The digital transformation of supply chains has led businesses to seek out better ways to optimise their operations for a more ‘lean’ approach. Establishing a supplier relationship management (SRM) system can vary between industries, but the main principles of SRM can be utilised effectively to assess supplier risk, select weaknesses within the value chain, and implement a strategy with foresight into supplier activities.
What is SRM?
A term that was first applied in 1983, by Peter Kraljic—a Director at McKinsey and Company, SRM is the process of analysing the commercial strengths and weaknesses of a supplier relationship and carrying out necessary steps to either improve or eliminate that process. Preferably not the latter in any case. The analysis of a supplier is reported in the form of a ‘supplier scorecard’, which ultimately highlights its contribution to the company’s success.
‘Every industry and business has its own definition and categories of what classifies as a strategic supplier, but the main goals of SRM are largely the same throughout’, says Georg Rösch, VP Product Management, JAGGAER.
What processes are involved in SRM?
The SRM process provides a comprehensive overview of each supplier and can be broken down into three stages.
Depending on the company’s SRM goal, the supply is segmented based on metrics, such as item, quantity, location, price. There are many areas of supplier relationships that can be targeted in this process, therefore, categorising suppliers in this way will align the process with business strategy.
Developing a supplier strategy
The next stage is to create a strategy that will optimise business relationships to meet its strategic goal—bearing in mind that not all segments should be managed in the same way. A good SRM strategy will result in beneficial outcomes for both parties involved.
Executing an SRM strategy
This stage consists of the strategy execution and monitoring its progress. This is a continuous process that may spark changes to the SRM strategy as each supplier’s performance is assessed against the key performance indicators (KPIs) chosen by the company.
Artificial intelligence in SRM
Having the ability to implement an SRM strategy at a reasonable speed will provide results much faster. Monitoring a supplier management strategy can also become a timely process. With JAGGAER’s Supplier Management, firms will have access to all the necessary data on an AI-driven digital platform that provides actionable insights in a central location.
Leveraging predictive monitoring against selected KPIs allows for a more efficient supplier management process, while also providing critical information on cost, time, compliance and quality of services provided. Supplier scorecards are continuously monitored by the system to create the most up-to-date risk insights. Utilising JAGGAER’s supplier management solution can provide valuable insights into unforeseen opportunities and allows users to better manage risks, allowing a more agile SRM team.
Join us on Day 2 of Procurement & Supply Chain Live where Georg Rösch will discuss this in more detail in his session: ‘Taking Procurement to the Next Level & Placing ESG Top of the Agenda’.