Extracting value from supplier relationship management | by Xavier Greyling

Xavier Greyling PhotoIn tough economic times, organisations generally turn to procurement to cut costs, and implement strategic sourcing as a strategy to generate immediate savings. However, while strategic sourcing has some benefits, these are short-lived in this regard.

A more-effective strategy for organisations to adopt is effective supplier relationship management (SRM), which is aimed at extracting long-term and sustainable value from the supply chain.

This well-known graph displays the possible erosion of benefits, as achieved through strategic sourcing, that can occur in the absence of effective SRM.

In short, SRM is a systematic, strategic approach to assessing suppliers' contributions to your business. The following, which is by no means exhaustive, are some of the requirements for effective SRM:

- Recognised and supported focus by management on post-award contract management;
- Sufficient resources for regular performance reviews;
- End-user support and commitment;
- Consistent internal processes;
- Contract-management training and support;
- Contract stability, which refers to the absence of frequent contract changes in the absence of proper review;
- Clear and unambiguous contract-clause interpretation;
- Excellent communication
- Stable and adequate technolog y
- Effective dispute resolution that lends itself to speedy and amicable solutions in the absence of punitive measures;
- Clear and agreed measurements. In respect of services, this requires clearly defined key performance areas supported by clearly defined key performance indicators (that comply with the S.M.A.R.T. principle).

The supply chain professional must possess a set of skills that ensure the success of the SRM strategy. Some of these are teh ability to:

- adopt a shared understanding between partners;
- recognise the level of cultural match between partners;
- foster high-quality relations;
- manage relationships through changes in contractual obligations;
- manage consortium-based relationship.

The SRM process consists of (at least) three significant and distinct phases:

SRM Process Xavier
Benefits associated with effective SRM

• Reduced costs: the initial costs associated with creating complex SRM programmes with vendors, who now require closer monitoring and management, is offset from the benefits derived from effective SRM. If your company has a mutually beneficial relationship with key suppliers, it can strive for cost savings over the long term. Good working relationships with suppliers not only deliver cost savings, they also reduce availability problems, delays and quality issues. Increased service also promotes customer satisfaction;

• Increased efficiency: a defined and established supplier relationship supports improved communication. It follows that suppliers gain a more-complete understanding of the businesses they serve, enabling them to meet their needs more effectively. Increased knowledge reduces delays in the supply chain, which in turn increases overall efficiency. In the event of a truly unforeseen event, a healthy working relationship between supplier and client contributes to a swifter, more amicable solution and ease of resolution;

SRM1• Minimises price volatility: fluctuations in a globally traded commodity increases price volatility. However, by adopting the principles of SRM, the advantages of fixed pricing or scaled increases in exchange for lengthier contract terms, minimum-order levels or other qualifying criteria can be applied to counter significant volatilities. The benefits of a clear and unambiguous cost base allow for set pricing structures with some certainty that often translates to happier, more loyal customers;

• Consolidation of the supply chain: a closer relationship between buyer and client means each gains intricate knowledge of each other’s respective supply chains. Both upward and downstream supply chain integration is made possible. Both parties are afforded the opportunity to being able to adapt current practices and operations to better accommodate the other culminating in even further efficiencies and operational advantages. Additional advantages include: supply base rationalisation through volume consolidation, streamlining of purchasing process and simplifying the price, sales and budgetary forecasts;

• Outsourcing certain activities: a relationship founded on trust between the parties can, in certain cases, result in some activities being outsourced to one another;

• Continual improvement of operations: a long-term relationship between supplier and buyer allows for the free flow of feedback and ideas. Over time, this creates a more streamlined, effective supply chain that could have a positive impact on both costs and customer service. Product development, new ordering processes and inventory control can become a joint venture, which can in turn deliver a range of financial and operational benefits to both parties.

Through cooperation and collaboration, buyers and suppliers can tailor their supply chain to meet their respective needs. Processes can be consolidated, costs can be reduced and the end product can be improved. Through a combination savings and efficiencies, companies can create a healthier bottom line despite underlying weakness in their sector.

Xavier Greyling is a senior associate at Bespoke, an attorney, and an MCIPS-accredited procurement and commercial strategist - www.bespoke.co.za

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Posted on June 21, 2019