The supply chain and procurement industries are wrought with acronyms and buzzwords and its participants are getting more savvy about looking under the hood and finding out how exactly a given piece of technology will help them do their job. Such is the case with supplier relationship management (SRM) processes and technologies. In an informal poll, buyers said they were confused about where SRM begins and ends and how the mishmash of software labeled SRM can help them in the day-to-day process of managing strategic suppliers.

In short, SRM the process and SRM the technology are separate, but complimentary, and need to remain that way. There is a specific SRM process and there is SRM technology specifically developed to assist in that process. Managing suppliers is certainly nothing new, but the connotation with SRM is a deeper collaboration between buyer and supplier in various ways.

"Usually when I hear the term SRM as a process it's in reference to supplier collaboration, and ongoing supplier relations," says Pierre Mitchell, a director with the Hackett Group. "Meaning, once you've done your strategic sourcing work, how do you best collaborate with the suppliers you've got? So it involves leveraging technology like supplier portals, scorecards, collaboration tools, etc. I see it as the collaboration with the supplier mostly."

Of course, one SRM process/strategy/philosophy will not cover every supplier or even every supply category in your database, so the first priority is categorizing suppliers and setting specific SRM strategies for each level of supplier before deciding which tool in the SRM toolbag will help support that strategy.

"Once you've done strategic sourcing, you determine the kind of strategies to take in the ongoing management, that's where SRM processes and tools come into play," says Mitchell. "The tool you choose should be based on your supplier categorization strategy."

Larraine Segil, a partner with consulting firm Vantage Partners, says some companies should prioritize suppliers not just from a cost perspective, but according to their contribution and competitive advantage in determining their SRM strategy. What kind of technology do they bring? What kind of intellectual property do they offer? How do they help minimize transaction costs?

"That kind of approach is difficult to bring from procurement up," she says. "It's more successful when brought from senior-level down. But you've got to bring the procurement people up into it both in their skills and their mindset. They need to recognize there is a fundamental change in how they deal with their most strategic suppliers in their organization."

Vantage does some work specifically in this area—helping procurement organizations categorize suppliers for different management strategies. Segil says most obvious are those suppliers that do the largest amounts of business with the organization. With more at stake the strategy often involves deeper integration and collaboration. But what about the suppliers that want to be a partner and have the potential and strategic product or service, but don't have the volume yet? Where do they fit on the spectrum?

"Volume should not be the only criteria for strategic suppliers," Segil says. "Buyers need to acknowledge these suppliers are out there and develop a specific strategy for them, or they will get beaten up on cost and not contribute at the level they should."

Brett Mauser, director of global procurement at NCR Corp. in Dayton, Ohio, says he separates suppliers into those that impact the company's revenue stream and those that don't and applies SRM strategy and technology based on those factors. He says most procurement organizations are responsible for the relationship with the supplier to ensure they are looking for integrated cost reductions. But depending on what segment or component the supplier provides, procurement may look to work with suppliers on areas like design for manufacturing improvements.

"If the supplier is simply part of our cost stream and not contributing to our revenue stream, we're going to focus on cost and things like payment terms as much as possible," he says. "But if they provide raw materials or solutions for our end products, on which our revenues are based, or installation support or maintenance for those products, then they assist in driving revenues, so we need to have more strategic relationships with them."

NCR uses Oracle's SRM tools and Mauser points out that the suppliers that are providing components or solutions for end-products may end up in a product lifecycle management system or other design collaboration tool, while those suppliers that do not contribute to revenues will likely see NCR's sourcing and transactional tool.

Mitchell says one of the differentiating factors between best-in-class procurement organizations practicing SRM is the involvement of cross-functional teams. Sure, many companies leverage cross-functional teams in the early processes like supplier discovery and strategic sourcing—but few use them beyond that phase in areas like managing the ongoing relationship with suppliers. That is often left solely to the procurement organization.

Supplier councils are also valuable in evaluating which SRM strategy to pursue, but Mitchell says the challenge is integrating the recommendations of the supplier councils into the commodity management teams and processes.

"Supplier councils are very good for macro issues, but when the rubber hits the road in turning supplier recommendations into processes, that's more difficult. I think that's where the leaders excel and the others don't."

Segil worked with a supplier council for a major aerospace company with a very simple strategy. All the suppliers were brought into one room and told to partner more efficiently.

"Of course they hated this, because some were competitors," she says. The post-mortem to that supplier council we did is that one of the suggestions they came up with was ignored. The years are well past when someone will show up for a two-day meeting with no action items. People are more aware of how they spend their time, so a supplier council needs to have an outcome. The supplier is a very powerful player."

With all of this in mind, there are still some disconnects between SRM process and tool. At the Conference Board's SRM Conference in Atlanta earlier this year, attendees said they heard too much about supplier discovery tools and software and not enough about supplier management technology. Vantages Partners' John Hughes was involved in organizing the conference (along with Steve Rogers, who wrote a companion story following this one) and says he found out that SRM means different things to different people—even different technology providers. While some software companies may package a suite of tools under the SRM umbrella, there may only be sourcing and spend management tools in a new package, says Hughes.

The deeper SRM packages have more collaborative functionalities such as scorecarding, contract management and supplier portals.

Even the term "supplier portal" can mean many things. As Mitchell points out, a nice user interface can often hide shoddy functionality, which only serves to frustrate suppliers.

NCR is using an off-the-shelf portal tool from Oracle and now has 3,500 active suppliers on it. Suppliers can download and acknowledge P.O.s, request changes, reject P.O.s, submit invoices, and view invoice and payment status. The company also uses a homegrown scorecarding tool which is integrated with specific supplier strategies. Suppliers in strategy A have different weights and metrics than suppliers in another category.

"Soon we'll deploy supplier collaboration tools to let suppliers see our demand plans for manufacturing," says Mauser. "They'll be able to see our demand so they can shift their manufacturing as needed. There are a lot of Web forms that can do this, but this goes direct into the database so changes in our database show up on the portal immediately to eliminate extra work and handoffs."