Managing Supplier Relationships Vital to Supplier Performance

In a survey of  223 procurement, supply chain and supplier relationship management by the consultancy, State of Flux, almost two-thirds said that they did not have a definition of Supplier Relatinonship Management (SRM) in their companies.  The conclusion of Alan Day, Managing Director of State of Flux, a supply chain consultancy in the UK, was that organizations are confusing SPM with SRM. SPM, he asserts, is “about getting what you have been promised in a contract, whereas SRM is about collaboratively driving value as part of a two-way relationship.”  It may be a matter of semantics, but I disagree. There may be no definition of SRM in many companies, as the concept remains amorphous. Senior management often views SRM as “goodness” without a defined ROI and thus does not consider it a priority.

Tracking supplier compliance against contract terms is not SPM, however. It is just one tactical part of SPM. The purpose of SPM is to obtain a result, which is reducing risk and improving performance. Understanding supplier performance is more than ensuring that requirements are met and should involved a two-way flow of information. To the extent that a customer and supplier have a relationship, the more insights a customer firm will have into performance and the more chance that the supplier will improve performance. SPM requires collaboration between customer and supplier to be successful. State of Flux defines both SPM far too narrowly.

Day’s assertion that SRM “tends to be an add-on to the day job of buyers and category managers, rather than a core role” is true in the case of companies that do not have a supplier management function distinct from the sourcing function. Buyers are typically spending their time focusing on new procurement rather than managing and maintaining relationships within the current supply base.

Can you successfully manage performance without having a relationship with a supplier? Not likely. Supplier Performance Management without some type of Supplier Relationship Management is an empty process.

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One Response to Managing Supplier Relationships Vital to Supplier Performance

  1. Alan Day says:

    Thanks for commenting on the output of the study but I think you’ve perhaps missed what we were trying to say re: SRM versus SPM.

    We believe SPM is important but a subset of a wider SRM approach and there will be a small subset of suppliers and partners that you want to partner with where the focus on things other than performance measurement like mutual go to market opportunities and innovation development.

    I think you will find if you read the report we haven’t defined SPM ‘far too narrowly’ more we were trying to make the point that procurement often ‘don’t get’ the collaborative value of SRM (nor do they often have the skills to capture the value) and default back to a measurement type relationship (SPM) which is ‘one way’ rather than collaborative because that is what we as an industry are used to doing. For example think RFP evaluation as example of the measurement skill set we foster in procurement.

    We agree with your points about “Tracking supplier compliance against contract terms is not SPM, however. It is just one tactical part of SPM. The purpose of SPM is to obtain a result, which is reducing risk and improving performance. Understanding supplier performance is more than ensuring that requirements are met and should involved a two-way flow of information”. We were not saying that compliance to contract terms equals SPM, but you have reinforced our point of companies / people missing the point about collaborative value.

    You will also note that within the report we spoke to a number of CEO, CFO’s and COO’s globally and they implicitly understand the value of strong partnerships (or SRM relationships) and do consider it a priority, in fact they consider it vital to the successful delivery of their organisations strategies. What we did find was that we in procurement do a terrible job at ‘selling’ the value of our involvement in SRM/Partnerships and investing SRM as a whole.

    We’d be more than happy to share the report with you or any of the readers interested if they wish to send an email to enquires@stateofflux.co.uk.

    Kind Regards

    Alan Day

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