The alternative scenario is to see the gains of value negotiated during supplier selection lost because of poor contract management. And from our experience these losses often only come to light many years later, when a contract is reviewed again, by which time it’s too late or very difficult to recover the loss.
Source: Supply Management 2019
In this article we will outline the critical success factors for realising the benefits of an SRM programme.
- Senior management support is crucial for the success of SRM. You’ll want your senior team to be actively engaged. Be prepared to tell them what it will involve, what you will deliver and what you want from them.
- Recent studies show that suppliers who are engaged in SRM programmes are much more committed to put in their time, effort and resources above and beyond their contracted obligations, and in particular offer more support from their senior executive team.
- The supplier forum: Should you decide to hold a forum, an appearance by your CEO will help to motivate your suppliers, particularly if your CEO gives insights to what your business is doing and its future direction.
- The ultimate goals of SRM should be aligned to business strategy. Often the reason for failure is a poor alignment of functional objectives to business strategy.
- Ask these questions: What are you striving for with the suppliers? How does that fit in with your business’s direction, goals etc.? How will you measure success?
- In order to gain support from the leadership team, procurement must be able to articulate the benefits that will be delivered from SRM and show how they align to the business strategy.
- Define your benefits in terms of the contribution your SRM programme will make to the achievement of broader business objectives. Typical business objectives such as cost reduction, innovation, improved market share, competitive positioning or sustainability targets can all be translated into measurable outcomes.
- An evenly matched relationship will produce the best results, so when selecting the suppliers who will be in your SRM programme consider how the parties currently relate to one another. If a supplier is simply unwilling or unable at that time to participate then perhaps focus on contract performance management rather than trying to force joint development or innovation.
- Be open to sharing and discussing your strategy and business plan.
- Start with a baseline of expectations what you both want to achieve from the relationship and if expectations drift, then re-set them to improve the practices of both parties. Start with defining how you will collaborate and the data you need to collect in order to demonstrate benefits.
- It’s simple really – the supplier delivers and you pay them on time.
- Measure the most important supplier performance metrics (to a maximum of ten).
- Some organisations may opt for a 360 degree assessment of relationship strengths and behaviours whilst others just focus on supplier obligations. There is really no right or wrong – it depends on what works for the relationship.
- The behaviours of both parties (at every level) should be consistent and matched. At programme initiation agree with your suppliers how you will work together and preferably document this.
- Open, honest communication will achieve the best outcome for both parties.
- Implement SRM for the top tier strategic suppliers, e.g. the top 20. Start with suppliers who want to be involved. You will soon find that other suppliers who hear about your SRM programme will want to be a part of it.
- Once you have established your SRM programme consider a periodic supplier award or another form of recognition. It supports your suppliers’ performance management processes and gives them something to be proud of.
- SRM requires a little bit of effort, but depending on how you set it up, not as much as you might think. Consider a technology platform that offers a supplier collaboration space, that helps to manage obligations using automation, and provides shared access to contract data and reports.
- Once digitised, your contract and supplier data can be surfaced by an analytics tool. Performance against your key metrics can then be monitored, and management reports can be easily produced.
“Air New Zealand has more than 4,000 suppliers who are each a vital part of our extended enterprise. We’ve been on a journey with them over the past couple of years, looking at ways we can work better together and grow our partnerships. The awards were a fantastic way to celebrate their contributions to our business and the work we’ve done together in partnership.”
– Christopher Luxon, (former) CEO, Air New Zealand
About the Author: