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.

Summer is One Month Away. Is Your Supply Chain Ready?

It should be. Why? The top three challenges you are likely to face this summer are the exact same as the top three challenges you faced four years ago in 2009. Back in 2009, Kelly Thomas, Group Vice President of Global Accounts at JDA and a regular contributor to JDA’s Supply Chain Nation blog published a guest contribution in the Supply Chain Digest on the Top 3 Supply Chain Challenges This Summer, which are also the Top 3 challenges your supply chain is going to face again this summer because, as we all know, the economy is cyclic and some cycles are faster than others.

So what are the challenges?


1. Cost Containment

Costs are soaring again. As SI has stated repeatedly, there are no more savings to be had in this type of inflationary market. The best you can hope for is cost avoidance, and in some categories, containing costs to reasonable year-over-year increases. With staple food reserves still low, burgeoning demand for energy and metals in Asia, and a slowly recovering global market, costs are going up — and can be expected to do so for some time. The time of net zero inflation is over. The best we can hope for is we don’t return to the 80’s. While those of us who have been around for a while may have fond memories of the 80’s as the decade that gave us PCs and Pac Man, we also have not-so-fond memories of rapid inflation at the start of the decade (which we try to forget). Containing costs is going to take your fanciest footwork (so let’s hope your old timer purchasing pros who weathered the storm in the early 80’s are still around to give you some advice) and may not even be possible if you don’t have a good handle on


2. Risk Management

Considering that, as SI has been pointing out for over a year now, at least 80% of organizations are vulnerable to a major supply chain disruption, every company should have someone responsible for managing risk. However, two thirds of company’s don’t. This is one of the reasons risk, and risk management, continues to be high on the challenge list. But I have to be honest. It’s going to be hard to get a good grip on risk if you don’t have a handle on your number one supply chain challenge this summer, which is

Supply Chain Visibility

Let’s be honest. In today’s multi-tier, multi-national supply chain, it’s hard enough to get a handle on this at the best of times. But during the summer, where it’s likely that there won’t be a single day where there isn’t at least one key person vacationing somewhere unreachable and not watching that everything is going as it should, something is going to get missed. Something is going to go wrong. The only question is whether the screw-up is minor, such as shipping 1000 units instead of 1100, or major, such as shipping merchandise intended for the US to Europe instead and having it seized and destroyed because it violated WEEE or some other environmental regulatory act that is stricter than what it is currently in the US.

Considering the complexity of the modern supply chain, the speed at which it is operating, and the costs associated with even a minor mishap, this is one area where you definitely need a software solution to help your organization keep a handle on things. One such solution is that offered by Resilinc, which is covered in these recent posts:

Are You Ready for Africa?

Probably not. Should you be?

Probably not yet. But it should be on your radar.

A recent article over on Inbound Logistics declared Africa an attractive target for foreign exploration, especially in Europe and Asia, due to abundant natural resources, a growing labor force, and its proximity to the European and Asian consumer markets. And while I agree that it looks attractive from an exploration perspective, I don’t think its ready from an expansion perspective. For starters, there’s the social unrest, the need for more government collaboration, and the (utter) lack of logistics infrastructure (in many places), as pointed out in the article. In addition, there’s the rampant piracy (which appears to be a sanctioned activity and standard operating practice in the Somali government who jailed a US pilot for bringing money into the country to secure the release of foreign vessels held by Somali pirates), the child and slave labour along the Ivory Coast (especially in the chocolate supply chain), and the constant (civil) conflicts in many of the African nations.

Simply put, Africa just isn’t ready to join the global economy on the main stage, and won’t be for at least a decade (or two). Unless you have a large bank account and are willing to build your own infrastructure, hire your own private security army (of soldiers to hire), and set up your headquarters somewhere where there is no Foreign Corrupt Practices Act (FCPA) or Bribery Act because you will have to grease the hands of the local (underpaid) civil servants to get anything done, you’re probably not going to succeed.

In other words, if you’re not a Global 500 multi-national that has already conquered China and India to the extent possible and needs to start preparing now for the 2025 African conquest, it’s too early. The only exception SI can see is if you’re a Chinese or Indian Company and believe that you need to outsource to lower costs. Then, since the rest of Asia is in the same cost bracket, Africa is the only place left that potentially has lower labour and overhead costs. The article states you should also be looking at Africa if you need gold, diamonds, precious metals, timber, oil, coffee, cotton, and cocoa — but all of this you can get elsewhere. There are big Diamond mines in the North (with Russia being the largest producer and Canada finding new deposits in the arctic as well). Australia is the second largest Gold producer in the world (as well as the third largest diamond producer). Everyone knows that Canada has rocks and trees, so you can get your timber in the North too. China controls the precious metals market. And nine countries produce more oil than Nigeria, the biggest oil producer in Africa. (They may tap out some day, but there are lots of oil sands and tar pits in the North that can be tapped.) Get your coffee from Brazil or Venezuela or even Vietnam. China and India are the world’s biggest cotton producers. Cocoa? Africa, and the Ivory Coast, leads here but the Republic of Indonesia is the second largest producer and Brazil is the sixth. Ramp up production in those countries. Grow a few less soybeans if you have to. 😉

Obviously you’ll need to be in Africa someday if you’re big, but not in the next decade. Let the wealthy global multinationals pave the way and make the mistakes and expand when the economy is ready for it. For now, you still have to get Asia under control.

India is Bigger and Bigger Business By the Day!

While it will likely be at least twenty-five (25) years before India overtakes the United States in GDP, companies are starting to bet big on India, including Anglo-Dutch multinational Unilever that “bet big on India” with a US $5.41 Billion open offer for a 22.52% stake in its Indian subsidiary Hindustan Unilever Ltd. That’s big, big bucks as far as India is concerned. If you look at the Global 500, and their revenues for 2012, only seven exceeded 30 Billion in Revenue (Oil & Natural Gas, Tata Motors, State Bank of India, Hindustan Petroleum, Bharat Petroleum, Reliance Industries, and Indian Oil). Five of these are in the petroleum industry, one is a bank, and one is an automobile company. None are CPG.

This is a big step for Unilever, who obviously sees India as the next China and wants to guarantee their stake. If the deal goes through, it could be the first of many. In addition to having to Mandarin-ize Your Supply Chain, you may have to add some Hindi to the mix. Are you ready?

No Matter Where You Stand, There’s Always Room for Improvement!

As pointed out in our recent post on Where We Will Find Solutions to our Supply Management Problems, Denmark may have taken fourth place overall in the Global Creativity Index, but it was only 14th in tolerance. Let’s hope it remembers this on the 20th anniversary of the
Maastricht Treaty Referendum which resulted in riots in the NØrrebro area of Copenhagan, which was the first time since World War II that police opened fire against civilians (and injured 11 demonstrators). Protests should be peaceful — on both sides.