In a world of rampant inflation, uncertainty and disruption, supplier relationship management (SRM) has never been more important.
Here, two experts in the field offer insight on a subject that no organisation can afford to neglect.
Sheldon Mydat (SM) is CEO of Suppeco, whose AI-driven collaborative platform enables companies across all industries to optimise their customer-supplier relationships.
Peter Bonney (PB), CEO & Co-Founder of Vendorful, an SaaS sourcing and SRM solution.
Has the pandemic changed supplier relations management?
SM: The pandemic exposed several design faults of supply chain and supplier management, the most obvious being cost-driven relationships. Not long into the pandemic, we began to see analysts such as McKinsey and Gartner espousing greater focus on the just-in-case inventory model, rather than just-in-time.
PB: To me, the biggest change is an emphasis on the ‘relationship’ part in SRM that now exists all the way up to board level. In 2021, CPOs at a number of our customers still had their board setting cost reduction targets for 2021.
After another couple of years of supply disruptions, boards will have a better understanding of our ‘new normal’, where you can't just be trying to get a better price from your supplier year after year. Besides, you shouldn't want to have that kind of relationship with your suppliers.
How does SRM promote collaboration on ESG?
SM: An EcoVadis study shows that corporate social responsibility clauses have become little more than box-ticking and paper-pushing exercises, due to irrelevant standard clauses being pushed en masse to all suppliers. The fact is that it’s very hard to conduct SRM from the drive for supply chain sustainability. Thus, effective change cannot be imposed. Achievements are possible only through working together in structured, targeted collaborations.
PB: You can't understand Scope 3 emissions without supplier collaboration, and you can't make progress on supplier diversity goals without understanding the makeup of your supply base. It requires an investment of time and resources to have that kind of collaboration, without which you probably won't achieve your goals.
How does SRM result in cost savings?
SM: Modern SRM is live and dynamic; it does not do static data. By digitally measuring – and acting upon – live performance data, procurement leaders and operational teams can now minimise the costs of time-to-action and time-on-task. This hugely accelerates their rates of return.
PB: The CPO of a major coatings manufacturer told me about a project they undertook with a core supplier to reduce a 30-step manufacturing process to 15 steps, with a significant positive impact for both buyer and supplier. If your SRM programme isn't fostering that level of trust then you're missing out on such opportunities.
While cost savings shouldn't be the focus of any SRM programme, solid relationship management opens more channels for finding cost savings. Also, having a better understanding of supplier relationships gives insight into how spend allocations can impact potential savings.
How important are supplier-of-choice relationships?
SM: In a world where turbulence is constant and disruption is on the rise, it’s never been more important to foster collaborative relationships as a way of mitigating global supply challenges and rising inflation.
Change laggards will find themselves struggling to keep pace with those organisations that embrace change and explore ways to collaborate as partners.
Suppliers and buyers are seeking to drive value through reciprocal relationships, joint values, innovation, shared responsibilities and thought leadership.
PB: I think companies have long seen the value of having suppliers of choice. Vendorful customers always set up some kind of ‘preferred supplier’ field in our system. What's new is the emphasis on ‘customer of choice’. More and more companies are asking if they are a preferred customer – sometimes by asking suppliers outright on questionnaires.
It’s very important to have this kind of relationship with suppliers.
What benefits do strong supplier relations bring?
SM: Parties can create an infinite array of opportunities to generate value. These include improved visibility that produces actionable insight. Also, collaboration fosters diverse creativity and shared R&D, as well as reducing risk, promoting trust, and driving better communication.
PB: One obvious benefit is being the last customer to have a delivery cancelled when something goes wrong and the first to get fulfilled when deliveries resume. There's also the lesser benefit of being able to collaborate on mitigation strategies before problems arise.
But there's something bigger at play, too: data.
A company’s competitors have access to the same suppliers, methodologies, and playbooks. What they don't have access to is your data, and the absolute best source of forward-looking supply chain data is suppliers.
Companies that have sound supplier relationships hear of downstream supply chain problems a lot earlier than those that don’t. That's incredibly valuable.
How does SRM fit into digital transformation?
SM: Modern SRM, such as Suppeco, is designed for the digital ecosystem. Working with static spreadsheets and PowerPoints isn’t effective in an increasingly dynamic global ecosystem. Businesses need to implement repeatable processes that are live, dynamic, structured, measurable, scalable, and deliverable via digital platforms.
PB: You can't overstate the value of supply chain data. Supplier relationships are complex, and, typically, data about those relationships is spread across multiple systems that don't talk to one another. Step one on data is getting visibility on supplier relationships across all data silos and making this visible to all stakeholders.
The next step is to make it easy for suppliers to collaborate with you. In Vendorful, suppliers can manage multiple customer relationships in one place and reduce time spent filling out forms. This improves both compliance with data requests and also the quality of responses, providing meaningful insight into performance and trends.
How do you see SRM evolving?
SM: SRM saw big changes throughout the pandemic and it will continue to grow in prominence, as measuring relationships through hard-coded values becomes even more mission-critical.
PB: The biggest change will be the redefinition of what the term ‘strategic supplier’ means. For years, ‘spend’ has been the measure of how important a supplier is. But a better metric of importance is the business impact of a problem with any given supplier.
What if a low-cost item you've been happily buying on a no-bid contract for 15 years suddenly doesn't show up, or you’re faced with having to shut down an entire factory because it is critical to a vital process?
By the way, that is an actual story from a CPO. You can be sure that his company now has a different view of what makes a supplier ‘strategic’.
Over coming years, I expect more organisations to reach a similar conclusion. They will begin prioritising – and strengthening – relationships that might not look important on the basis of spend, but that pose the greatest risk to their operations.