Supplier Relationship Management (SRM) is not a new concept, but it has been growing in importance. The theory is that SRM helps enterprises drive value in both recessionary periods – like that of the last few years – by enabling cost reductions, and also in high growth phases by supporting increases in market share. The reality, however, is that very few organizations have seen demonstrable results from SRM programs – very few of these initiatives are truly effective or sustainable, primarily due to poor strategy and execution.
The overall trend of the increasing scale of outsourcing over the last decade and the extension in the capability of many global outsourcers have led to a pool of critical outsourcing suppliers who wield significant control over an organization's upstream supply chain. These outsourcers are a genuine source of enhanced capability for their clients. With this dynamic, it is imperative for businesses to work with their supplier base to gain and maintain a competitive edge. This can best be achieved through more collaborative ways of working between the traditional 'buyer' and 'supplier'.
There’s a need for a paradigm shift from the traditional business practice of adopting an adversarial approach toward the supply base, especially when it comes to dealing with key strategic suppliers. Traditionally, procurement functions have been fixated with the aim of gaining cost reductions in their dealings with suppliers, in many cases at the cost of better overall value — an approach which has stressed the relationship with the supply base as well as internal business stakeholders. An alternative, or ideally complementary approach, is building trusting relationships with the critical elements of the supply base through a comprehensive SRM program and leveraging these relationships for driving genuine and significant business value.
This paper discusses the challenges in executing a successful SRM program and also provides strategies for procurement executives to drive more value through effective SRM initiatives.