How to maximise mutual

benefits: Supplier Relationship

Management (SRM)

2014 Enrich LLC. All rights reserved.

Executive Summary
Supplier Relationship Management is a philosophy and a process that seeks to
maximise benefit between contracting parties and manage risk in the supply chain.
It requires all the parties to enter the process with an open and mature outlook and
also requires buy-in from the stakeholders on both sides of the contract.
If the above positions are clear and understood then the environment is right to
commence a Relationship Management programme.

2014 Enrich LLC. All rights reserved.

Introduction
I would suggest that SRM is best defined as The management of the relationship
to maximise mutual benefit for both Parties and it is in this context that this
White Paper is written.
Now, this definition and the sentiment that underpins it are rarely fully
appreciated or understood. In itself the definition presupposes a maturity of the
relationship that might not actually exist. In such cases, where that maturity is
absent, SRM will not be successful; in these cases relationships could take the
form of a dominant customer managing a supplier in a narrow context, usually
price, or vice versa.
An SRM programme is a philosophy and a process embracing the following:
Alignment of procurement and the business in the requirements of a
supply
Innovation in products or services
Provision of the environment for growth in other categories that a supplier
might also offer
The dynamic creation of value for both parties
The management of risk in the supply chain, local and global
The achievement of such aspirations requires that:

Procurement is aligned with the business stakeholders

There is a well-managed sourcing programme and process
There is like mindedness at the supplier: solutions not problems
There is a robust Supply Chain Risk Management process
A risk share approach to problems
There is a mechanism to track performance to feed into the review and
sourcing programmes

Why establish an SRM Programme

We expect to achieve value over time from a sourcing process. Invariably there
can be changes which could simply be passage of time and change of people, or
change of people, or change of control of a supplier.
Change
In any event benefit erodes over time and when the
The Chartered Institute
business is screaming about performance, what
of Purchasing and Supply
usually happens? You retender! (see Figure 1).
(CIPS) suggests that 75%
There is always a danger that tendering is seen
of sourcing savings can
as the panacea to the poor or ineffective
disappear in the first 18
management of a supplier: this is a naive belief
months without rigorous
as prices can go up as well as down.
contract management.(1)
The expectation is that we should again achieve
benefit over time from the retender process.

2014 Enrich LLC. All rights reserved.

As is demonstrated in the below diagram, lost benefit can be substantial to say

nothing of the costs of change and the costs of running another procurement
which can be lengthy processes.

Figure 1: Benefit lost over time when SRM is not practiced

Much is written about the management of relationships and much of this centres
on the power of buyers versus the power of suppliers. But in reality how do these
power bases actually manifest themselves? Well, as mentioned before, the
relationship can take the form of a dominant customer managing a supplier in a
narrow context, usually price and vice versa.
More enlightened organisations will view spend as an asset and manage it
accordingly to extract maximum value.

So where do you start? Which suppliers should you

include in the SRM programme?
SRM can have a considerable payload so the implementation of such a programme
is best phased and my suggestion is that you initially target your high risk
suppliers. The process of identification of such suppliers is sometimes referred to
as Supplier Segmentation.
To begin the process I suggest that we start with a simple supplier Spend and Risk
matrix. Risk should be considered in terms of impact on Day of Operations. Keep it
simple to start: no doctorates in the definition of risk at this stage; I have seen
organisations become paralysed in their machinations on how to define risk, use a
simple 1-10 rate for the purpose of the exercise. Once this exercise is completed
you should also consider impact on revenue/profit in order to achieve a full
picture. For instance: consider the toilet manufacturer for an aircraft. In the
aviation scheme of things a toilet might be considered as low value; however can
you fly without a toilet? Well Yes, but not with 200 people on board. With an
aircraft scheduled to fly say three rotations a day the toilet impact on profit could
be considerable. Consider impact not just spend.
2014 Enrich LLC. All rights reserved.

Figure 2: Target High Risk Spend for SRM

This process will help identify the suppliers with whom you want to explore
deeper relationships and will be candidates for the Supplier Relationship
Management Programme (see Figure 2).
SRM is a journey and its implementation is best through a phased approach. Dont
try to boil the ocean. Consider why you are implementing the programme and
this may well influence the scope across the supplier base. Define your rules of
engagement and the desired behaviours and outcomes by Kraljic quadrant. Ensure
alignment with stakeholders as it will not work without their buy-in. As the SRM
programme matures, insights gained should be fed into the sourcing process so
that right minded suppliers are selected first time.

