Brad Carlson is an industry-recognized supplier relationship management (SRM) master, most identified by his strengths in building strong internal and supplier stakeholder buy-in to expand the confines of a traditional contractual relationship. Carlson is known for looking beyond a textbook approach and deploying a series of tailored SRM tactics and strategies to unlock hidden value for his clients and the supplier. For these reasons among others, Carlson was awarded the 2015 Supply & Demand Chain Executive Magazine “Pro to Know” distinction.
Carlson encourages establishing a firm foundation and understanding of the essentials before your ramp up your SRM practice into turbo mode. Although SRM activity is a fairly newer discipline in the US, countries in Europe have established it as an essential corporate process. This point of view is supported by a guide I recently came across on “Find The Edge,” where English author David Atkinson guides readers through 10 principles to make an SRM goal into reality:
2. “Ongoing” Is The Magic Word: Once a supplier relationship has successfully begun, that is not the end of the game. To ensure ROI, continuous improvement, and risk mitigation during a supplier partnership, businesses have to remain as engaged as possible. To gauge the appropriate level of activity, Source One’s SRM Insights Report frames up how to approach the frequency of communication: “Not all suppliers require the high level of interaction offered through a comprehensive SRM program. Vendors that directly impact financial performance, affect the delivery of goods and services, have access to sensitive company information, and/or are associated with corporate regulatory obligations represent ideal scenarios for SRM.”
3. Scalability Is Paramount: Organizations must plan to scale up and down their interaction with suppliers based on how “essential” the relationship is to their core business. Whether a high or low priority, SRM can help retain savings achieved in strategic sourcing. In fact, without rigorous contract management, 75% of sourcing savings can disappear within 18 months.
4. Strategically Link In Sourcing: To enhance the results of strategic sourcing, SRM needs to be completely integrated with the process for maximum impact.
5. How to Gauge Preference: Atkinson points out, “[SRM] requires a detailed analysis of the specific supplier relationship, before the strategy can be determined; one size certainly does not fit all.” To determine the level of “priority” to place on a supplier, the following questions are useful:
- Is the relationship strategic to the business and important to growth?
- Does the supplier support the most important products or services?
- Does the supplier represent a significant expenditure?
- What is the risk of supplier failure?
- Are regulatory and security issues involved in the services provided by the supplier?
- Does the supplier offer specialized products or capabilities that offer a competitive advantage?
- What does the supply market look like?
- Is the supplier in a competitive vs. collapsed market?
7. It’s Not All Fun and Games: Although communication with suppliers may seem like just an easy conversation, SRM involves strictly adhering to processes and ensuring maximum value. Although interpersonal skills are an asset, that is not what it’s all about.
8. Compromise is Key: SRM doesn’t always equal a complete ‘win-win’; although contracts must be structured to satisfy both sides. Negotiation will help disagreements to form a mid-point agreement.
9. Anything Is Possible: SRM involves pushing for daily operational improvements as much as it does mutual value creation and innovation. This opens the door for any form of alliance opportunity with suppliers, but the basic goals of the relationship should not be forgotten while pursuing new endeavors.
10. Ease Your Way In: Atkinson accurately sums it up, “To get started in an SRM program, it always best to successfully implement a small number of SRM pilot projects, rather than go for the ‘big bang’. If you choose the latter you’ll quickly find your resources spread too thinly, and leaders and stakeholders will become frustrated by your lack of business impact.”
Once you’ve ironed out these ten fundamentals, your organization can form a more comprehensive view of supplier relationship management best suited for each unique circumstance. For more SRM guidance, Source One’s award-winning supplier management experts help clients form plans in any industry.