The SRM Star

July 11th, 2006 at 07:45am David Bush - Iasta

I found the recent article by Ramin Tabibzadeh and Len Prokopets entitled The Five Key Elements of World Class Supplier Relationship Management that was recently published in Chief Supply Chain Officer magazine to be top notch as the five key elements echo many of the best practices that we here at Iasta believe in and jive well with our forthcoming whitepaper on Best Practices that will launch our White series on the strategic sourcing cycle, beginning in August.

In it they discuss the many new pain points resulting from strategic sourcing, outsourcing, and low cost country sourcing, including

• increased supplier reliance and corresponding risk exposure,
• ill-defined post-contract supplier management processes,
• suppliers are not held accountable for performance,
• strategic suppliers are often not truly strategic,
• companies are not managing suppliers,
• diminishing sourcing returns,
• employees are often not equipped with the required management skills and knowledge,
• formal supplier development programs are lacking,
• everybody is a vendor manager,
• procurement is not seen as maintaining its fair share of contributions, and
• systems support for end-to-end supplier management is ineffective

and why supplier relationship management needs to be improved to address these issues. That’s why we hear at Iasta are advocating Total Value Management, where risks are balanced with costs, and working on improved decision optimization technology to help you make the right decision, and not just a cost-based decision.

The authors describe five key elements which they indicate will

• maintain negotiated savings while driving incremental savings of up to 5%,
• streamline relationship processes,
• create accountability and incentives for suppliers to deliver value,
• maximize relationship lifetime value and gain competitive advantage, and
• manage supply risks and challenges effectively.

The five key elements they describe are:

• Supplier Stratification
  optimize the resource allocation across the supply base
• Supplier Development
  drive fundamental improvements in relationships regarding efficiency, quality, and capabilities
• SRM Systems
  use systems that manage data, provide standardized tools and templates, and useful, relevant reporting
• Performance Management
  use SLAs, performance metrics, and KPIs
• Governance & Organization
  define team structures, organizational roles, and responsibilities

In short, sourcing starts with analysis, proceeds to award, and continues through performance monitoring and supplier development. Without appropriate supplier management, negotiated savings can disappear.

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Entry Filed under: Functionality, General, Technology, e-Sourcing Marketplace