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Category: Procurement and Sourcing

Supply Chain News: Seven Key Principles of Supplier Relationship Management


IDC's Mickey North Rizza Says More Needed to Build Relationships, Procurement Technology Must Change


Dec. 6, 2016
SCDigest Editorial Staff

It seems to SCDigest that we do not hear nearly as much relative to the topic of supplier relationship management (SRM) as we used to, for reasons that aren't exactly clear.

So it was good to see some fresh ideas on the topic from Mickey North Rizza, a vice president at analyst firm IDC, writing in a recent issue of Inside Supply Management magazine from the Institute for Supply Management.

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The need for procurement managers to collect and analyze data relative suppliers from myriad sources is growing and becoming complex.

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"Engage with your suppliers on a continuous basis to maximize the value of interactions that lead to the delivery of goods and services to your business." Rizza writes. "It sounds simple, but when you add in thousands of suppliers to cover your indirect and supply chain spend, supplier management can become unwieldy."

To help make the task easier, Rizza offers seven principles that should drive a company's SRM program:

The Relationship is the Focus: "Earning your suppliers' trust with honest communication, listening to concerns and involving them in your processes ultimately makes them a vested partner in your business," Rizza says. Too many organizations subscribe to the "do as I say" approach when working with their suppliers, Rizza adds, continuously asking for more without engaging the supplier's own viewpoints, naturally leading to relationship challenges

A Relationship is Mutually Beneficial: Key to SRM success is making sure there is alignment between buyer and seller, Rizza says. She says there are three main causes of misalignment:

• Different definitions: If a supplier has a different definition of performance than you do, it will not meet your expectations.

• Differences in data: The data used by a buyer and a supplier must be reconciled, yielding one agreed set of data from which the relationship evolves.

• Different business drivers: If your business is trying to gain access to a new market but a supplier won't support your business in it, your market entrance will fail.

"Studies show that when procurement teams successfully align with key suppliers, the result is improved innovation, quality and reliability, as well as cost/price reductions and better risk reduction agility," Rizza writes.

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Trust is Critical for Relationship Success: "Trust means the buyer and supplier can share ideas without being compromised," Rizza notes. "Trust means that both parties will work together toward the betterment of the partnership. Trust is earned over a period of time, across multiple individuals and departments and must be constantly nurtured."

Transparency and Openness Must be the Mantra: The openness must work so that both parties benefit from the relationship, Rizza says. "Opening up about the vulnerable portions of your respective businesses allows the flow of communication to evolve from simply solving problems to designing and enhancing partnerships to deliver great value," she observes.

Business Models are Changing: The need for procurement managers to collect and analyze data relative suppliers from myriad sources is growing and becoming complex. Procurement technology must play a key role here, and be "tasked with even more responsibility as the focus shifts from spend management to supplier management," Rizza says.

Compatibility Delivers the Greatest Opportunities: Of course, not all buyer-seller relationships will really be highly compatible - and some relationships are destined to flounder or even fail.

"Compatibility needs a common ground, typically found in each partner's corporate objectives, ethics, mission statements and governance models," Rizza says. Working hard to find that compatibility can yield big benefits to both parties.

Spend Management is Only Half the Technology Equation: The technology needed to support SRM is more than the standard procurement software for spend analysis, sourcing, contract management, procurement and performance management, Rizza says. The other half of the technology story involves tools that make it easy to view and analyze your supplier. "It's about risk management and mitigating delivery, compliance or financial issues, as well as managing critical pathways to a successful partnership," Rizza writes, adding that procurement related technology vendors are finally starting to invest in these SRM capabilities.

"Managing a great relationship is the art of maintaining a successful supplier relationship through the supplier's full life cycle with your business," Rizza concludes. "Remember: Suppliers can't grow their own businesses without successful clients."

What do you think of Rizza's seven principles for SRM? What would you add? Let us know your thoughts at the Feedback section below.


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