Behaviour of Suppliers: Driving your procurement

decision
Many large enterprises have sophisticated intelligence gathering networks which
plug into your organisation at various levels and which, when well honed, will
glean information which will be analysed to determine their sales strategy. These
strategies are designed to drive your decision in terms of award, as a minimum.
Unfortunately, few procurement functions have control of the communications
network within their own organisation with such suppliers and consequently lose
considerable leverage. This can be hugely costly and is difficult to measure. It can
happen through the unguarded conversations of stakeholders during the sourcing
process.
When major purchasing campaigns are being run, the sales organisation of the
supplier will, among other things, plot the executives of your organisation on an
Influence & Affinity chart. Needless-to-say there may be varying hospitality
packages aimed at the various quadrants in order to move those decision makers
into the top right hand quadrant, if not already there.
2014 Enrich LLC. All rights reserved.

These channels of communication can completely undermine the best practice

procurement processes as the real discussion and negotiation can be a concurrent
sideline process.
Supplier Relationship Management is a fundamental counter to this potential
parallel activity which is solely designed to influence or disrupt the normal
decision making process in your organisation. A professional sales organisation
will normally cultivate an environment of positivity in respect of their organisation
so decisions become a rubber stamp exercise. Ideally, this positivity should be
achieved through excellence in service delivery.

Change in Control
Where there is an acquisition, and especially in the case of VC ownership, the
usual letter referring to the Change of Control clause (if there is one) in your
contract (if there is one) will arrive and will usually be from the nice existing
management seeking a continuance of relations and the relationship. Few
Procurement organisations reserve the right at this point to determine an answer
six months into the new management of the account. Yet this is imperative given
the behaviour of organisations such as VCs and especially in large contracts. Any
promised investment by the former management should be well documented and
the deliverables very clearly defined otherwise value will disappear out the
backend and not into the product or service being purchased.
Organisations that fail to track changes agreed with suppliers, during formal or
informal operational reviews, in contract side letters will suffer in any change of
control of the supplier.
Properly organised Supplier Relationship Management programmes will pick up
any diminution of quality in service or product and will provide the Early Warning
System that such detrimental activity is occurring and thereby alerting
Procurement to proactively challenge such behaviour to prevent loss of benefit.
In addition, with SRM programmes the appropriate mechanisms will be in place to
record changes to contract in side letters or other appropriate medium thereby
maintaining the currency of the contract with the supply.

Supplier Development
Again, this term appears to have multiple definitions some of which are
mentioned below:
Encouraging suppliers to provide a wider basket of goods or services in
order to aggregate demand
Through outsourcing, providing a supplier with a capability that they didnt
have that may have been hitherto an in-house capability
Risk management through greater integration of the supply chain
Quality and cost improvements through close management

2014 Enrich LLC. All rights reserved.

Insights gained through Spend Visibility coupled with the companys strategic
direction will inform the Supplier Development aspects of any SRM Programme
and help target and prioritise initiatives.

Risk Management
One of the primary reasons to implement an SRM programme is to establish a
robust risk management process between the contracting parties and into the
Supply Chain tiers. It is quite astonishing that recent research has identified that
few organisations conduct any rigorous Supply Chain Risk Management
programmes. While some may consider internal company risk either legal or
financial few consider Supply Chain Risk. Please see the research from the
University of Tennessee on Managing Risk in the Global Supply Chain (2) for a fuller
exploration of Supply Chain Risk.

Market Form
The relationship management aspects of SRM can also be driven by the market
form, whether you are dealing with monopolies, duopolies or oligopolies. This
should be considered when defining the Rules of Engagement by Kraljic quadrant.
Consideration of the maturity of the market and market behaviours may differ
considerably country by country and continent by continent. Again, such market
and cultural differences must be taken into account when defining the correct
rules of engagement for your organisation.

