The Secret to Supplier Relationship Management? Knowing Where to Start (Part 1)

Developing an organization-wide supplier relationship management (SRM) program can be a daunting task, especially when the responsibilities associated with SRM are normally added to the day to day job description of an already fully burdened strategic sourcing and procurement department.  Most mid-sized companies will have thousands, if not tens of thousands of suppliers - and maintaining the same level of SRM across all of them would be frustrating and unnecessary.  It also wouldn’t be feasible.  So why do so many strategic sourcing groups take a one-size-fits-all approach when it comes to SRM?

The key to successful SRM is knowing where to start.  It comes with the realization that not all suppliers require coordinated SRM.  With that in mind, the typical approach might be to look at the high spend suppliers – those that represent the biggest impact to the organization from a cost perspective.  But not all big spends are created equally!  In terms of priorities, the starting point should be with three types of suppliers - finished goods, raw material/work in progress and capital equipment maintenance providers.  These are the suppliers that keep your business running; they are often the most essential and represent the biggest risk. 
Still, this list can be a long one and unmanageable unless further prioritization occurs, as even within the confines of raw material suppliers those that provide ancillary and supplemental products should be given lower priority.  To further narrow down the supplier(s) to focus on, ask the following questions: 

• Which suppliers provide materials that support star/cash cow product lines?
• Which suppliers provide materials that give us a competitive advantage?
• Which suppliers provide materials that support products lines important to long term organizational objectives?

The suppliers that fall into one or more of these buckets can be considered truly strategic, and worthy of a comprehensive SRM program.  It is important to note that scalability is crucial to a successful SRM program.  Once the value becomes evident and the process clear, additional supplier can be added into the program, to the point where even vendors providing indirect products and services can be efficiently managed in a way that provides value to the organization.  In part two of this series, I will review the next step in SRM, which is determining what criteria to manage and how to get suppliers to participate in the process.