Daily Archives: May 22, 2013

Why is Supplier Relationship Management (SRM) Under-delivering?

It’s a good question, and it needs some good answers. As a result, I was drawn to Bill Young’s two-part blog (Part I and Part II) over on Procurement Leaders earlier this month as I have some ideas, but wanted to see if they matched up with the insights of others.

Most of his observations were correct, namely that:

  • There is a confusion over what SRM is.
    It’s not just software or handholding – as Mr. Young points out, it involves organizational structure; governance; supplier engagement model; joint activities; value measurement; systematic collaboration; and technology/systems.
  • Current incentives focus on short term results.
    Most organizations are laser-focussed on the mythical goal of “savings” and immediate payback, not long-term value generation.
  • Lack of clear accountability and who takes the blame when something goes wrong.
    So no one is incentivized to do anything beyond what they are minimally required to do.
  • Legacy attitudes and behaviours.
    Not only do many old-school negotiators believe that every deal is a win/lose zero-sum game, but organizations that need SRM most are broken and (still) believe that “coordination and relationship management” is not part of a well-oiled organizational machine (that should work like an automotive assembly line).
  • Suppliers’ unwillingness to challenge customers.
    They don’t want to speak up in case the extra air movement will rock the boat.

However, the observation that I believe is closest to the truth is the one pointed out by readers who noted the

  • Skills gap.
    There is a huge gap between the skills required for normal category management, and the competencies needed for complex, ongoing, internal and external relationships. (This is because, as SI has repeatedly pointed out, the average Procurement professional does not get nearly enough training.)

As far as SI concerned, the primary reason that SRM under-delivers is that it is not embedded in a category management lifecycle. Because it is misunderstood and because there is a huge skills gap in the average Procurement professional where SRM is concerned, it tends to be pigeonholed into the “procurement” part of the category lifecycle (which is phase 6 of the 9 phase strategic category management lifecycle), driven off of a balanced scorecard, and managed by a SPM (supplier performance management) solution. However, as pointed out in Part II of the strategic category management post, formal supplier management starts as soon as the contract is signed and doesn’t stop until the last unit of product is recovered or returned. And formal supplier management is only part of Supplier Relationship Management which starts with the first reach out to a potential supplier in the supplier identification phase and continues until a contract award phase where the supplier fails to win any additional business from you (and you brief the supplier as to why in an exit briefing).

In short, it’s underdelivering because it’s under-applied, undermanaged, and mis-understood.