The Collaborative SRM – 5 Reasons of Importance in Business Today
Ethan Healy Junior Consultant

Preface

It can be a real struggle for the procurement office to retain someone with the driven and focused capabilities to manage vendors effectively, trying to obtain value and high performance rates from them. Across the Chartered Institute of Procurement and Supply (CIPS) Lifecycle in Contract Management, there are many key attributes in order to make up the efficiencies of the procurement office, as well as the established supply chain; Contract Performance and Management, Asset Management, as well as Risk and Resilience. However, without stage 10 of this cycle – Supplier Relationship Management – it is difficult to completely fulfil these attributes of the procurement office without effective teams or individuals managing and tracking the performance, risk and contractual alignments of the vendors that are the primary focus of the CIPS Lifecycle.

So, in order to strengthen the value you obtain from supply chain solutions, you must have the supplier relationship managers, team leaders and the Chief Procurement Officer to look over these roles. This will inevitably make it easier to conduct effective management of your vendors, with the full support of any platforms in order to maximise that help for the procurement office. But how is the SRM function and the support they receive so crucial to the daily maintenance of your supply chain? We look at how you can achieve value from aligning the vendors to the business, organising them regularly, tracking their performances against the contract, and scoring their importance to the business.

1. A reduction in financial strains

Having an effective SRM in place allows you to manage the costs associated to those vendors that matter most to the business. Holding financial reviews and taking action upon invoices and contractual agreements will allow you to reduce the pressures on your ability to pay off the vendor on time, and continue strong relations. 

The financial reviews you hold will show the vendor you take the relations and continuity of services seriously. These reviews also allow for the business to outline the value they gain from the services they attain from their vendors, and therefore improve upon those costs and look for ways to reduce them. There are a number of ways you can do this, including as mentioned above, paying your vendors on time, and ensuring you consistently produce positive outcomes for the vendor, by being consistent with your meetings and acting upon the tasks at hand. 

All of this will ultimately improve the vendors’ satisfaction with your efforts to maintain relations and show willingness to allow them to continue their service. This is especially important to consider with the vendors that matter most to your strategic outlook, as well as potential partners providing their services in return for their own.

2. More costs on suppliers over internal labour

Similar to the importance of the SRM financially, it is also crucial the SRM function is in place as it is often seen that the use of suppliers incurs more costs on the business in comparison to any other factors of the business, such as Labour. Therefore, making the supply chain a priority in containing value for the procurement office should be substantially considered, ensuring you are able to improve your margins of cost savings. To prove this concept, there are a number of factual pointers highlighting the value and importance of outsourcing and procurement today.

First of all, the cloud is a prime example of why there are more costs being placed on vendors in comparison to internally, becoming increasingly in-demand across industries. According to Outsourcing Insight, 95% of SMEs had adopted cloud technologies in 2018 due to outsourcing demand, knowing the potential this easy-to-access, secure method of providing products and services would have in today’s digital age. This type of outsourcing is one of the core reasons why the SRM is so important at establishing management and decision-based performance reports for the business, whilst this cloud industry is also expected to reach 411 billion dollars in value, according to an article from Forbes

Statista also pulled across some promising facts on the rise in outsourcing across Information Technology and Business Processes as a whole. Revenue for Outsourced Information Technology was at 62 billion dollars in 2018, whilst Outsourced Business Processes was at 23.6 billion dollars, also showing how much outsourcing can be worth and how crucial it is to the everyday costs of a business. 

An increased level of outsourcing means that you need a higher level of direct costs allocated to the business strategically, in order to maintain the relations of the most important vendors. The larger your vendor portfolio is, the higher the opportunity is to attain value from your supply chain, as there is opportunity for vendor consolidation, building a range of strong relations and being a more efficient business. 

Overall, the level of costs being externally placed into these vendors means that it is of high priority to ensure financial stability. This means the SRM function is even more important in managing these costs in a collaborative, transparent manner. This not only creates a better system for justifying value for money, but also means you avoid overpaying or creating conflict between your vendors that will have bigger consequences on costs compared to anywhere else in the business.

3. Suppliers sales forces can specialise in almost anything now

The reason for this increased reliance of costs on these vendors and higher levels of outsourcing is because the vendors of today can specialise in almost anything. This allows the suppliers’ sales forces to successfully gain a large audience as they specialise in specific areas of the business with confidence. 

This increase in specialists across the vendor spectrum means it is even more of an incentive for large companies to begin to optimise certain aspects of their organisation. Businesses now have the ability to pass these on to trusted third-parties which can specifically focus on that one area, compared to having to focus on numerous areas internally. This would cause the internal part of the organisation to lose time on focusing on the confidential aspects most important to the strategic aims of the business.

So what does this mean to the procurement office? Well, they have the purpose to manage and negotiate their vendors. Therefore, keeping on top of these vendors through consistent review meetings, tracking of actions and performance against contractual agreements is essential in ensuring the specialties they emphasise across their services are being fulfilled for the sake of the business strategically.

4. An increase in strengthened procurement executive teams means increased confidence in outsourcing

More outsourcing means more cross-planning and executive leadership across relations, therefore, running these relations more important. However, in business today, there is more reason to heavily rely upon the management of these relations across the procurement office. The SRM function is becoming even more independent as another specialty and required set of skills in order to maximise the potential they can gain from their contractual agreements with their vendors. 

With this reliance and strength being placed across procurement, consistent establishment of teams consisting of the CPO, SRM Team Leaders and Vendor Managers are bought together to form the specialties to communicate, negotiate and take action upon the vendors of most importance. 

This is a business trend, and therefore organisations without this mechanism are a lot likely to struggle with the capability to add value to their supply chain, as this can cause weakly controlled vendors and a lack of tracked spending on these suppliers, losing money where it could be saved and used elsewhere in the business by the SRM function commonly found across large organisations now.

5. Damaged relations with the vendors that matter most can be saved!

In relation to the point above on how lacking vendor management can have an impact on the relations, and ultimately the value you could gain, the SRM function has a major part to play in ensuring this doesn’t happen again. 

With the right support, the SRM function can be delegated full responsibility in ensuring vendors are satisfied with the attention they get from who they serve. This will then show the third party suppliers what they mean to their clients, and overall build a strong sense of trusted responsibility in serving the services of most importance to the business. 

Having a larger supply chain across multiple departments can also strengthen the organisational structure the SRM can bring to the organisation, and therefore improve the value they gain – if your organisation trusts the vendor, the vendor will trust you! This leads to maximum communication and collaboration between the two parties, and mitigates the potential risk a bad relation could have towards the productivity and continuity of the business. 

Final words…

I hope this article helps you to realise how important it is in business today to have a strong and consistent supplier relationship management team in place. With the right funding and recognition across the business, procurement can thrive to enhance the value your business gains, ultimately benefiting your business and its’ vendors equally against your strategic outlook.

If you want to find out more about how we want to help the supplier relationship management function, and the big responsibility they have today, please contact us. We really appreciate all the feedback or questions you may have for us.

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