Your Essential Checklist for SRM Success
Supplier relationship management (SRM) is a term that has become common in procurement and supply chains. SRM initiatives involve deep, strategic relationships with suppliers and, if taken to extremes, may result in integrated, co-located teams conducting new product development initiatives together, with tightly intertwined ways of working. However, amid a remorseless, multi-decade focus on costs, with procurement functions frequently asked to do more with less, many organisations have found it difficult to successfully embed and sustain SRM processes over time. In this context, we will discuss the psychology of change – analyzing, predicting and influencing human behaviour, and what impact has been made through the introduction of emerging technologies like AI, ML and Quantum Technologies on procurement processes, particularly in regard to SRM.
We will look at how two large Australian companies made the shift to a relationship-driven supplier model. Telstra, Australia's leading telecom provider, was positioning itself for international expansion. When operating globally, Telstra felt they would not be able to rely on brand or market position in the same way they could in the Australian domestic market. The company concluded that by creating a more value-focused relationship with suppliers, they could operate more effectively internationally, while simultaneously reducing complexity and duplication and boosting growth and innovation in their own operations.
BAE Systems Australia is a major ‘prime contractor’ with the Australian Defence Force. BAE developed a series of SRM procurement initiatives that enabled Australian small and medium business (SME) defence suppliers to use BAE as a springboard to develop both their technological capabilities and export performance and achieve the country’s objective of securing its own defence supply chain.
Checklist – do
SRM has several critical prerequisites. These include (i) an environment where the company has the security of supply, (ii) alignment between the business and procurement, and (iii) engagement from top stakeholders. These elements must be established first, as without them, the SRM model does not have the firm foundations it requires to succeed.
1. Understanding the problem
Telstra started by surveying 180 of their key stakeholders in order to understand problems with the existing procurement process and exactly how and why the development of SRM capability would add value to their business. Then Telstra tested their methodology using a short pilot programme, then rolled out their SRM initiative, with the goal of reaching their top hundred strategic suppliers in the next two years
2. Unity of purpose
A fundamental principle of SRM is to provide a single-point-of-contact (SPOC) for each major supplier – an individual or team who is the designated owner of the relationships between the company and that supplier. Telstra achieved this by establishing a central SRM team within the procurement function. Rather than each purchasing team meeting with the same supplier, the SRM team coordinates a smaller number of meetings that are oriented toward helping both parties to get the most value from the relationship. This helps to reduce cost, waste and duplication by ensuring that Telstra has an overview of all contact between itself and a supplier, can identify waste and duplication, and ensure appropriate contacts are made at the right place between the two companies. The company can also leverage the full extent of the relationship to obtain the best overall deal when purchasing, considering price, quality, and other factors such as payment terms or volume discounts.
3. Establishing trust
One of the key objectives for Telstra as a business was to use SRM to shift the internal perception of Procurement from a function concerned primarily with cost-based negotiation to one that sought to add value strategically by developing relationships and maintaining a continuous process of engagement with suppliers before, during and after the buying process. This objective, and strong support from the senior management, meant that, by building trust and establishing a collaborative culture, the SRM function could overcome reluctance among procurement business partners to hand over critical relationships that had taken years to develop. Since procurement business partners (PBPs) have detailed technical knowledge, and understanding of the businesses' needs, the SRM function must oversee the supplier relationship without interfering with the businesses’ requirements from that supplier. This can be achieved by maintaining open communication channels with the PBP. By demonstrating to the business that, by partnering with their supplier, Telstra could both improve its own company-wide outcomes and derive more value from individual relationships.
4. Continuous engagement
In traditional procurement driven by the buying cycle, engagement with the supplier is intermittent and market intelligence gained from that supplier is very limited. By maintaining ongoing relationships with regular, KPI-focused monthly meetings throughout the year, Telstra can remain informed about their supplier’s business, gain a deeper knowledge of industry trends and be alert to risks and opportunities that may emerge in their supply chain, such as an interruption in raw materials supply or the potential for rising prices.
5. Address wider factors in the relationship
BAE’s procurement teams work continuously with suppliers to ensure that they meet the principles and behaviours expected of ADF sub-contractors. This includes ongoing assessment of suppliers for susceptibility to bribery and corruption risks and establishment of beneficial ownership. Suppliers are also expected to adhere to standards on everything from the use of unfree or child labour to workplace harassment and bullying, to health and safety, and diversity and inclusion. These requirements are a natural development of an intensified level of cooperation with suppliers. If suppliers are seen as partners, BAE’s own level of reputational responsibility and legal liability for any untoward actions by these partners rises accordingly.
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