Supplier Relationship Management: The Process - (Part 3)

The following blog - the third in a series of four- is brought to us by Jim Baehr

If you believe business is built on relationships, make building them your business 

 Scott Straten

On the supplier side of relationship management there’s a conviction that a successful salesperson doesn’t sell, she or he builds relationships.  It’s a matter of fact that even an average sales organization puts a lot of effort and investment into relationship management, more than a supply organization does.  It’s very important for Procurement professionals to understand that both sides have game plans for a relationship.

Yes, there’s some overlap and some similarities in the terms that define both processes.  But, the differences are significant. Suppliers prefer to think about relationships as a long game whereas buyers approach relationships as defined by the life of a contract.  Suppliers are incentivized to execute.  Buyers, in general, don’t have the bandwidth and aren’t as motivated.

Sales has been working with Key Account Management (KAM) models since the 1950s.  In the late 1980s Customer Relationship Management (CRM) emerged to capture and organize contact data and related selling information.  CRM covers the sales process and its use continues after the sale to enable the implementation process. By comparison Supplier Relationship Management (SRM) emerged in the 1980s with Supplier Performance Management (SPM) as a support tool arriving in the 1990s.

KAM on the Sales side applies the 80/20 principal.  Basically, eighty percent of the spend is generated by the top customers. Rather than thinking of clients simply as “opportunities”, KAM solutions take a holistic approach concentrating on building and sustaining solid relationships with existing high-priority clients.  It’s noteworthy that KAM involves all the seller’s internal stakeholders including their supply management group.  Category Management uses the same 80/20 principle focusing on structuring categories for leverage that make for high-quality strategic procurement decisions.  In fairness Category Management, done right, builds supplier relationships that provide solid value for the buying organization.  So, what’s the difference between KAM and CM.  KAM is relationship driven.  CRM is about leverage.

Much like Strategic Sourcing, Sales as a process, can vary with the number of steps taken. But the Sales process doesn’t really change much. To follow a process is merely to proceed on a pre-established course.  Sales teachers and coaches have fashioned innovative methodologies (i.e. Challenger, SPIN, Sandler, etc.) to enhance the selling process.  The word “method” in Latin means to pursue knowledge. Sales groups invest heavily in training their professionals on these methods.

Selling methods are all about learning more about the customer and the customer needs. Sales processes and methodologies are combined to maximize the opportunity for building relationships.  There’s a measure of intuition applied.  Research validates that this ability to combine the deliberative and intuitive is what makes a seller effective.

On the flip side, SRM is still maturing.  And, it’s been a struggle.  The process is somewhat understood.  SPM, Scorecarding, Supplier Engagement and Contract Management are practiced independently and billed as relationship management.  When compartmentalized these practices don’t roll-up into a clearly defined, and therefore not clearly understood.  There are no innovative methodologies being introduced to pursue knowledge.  It’s more a collection of data presented to suppliers as “just the facts”.  Intuitiveness may or may not be applied.

 

Ponder a scenario where Sales and Procurement professionals come together to discuss relationship management.  It will quickly become painfully apparent that the Sales contingent won’t buy into Procurement’s position that SRM is working.  Comments from the Sales contingent will range from a polite “it doesn’t work” and “well, it’s not something that Procurement is good at”. Harsher statements might include “Procurement people are out of touch” and “they don’t get it.  The most cutting critique comes as “Purchasing says one thing and then does another”.  To be sure there are many good examples where SRM works and works well.  But, obviously from the Sales point of view there’s room for improvement – a lot of room.

When it comes to SRM, Procurement needs to accept that SRM is underdeveloped, fragmented and sub optimized.  SRM needs to be positioned as an end-to-end framework for developing relationships.  SRM needs to be considered before the contract, even before the bid.  SRM is not a one size fits all.   It’s different for utilities (relying on contractors and MRO), for Consumer-Packaged Goods (relying on contract manufactures), for financial institutions (relying on IT goods and services), and so on.  Above all, Procurement must leave its comfort zone and work on developing the same intuitiveness that works so well for Sales.

SRM must start when sourcing research is conducted or with construction and issuance of a Request for Information (RFI). Applying Porter’s Five Forces to analyze the market will help to understand the types of relationships that might be encountered.  As Glenda tells Dorothy in the Wizard of Oz "It's always best that you start at the beginning”.  The first meeting between the buyer and seller sets the stage for the relationship. It’s the opportunity to communicate, build understanding, and proactively share information to achieve mutual benefit.

Next week, the technology . . . 

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