Supplier relationship management: Pathways to convergence
It's no accident that at world-class companies buyers and suppliers march toward the same goals. Using specific metrics and communicating regularly, purchasing staff work hard to find suppliers whose vision aligns with theirs—and then nurture the relationship.
By Susan Avery -- Purchasing, 4/5/2007 2:00:00 AM
At the heart of any good supplier-relationship management (SRM) process is a belief in exacting metrics, open communication and a laser-like focus on finding and nurturing suppliers who are willing and able to bring new technologies and other innovations that have a positive impact on the bottom line of both companies.
In fact, at world-class companies competing in a global marketplace, SRM is the way to do business. And it is a good example of the growing importance of the purchasing function in such companies. Highly skilled purchasing professionals lead SRM processes that involve top management and cross-functional teams of representatives of business units and such groups as R&D, quality, engineering and supply chain.
SRM begins with sound strategic sourcing practices that identify those suppliers that are critical to the company's success. Here is a close look at how purchasing uses SRM to drive success at four world-class companies.
* PITNEY BOWES
Tell suppliers what you expect
Once known as a postage meter company, Pitney Bowes today provides software, hardware and services that span the mailstream, that is, those processes that create, produce, distribute and manage mail, documents and packages. As the $5.7 billion Stamford, Conn.-based company continues to grow and evolve, management realizes that it cannot provide all the software, hardware and services to meet changing customer requirements itself. It is going to have to rely on its supply base.
"We're like any technology company in recognizing that our suppliers and partners will play an increasingly more critical role in our business strategies," says Michael Dempsey, vice president of global direct procurement. "SRM provides the enabling mechanism for selecting, developing and leveraging the supplier capabilities we need to deliver superior customer value today and, more important, tomorrow. It's vital to our success."
Pitney Bowes' SRM process begins with procurement segmenting the supply base, which, for direct purchases, numbers about 460, for a spend of about $550 million.
With the top 5% of its supply base, those suppliers that Pitney Bowes relies upon for critical technology, contract manufacturing capabilities or some key OEM products, the company forms relationships at top levels of management. It also holds formal periodic business reviews with the suppliers to align current business priorities, discuss technology trends and share new business opportunities.
"Quarterly business reviews give us the opportunity to partner with suppliers regarding our current set of requirements, as well as technologies they are developing that might meet any future requirements we may have," says Dempsey.
 Michael Dempsey: “We recognize that our suppliers will play a more critical role in our business strategies.” |
"The supplier business review is an essential element of an effective SRM process for Pitney Bowes," he explains. "There is no better forum to discuss the topics that are most critical to our short- and long-term success. It's a great opportunity for us to work with suppliers to evaluate our progress against our business priorities and, if necessary, make corrections in course and speed to adjust to marketplace dynamics."
At the meetings, leaders of the company's businesses, as well as representatives of procurement, supply chain and engineering functions, discuss current business activities, new opportunities and technology roadmaps.
Each meeting begins with a review of key programs, current business priorities and supplier performance metrics. To track supplier performance in such areas as cost, quality and delivery, procurement has developed a Web-based measurement process that uses data generated by the company's SAP ERP system. The tool provides supplier insight into product forecasts and key performance metrics through an Internet supplier portal and offers supplier-specific reporting with a transaction drill-down capability to facilitate root cause analysis and correction action planning.
Still, procurement continues to enhance the tool and is extending its deployment throughout the entire supply base. "No SRM process is complete without a management system that ensures we know how our supply chain is performing at any given time," says Dempsey. "Our Web-based tools must allow us and our suppliers a real-time view of our demand, supply and performance data to ensure a rapid response to changing market needs. Having a great product portfolio is essential. But, SRM is a vital tool in ensuring our customers realize the full potential of what our company can offer."
* FEDEX EXPRESS
Suppliers must 'enhance' customers' experience
Fedex express in Memphis, Tenn. "depends on our suppliers to provide products, services or solutions to us that enhance our customers' experience," says Mary H. McDaniel, vice president of material and corporate sourcing. "Our customers depend on us to perform for them. We depend on our suppliers to perform for us."
The SRM process, which is part of a new, simpler four-step strategic sourcing process (assess, validate, source, manage), ensures that suppliers clearly understand the company's expectations.
Her team communicates requirements to suppliers through Aeroxchange, an online marketplace for the aviation industry used by airlines, OEMs and suppliers to buy and sell technology products. FedEx Express uses the tool to send RFIs, RFQs, and RFPs to suppliers, and for suppliers to communicate their responses back to FedEx Express.
