Streamlined Suppliers

As organizations move from mere purchasing to strategic procurement or sourcing, partnering and vendor management, many are looking to vendor or supplier relationship management (SRM) to help manage interactions with the key organizations supplying their goods and services. The aim is to streamline processes between an enterprise and its suppliers, in much the way customer relationship management (CRM) does between an enterprise and its customers.

This is increasingly on organizational minds. So when Vantage Partners last year consulted executives at more than 100 companies about relationship management practices with key suppliers and service providers across six fundamental areas, it found almost 80 percent of respondents said that strong working relationships with suppliers deliver at least 25 percent greater value (in terms of cost savings, innovation, quality and the like) than poor relationships with suppliers (see chart right). Moreover, on average, sourcing professionals believed they would increase their company's bottom line by around $US43 million annually if they were to implement strategic relationship management practices with key suppliers.

"Now more than ever, managing key supplier relationships requires sourcing and procurement groups to coordinate communication and decision making across multiple internal functions and geographies," writes Vantage Partners senior consultant Jonathan Hughes.

There are plenty of case study examples to testify to the efficacy of the approach, as Vantage Partners found out.

For instance, over a long-term relationship with a transportation company it depended on to deliver supplies and people to hundreds of active sites, the vice president of procurement for a mid-sized US contracting company focused on developing personal relationships with members of the vendor's senior management team. The effort paid off big time when an important shipment of materials caught fire and was destroyed. Having long-term relationships with key senior people made it easy for the VP of procurement to call the vendor and resolve the problem immediately.

A financial services company's procurement group assigns each of their employees to be a "relationship manager" for an internal organizational group, with defined roles and responsibilities, including a requirement to conduct bi-weekly meetings with their designated internal counterparts and consistently send reports and other communications. The internal coordination and communication process keeps the entire company aligned around the company's sourcing strategy and tactical plans.

A company with multiple, highly autonomous business units has a major sourcing partner that supplies various components to the different business units. A standard management committee regularly reviews key issues and events in each part of the relationship, and tries to identify potential risks and opportunities. The company finds documenting and sharing decision-making guidelines, roles and protocols in advance lets each party know before a decision is considered whether they have decision-making power, an opportunity to provide input, or will simply be informed along the way or after final decisions are made. The two companies thus share information from different parts of their organization and balance decision-making efficiency with the need to coordinate action.

Hughes says organizations seeking to manage key supplier relationships effectively must find ways for their sourcing and procurement groups to coordinate communication and decision making across multiple internal functions and geographies, and myriad individuals in various roles.