The old idea returns again
By Steve Rogers -- Purchasing, 10/6/2005 6:00:00 AM
One of the new, loud kids on the technology block is supplier relationship management (SRM). While it has been around for a while (PeopleSoft in its pre-Oracle days was an early promoter), interest in SRM is growing. Procurement organizations that have run several rounds of strategic sourcing need a way to sustain the gains and deal with cost pressures from energy markets and low-cost country wage inflation. SRM is emerging as one of the next big hopes.
Following in the footsteps of customer relationship management (CRM) software on the sales side, SRM is becoming a popular buzzword in procurement circles. The problem is that:
SRM does not mean the same thing to everyone—including software companies doing SRM. It is about much more than using a software tool.
It is the rediscovery of something that has been around a long time. What's new are some (but not all) of the tools, not the idea. As program director of the Conference Board's annual SRM Conference, this range of SRM definitions is even more obvious from attendee feedback that SRM is everything from supplier segmentation, alliances, and interpersonal skills to leveraging spend, managing results and software tools.
The software industry recognized that understanding the details of commercial relationships between suppliers and buyers is as important to the buy side as the sell side, although it can be more complex given the supply chain's tiers of suppliers. But beyond that, even the software providers aren't unanimous on what SRM is and does. Strolling through the ISM Conference exhibit hall in San Antonio last May, I was struck by the many vendors listed under SRM in the conference navigator. They ranged from extensions of spend-analysis products to software suites. The simple ones were supplier-centric instead of spend-centric or user-centric tools. At booth after booth, I asked what the tool did and upon receiving the explanation commented, "So it is really an extension of spend analysis?" As often as not, the answer was, "That's right but it tracks suppliers."
At the other end are suites of supplier-focused tools, assembled under the umbrella of SRM. These offerings have found SRM to be an easy to understand integration of many individual applications that deal with suppliers. No two provider's complete tool sets are identical, but over 80% overlap. They include supplier portals, financial settlement, bidding, spend analysis, spend history, supplier scorecards, catalogs, contract management—the connectivity links and assembly points that electronically carry on typical repeatable interactions and translate them into usable supply management information, all in a cool user "dashboard" (to use another buzzword).
And maybe that is the point! These are operational supplier-management tools focused on past and present management analysis. The "R" word is missing. These tools are just that—tools—and they add enormous value via information and efficiency. They equip people to better do the "R" in SRM but they do not create relationships.
SRM is, importantly, about relationships. Why? Because suppliers are people not information, that's why. This is not a new concept—purchasing icons like Dave Nelson, Garry Berryman and the late Gene Richter said it for years, and were saying it long before the Internet and e-procurement came on the scene.
People first
SRM is about people, not just technology. It is about the multifunctional people on both sides of the table and the context in which those people work. This context includes corporate culture, market realities and constant change—a dynamic context in which individuals and organizations must stay in touch to insure alignment. Managing the people side of suppliers is what SRM is all about because people are the decision makers that create the future where the game will be decided. Once the contract and payment are done, then what? Knowing the people, what drives them, what they are good (and bad) at, and what their companies expect from them is effective SRM.
How your company thinks about suppliers is also critical to how you approach SRM. Are suppliers convenient value-extraction sites or vital value building allies, or some combination of the two? What is value? Cost, quality and delivery alone are not a guarantee of success. Speed, innovation and flexibility/agility are a growing component of value, as are the reflection of suppliers' actions on your reputation (social responsibility) and holistic solutions to business problems. Software tools can support these value components, but the decisions and actions that create value propositions will be those of the leaders and doers within the supplier and the buyer.
Orchestrating interactions between companies requires a level of coordination, cooperation, communication and creative conflict (five very important Cs) that define relationships. This is a skill, both at the individual and organizational levels. The goal is to be tough but fair, be supportive while holding accountability and always be looking for where to go next, as the environment and customer expectations dynamically change. Creating trust, sustaining the value-duration of a supplier relationship and deciding when you need to exit gracefully are all part of SRM and have been for a long time.
I have always thought of these latter items as the definition of SRM while the electronic tools are part of the infrastructure that helps execute it. However, if the world decides that e-tools are the definition of SRM, then maybe we ought to call the full task "Strategic SRM", where the electronic helps the human deliver sustainable business results through the types of relationships with the suppliers humans choose to have those relationships with, amidst constant change. SRM isn't new and is more than software or information—it ain't easy but it sure is important and … people use computers to do it, not the other way around!
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