For suppliers with whom they have contracts, the team uses a scorecard to track performance. Each of these contractual suppliers also has an executive sponsor from FedEx Express who is involved in the relationship.
The scorecard is a flexible tool that the team can tailor to include additional elements, depending upon supplier. It measures the performance of the goods, services or solutions provided by the supplier as well as the supplier's support of the goods, services or solutions, and the level of satisfaction among the company's customers.
McDaniel's team uses results of the scorecard to develop action plans which they review with the suppliers when they meet, usually semi-annually or annually. "We try to tailor the scorecard so we ensure we measure performance and provide feedback so the supplier knows exactly what our expectations are and what his results are at all times," she says.
Still, McDaniel would like to be able to exchange information more often with suppliers, and her team is working to update and upgrade its data-gathering tools. "We think it's critically important to ensure that we are delivering the most valuable solutions to our internal and external customers," she says. "As our SRM program grows and evolves, we believe that there will be opportunity for a comprehensive 360 degree evaluation of the relationship to occur on an ongoing basis."
For the top 50 suppliers to FedEx Express, the company holds a global supplier symposium every other year. At the symposium, company leaders talk about goals and objectives for the coming two years, and recognize top-performing suppliers with silver, gold and platinum awards.
* PROCTER & GAMBLE
Suppliers should understand end customers' needs
Mary E. Kostolansky: “Our suppliers are an integral part of how we do business, and we take a long-term view of these relationships.” |
Purchasing at P&G has a rigorous SRM methodology. "It starts with purchasing leadership involvement in relationships with strategic suppliers, and is focused on creating joint value for suppliers and our business," says Mary E. Kostolansky, director of marketing purchases at Procter & Gamble in Cincinnati.
P&G is looking to grow its business with its top suppliers, and eliminate poor performers that are not adding value, she says. "By using solid SRM strategies, clear internally aligned actions and effective metrics, we ensure we are using our supplier relationships to get the best value for our customers, retailers, and, of course, P&G."
In addition to purchasing, representatives of R&D, marketing, engineering and other functions are involved in the process as well.
"Our suppliers are an integral part of how we do business and we take a long-term view of these relationships to drive sustained results," says Kostolansky. "We believe our suppliers can be a critical component in our ability to innovate and deliver sustainable value."
She says that purchasing is spending more time ensuring suppliers understand customer (retailer) and consumer needs.
"By sharing business drivers and goals suppliers can become engines of innovation that will help both businesses," she adds.
| * SUPPLIER DEVELOPMENT There's room for diverse suppliers in a formal SRM process While purchasing operations at world-class companies like Pitney Bowes, FedEx Express and Procter & Gamble like to say that SRM is how they do business, they also are very proud of their efforts at managing supplier diversity programs. At first glance, it would seem that the two are exclusive. But that's far from the case. Developing suppliers has its place not only in the strategic sourcing process, but also in formal SRM programs. At FedEx Express, Mary H. McDaniel, vice president of material and corporate sourcing, counts managing the company's diverse supplier development program as one of her responsibilities. The program, in place since 1992, provides avenues for "underutilized" suppliers to access the FedEx supply chain. McDaniel says that FedEx likes its supply base to mirror its customer base, and she sees her team's recent adoption of a more simple four-step sourcing process—assess, validate, source, manage—as a way to make it easier, and perhaps, less costly, to do business with the oftentimes smaller, yet more innovative suppliers. The company's formal SRM process occurs at step four and through it, all contractual suppliers have an executive sponsor from within FedEx and routinely have their performance measured by the material and corporate sourcing team's internal customers. "We have a long-standing heritage of looking at innovation alongside our supply base," says McDaniel, adding that FedEx doesn't want to count smaller suppliers out of this mix. "Often a diverse supplier can innovate and bring value-added initiatives to us that are very high quality at a lower cost that sometimes a larger supplier cannot." Likewise at Procter & Gamble, "Proactively managing and nurturing relationships with our suppliers enables us to develop a more diverse supply base that better meets the needs of the world's consumers," says Mary E. Kostolansky, director of marketing purchases. "Effectively linking supplier capabilities and business/consumer needs fosters innovation—the lifeblood of our company. We have seen time and again that investing in the development of our key supplier relationships makes suppliers want to bring us new ideas and their best resources." |
Related Purchasing stories:
Pitney Bowes balances sourcing of direct and indirect spends
Only the best suppliers will do
P&G puts a new spin on global chemical sourcing
Now Playing: 