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Achieving results through Supplier Relationship Management

Many organisations are now talking about implementing supplier relationship management (SRM) yet some are unclear about what it means or how to achieve it. The purpose of this paper is to share how ALLIANTIST views SRM. We also offer our thoughts on how SRM integrates into a broader theme of creating value from a procurement capability.

The drivers for change in the way organisations work with their suppliers are increasing; growing internal pressures to do more with less mean many now look to their supply base to take on extra work. Some organisations have decided to focus on their core competences and outsource not just non-core but also higher risk activity close to the core. Compliance based forces for listed firms also mean they now need to get a better understanding of their material relationships. In addition, suppliers are also getting smarter about whom they work with and how, and in particular where they share their best ideas and resources. So buying organisations are right to start thinking about not only ‘whats in it’ for them, but also ‘whats in it’ for the supplier too as this is at the heart of effective supplier relationship management.

ALLIANTIST defines SRM as “the activities undertaken by an organisation with its suppliers for mutual and sustainable benefit over the life of the relationship”. The
emphasis here is on ‘with’ not ‘to’ and ‘mutual’ not just buyer benefit.SRM can be led or facilitated by the procurement function but must incorporate all parts of the
organisation that engage with suppliers. The benefits of SRM when done well can include far greater strategic return on investment than traditional arms length sourcing behaviour. Thesebenefits, measured over the lifetime of the relationship, can include:

• Greater whole life cost savings and improved profitability for all parties, for example through collaboration on design, build and ongoing management of products and
services supplied

• Lower management costs and fewer issues from supplier activity across the buying organisation by providing a co-ordinated process that makes doing business together easier and more transparent

• Improved risk management and heightened compliance for registered organisations affected by Combined Code, Operating & Financial Review and Sarbanes Oxley legislation

• Being differentiated by the supplier from their other ‘customers’ and gaining greater rewards and investments through being their first choice for sharing new ideas and

As can be seen from the graphic on our site, benefits are achieved by traditional ‘adversarial’ or ‘promise based’ buying behaviour although smart suppliers see through it and value is quickly eroded in organisations that are not joined up. The introduction of strategic sourcing activity has no doubt increased the returns for buying organisations. owever without sustainedrelationship investment and an effective relationship architecture underpinning it, negotiated deals also have a habit of being worn away. The only way to maintain and grow value obtained by strategic sourcing is to invest in the relationship through SRM…

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