Reporting
Today there are many reporting requirements and many fall in the bailiwick of
procurement such as: CRC Energy Efficiency, Global Reporting Initiative
(Environmental and Corporate Social Reporting), Regulatory Compliance, Diversity
and Risk to name a few.
These are in addition to the standard requirements of:

Where are the Contracts?

What is the usage against contract?
What is the spend against contract?
When do the contracts expire?
Where are we against the deliverables?

Other requirements can include:

Compliance certification
Validation/audit
Performance Tracking

2014 Enrich LLC. All rights reserved.

Without any doubt systemisation will be required to support and manage this
plethora of information that needs to be recorded against suppliers. Add the
complexity of multiple geographies or/and system instances and the effort grows
exponentially.

In summary
In simple terms, we expect to achieve value over time from a sourcing process but
we have to consider not just how this value manifests itself in the business but on
how you harness it. Much depends on how well you PLAN, SOURCE, CONSUME
and REPORT.
The reporting output should normally inform your next round of PLANNING,
SOURCING, CONSUMING and REPORTING and so the iterative dynamic is formed.
The intelligence gleaned from this continuous sequence will allow your business
to optimise the various elements of the cycle and provide evidence that you are
spending effectively. Systemisation of the cycle supported by flexible contracts
will provide your organisation with the agility that is necessary for survival in
todays tough business world. Innovation is what will drive competitive
advantage.
Success will be achieved by the dynamic combination of Agility and Innovation.
Make no mistake, your external spend is a critically important component of your
organisations success. So, how do you convert that utility to give your business
the bounce you should expect from your external spend total? As mentioned
previously, enlightened organisations will view spend as an asset and manage it
accordingly to extract maximum value.
A well designed and well executed SRM programme with the necessary
systemisation will play a major part in locking in that value therefore ensuring
success.

(1). Tilford, T. et al. (2013). Guide to SRM. Available:

http://issuu.com/redactive/docs/capita-guide-to-srm. Last accessed 25th July 2014.
(2). University of Tennessee. (2014). Managing Risk in the Global Supply Chain. Available:
http://globalsupplychaininstitute.utk.edu/publications/documents/Risk.pdf. Last accessed 20th July 2014.

2014 Enrich LLC. All rights reserved.

Author: Padraic Phelan, Consulting Director, Enrich

Padraic Phelan, Consulting Director at Enrich, has held a series
of high profile purchasing and commercial directorships,
including the Director of Purchasing at TUI AG, one of the
worlds largest travel organisations, and Director of Purchasing
(and subsequently Commercial Director) of The City University
in London. During these tenures, Padraic was responsible for
global procurement systems and the processes behind the
technology, including the management of P2P processes for
over six years. Padraic offers a unique perspective on the
challenges facing both private and public sector organisations
in an increasingly global environment, and helps these
businesses add value to their bottom line.
To discuss any of the issues or schedule your health check, contact your local Enrich:
office:
Americas Office
EMEA Office
3655 Brookside Parkway, Suite 265
One Euston Square
Alpharetta, GA 30022, USA
40 Melton Street
Phone: (770) 667-0510
London, NW1 2FD
Email: hello@enrich.com
Phone: +44 (0) 203-574-4720
Email: hello@enrich.com
Hyderabad Office
Block-3, 8th Floor
DLF Cyber City
Plot No 129-132, APHB Colony
Gachibowli Village
Hyderabad 500019, India
Phone: +91 40 4418 0000
Email: hello@enrich.com

Chennai Office
STPI Building 2nd Floor
NO.5 Rajiv Gandhi Salai
Taramani
Chennai 600113, India.
Phone: +91 44 3910 3536
Email: hello@enrich.com

Enrich offers an entire suite of Procurement Solutions and Procurement

Concierge Services to help our clients succeed; from spend analytics,
opportunity assessments and sourcing, to contract management, catalogue
management, iProcurement, tail spend management and working capital initiatives.
We offer a range of deployment options to suit our clients specific needs including;
Cloud, On Premise or Hybrid and provide a one-stop shop for implementation and/or
managed services to help clients squeeze the maximum value from their Oracle Solution.

Follow ENRICH on

2014Enrich
EnrichLLC.
LLC.All
Allrights
rightsreserved.
reserved.
2014