the total “cost to serve” – as competition and consumer demand increase pressure on high-level services – and the need for good supplier relations becomes ever more significant.
Implementing Supplier Relationship Management
Supplier relationship management is all about strategic collaboration with suppliers to add value, minimise risk and ensure consistent and compliant governance. Any SRM implementation should start small with a pilot project involving a handful of key strategic suppliers before embarking on more significant developments.
Implementing an SRM process is made a lot simpler when following a step structure, such as in the following checklist.
- Define objectives and priorities.
- Analyse the activities involved, process change needed and the necessary toolkit.
- Identify and define the necessary roles and responsibilities.
- Assess the maturity of your procurement department and their ability to cope with change.
- Establish the internal competences needed and give training where required.
- Identify suppliers and their core competencies.
- Segment suppliers: identify the strategic with whom to develop SRM.
- Examine existing and needed technology.
- Establish parameters for measuring and improving supplier performance.
- Establish systems to identify and mitigate risk.
- Select meaningful KPIs relevant to both you and your strategic supplier.
- Ensure both partners in the relationship are committed and all stakeholders throughout the
- Don’t expect a one- size-fits all solution: relations with each strategic supplier may take on a organisation aligned unique character.
Overcoming Obstacles
Putting a set of standardised, open and transparent SRM tools in place, plus a rigorous and consistent management approach can help improve the chances of SRM success. But there are still several pitfalls to consider and avoid when setting up SRM, three key ones are:
- Placing too much focus on costs rather than value
Effective SRM demands attributes, such as change management, team leadership, and the long-term planning necessary to develop lean and agile supply chains. Too much preoccupation with short-term cost control and it’s back to those old adversarial combats with buyers pushing down the price while disgruntled suppliers watch their profits evaporate. - Lack of specific SRM competencies and skills
While the right software tools can ease SRM implementation, it is more than just an electronic filing cabinet. The success also depends on the people and processes across both supplier and buyer organisations. For example, this new way of operating may be challenge for those transitioning from traditional procurement departments that have previously been responsible for running sourcing projects and have specialised in taking an adversarial approach to negotiation. Extra training will help to combat any of these sorts of issues.
- Non compatible strategic objectives
SRM also requires that both supplier and buyer adopt a complementary strategy: developing long-term collaborative partnerships will not work if either side is still in combative mood looking for weaknesses to exploit. The decision to introduce and develop SRM needs good executive leadership and agreement from selected strategic suppliers so that they, too, are comfortable with such an approach.
Conclusion
There are lots of benefits to supplier relationship management, as well as more sustainable processes and improved customer satisfaction, they generate better access to technological innovations, improved on-time delivery, reduction on inventories, higher responsiveness to customer demand and more product innovation opportunities.
SRM is not a quick-fix solution, it is a long-term game and involves a strategic approach to business improvement. Success requires commitment and persistence. Especially, in the global economy with ever-increasing competition, where securing a reliable and supportive supplier base is essential: if businesses do not become the “customer of choice” then it is very likely that one of their competitors will. Equally, if procurement departments maintain a traditional adversarial stance, the performance management is poorly monitored or contracts are buried deep in a filing cabinet, then the likelihood of supply chain breakdown increases – and brands will have no excuse when the ethical failings of their suppliers become public knowledge and damage their hard earned reputation.