Supplier Relationship Management

Peter Frederiksen

Student thesis: Diploma thesis

Abstract

Ensuring the best prices through strategic sourcing is no longer perceived as a strategic capability of the procurement function. As a result of further outsourcing of non-core competencies, organizations are starting to realize that they have become more reliant on suppliers in terms of innovative power, security of supply, corporate social responsibility, and on-going cost savings. Strategic partnerships are at the top of the corporate agenda of many global organizations and Supplier Relationship Management (SRM) is seen as one of the few remaining procurement topics that can still make a significant difference. Many organizations encounter difficulties in initiating, developing and managing partnerships. In particular, leadership and soft skills are mentioned as primary reasons for failure, alongside technical & functional competencies. I will initiated a study on SRM to gain a better understanding of the typical challenges involved and to determine how supplier capabilities drive competitive advantage. The most important SRM objectives are leveraging supplier capabilities, delivering cost savings and reducing supply risk exposure. Many companies have a formal segmentation process in place; with spend size, product/service importance and risk exposure as the most important segmentation dimensions. While the benefits of SRM are acknowledged, the average SRM maturity level is still low. The top-three challenges seen in the literature are an overemphasis on cost reduction, a lack of specific SRM competences and insufficient alignment between the business, procurement and supplier. Typical best practices are quantification of benefits and costs (ROI), proactive and two-way performance management, and documented supplier strategies per segment. Benefits measurement, executive sponsorship and strategic coherence are indicated as the most critical success factors. Technical/functional, relational and developmental competencies must be balanced and continuously developed. HD Supply Chain Management, Afsluttende projekt, d. 20. August 2018 5 Innovation, sustainability, leagility and resilience are seen as the key drivers for SRM value creation. Current SRM programs already contribute to performance management and risk exposure reduction. The indication is that there is a positive correlation between the presence of SRM and an increase in market share, responsiveness to market changes, increased return on investment and shortening order fulfilment lead times. Nearly all self-respecting procurement organizations have a stated intent and commitment to do more in the area of supplier relationship management. For all the right reasons: Without SRM, negotiated savings may never be realized. The business might consider procurement “missing in action” when something goes wrong, and Suppliers may begin to see procurement as just negotiating, and not involved in the real business. As a result, they might not make their best effort going forward, let alone be proactive in offering innovative suggestions. The call to do more with SRM is not new, so is it not about time we actually started doing more and talking less? The answer is yes, but the process is not easy and some help and input on the following could be valuable: The capabilities and composition of the procurement team might need to change, The team’s orientation may need to be adapted (with a view to primarily selling the Company to suppliers to get the best inputs first), Time allocation could need tweaking (spending more time with suppliers than with the procurement team), and Roles and engagement with internal stakeholders might need a review (essentially, Inserting procurement into a business-centric relationship). Put simply, being able to negotiate a deal does not mean a buyer is able to manage a relationship, nor is it possible to ensure premium access to suppliers in a contract. So our team and our toolkit need work. The time is now for procurement to start doing what it has been meant to do for a long time.

EducationsGraduate Diploma in Supply Chain Management, (Diploma Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages98
SupervisorsThomas Frandsen