November 12, 2012

Is this how your organization looks at Supplier Relationship Management? Really?

How often do we see the large circular image below conjured up when representing a “source to pay” cycle for an typical organization? Many eSourcing or eProcurement technology  / consulting companies have some version of this on their site.  If you don’t believe me just go out there and look. Using this type of diagram to show the high level process flows of an enterprise “source-to-pay” process is certainly a convenient way of putting technology platform modules or services into one diagram.

But tucking supplier management in at the beginning of some simplified cycle on a graph is misleading. Even if supplier relationship management begins at some cycle of information collection, looking at this sequential diagram is confusing and may leave someone to ask what is really being represented in the diagram.  For instance, does this diagram imply supplier relationship management is just a sequential process like executing a sourcing event or creating a purchase order? 

Quite unlike these processes, supplier relationship management requires many other perspectives that need to be integrated into the model (e.g. IT, supply chain, legal, compliance, or risk management) for providing a truer picture of a supplier’s impact on an organization’s spend. However what’s clear is that many organizations use supplier management as part of an existing eProcurement, eSourcing, or Contract Management platform.  Hence supplier relationship management gets defined within the confines of the functionality being provided like supplier performance or supplier risk, not as a holistic process that includes all other aspects of supplier relationship management like master data management.

If we are to truly improve this model perhaps we should elude to some wider definitions. Consider some definitions that I’ve come across recently on supplier relationship management (SRM) –

  • Supplier relationship management is the process that defines how a company interacts with its suppliers. As the name suggests, this is a mirror image of customer relationship management (CRM).  Just as a company needs to develop relationships with its customers, it also needs to foster relationships with suppliers.  The desired outcome is a win-win relationship where both parties benefit” –   (Supply Chain Management Institute. July 2008. Our Relationship Based Business Model).
  • SRM is understood as the policy-based design of strategic and operational procurement processes as well as the configuration of the supplier management“. (W. Appelfeller, and W. Buchholz, Supplier Relationship Management: Strategie, Organisation und IT des modernenen Beschaffungsmanagements, Wiesbaden: Gabler, 2005)
  • SRM refers to any supplier-facing business practices which are enabled by collaborative software and which allow companies to work with their supplier base for mutual success. Primarily, SRM tools have been developed to reduce the total cost of ownership (TCO) for procured goods, while creating competitive advantage for an organization through deeper relationships with its suppliers.” Fleming. (2004, February). Successful Supplier Relationship Management.

Using these definitions helps us  change the entire focus of the diagram.  In other words, since all to “source to settle” processes require suppliers,  to optimize sourcing or procurement you really need to make supplier relationship management a central part of the process, not just a piece. To identify if you are using a true “supplier relationship management” approach, consider if you can answer yes to the questions below  –

  • Do you have insight and visibility into all aspects of your supplier relationships?
  • Can you prevent gaps or issues by staying consistently compliant with changing requirements?
  • Are you using a tailored system that can fit your exact supplier needs?
  • Can you obtain accuracy and efficiency find the right spend data data on your suppliers regardless of their location or parentage?
  • Can you audit of  any aspect of supplier information including transactions?
  • Are you able to compress the cycle time of key supplier workflow processes such as data collection?
  • Are you able to establish a single “source of truth” on your suppliers to avoid duplication of efforts and errors?

 

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