Strategic Supplier Relationship Management Process And Beyond

There are well published examples on using Supplier Relationship Management (SRM), or Supplier Performance Management (SPM), process to enhance the strategic relationship between the buyers and suppliers. Specifically, SRM refers to the following rules of engagement:

1. Define goals and performance targets for the supplier, and track them: borrowing from the common performance measurement index for employee, the targets must be S.M.A.R.T., namely: Specific, Measurable, Attainable, Realistic, and Timely. Some of the common measurement techniques for supplier performance are: MOQ, lead time, on time delivery percentage, cost reduction, quality / defect percentage…etc. Some of the lesser used techniques are: environmental improvement, production capacity enhancement, technical capability, reaction time for problem resolution…etc. Though the measurement may be different and must be industry specific, the goal is to provide a good basis to measure supplier against its peers.
2. Recognize top performers and top offenders: the best and the worst suppliers could be selected based on the performance targets that were set. Company could enhance the business relationship with the top performers with higher business volume, thus achieving a mutual gain situation. On another hand, immediate improvement action plan can be put in place for top offenders to minimize the impact to the company’s supply chain. Further actions can be taken to eliminate the repeated offenders.
3. Integrate the supply chain for more efficient transaction: SRM integrates the supplier into the company supply chain. The supplier will gain insights to forecast, sales projection, inventory level…etc. This allows the supplier to prepare and stock material ahead of time, instead of waiting for the purchase orders from the customer. This not only shorten the lead time to gain an edge in the ever-more competitive business landscape, but also streamline the overall inventory level, thus reduce cost.

All points above are well developed and documented for a successful supplier relationship. However, SRM doesn’t just stop there. Here are a couple lesser used concepts to reap further benefits from a well managed supplier relationship:

1. Train the customer: supplier relationship is not a one way street. Instead, the time a company spent on supplier development is as essential as the time the supplier spent on “customer development”. For example, an electronic gadget design company could invite its preferred printed circuit board manufacturer to conduct training courses on PCB design. The customer may be best in designing electronic gadget; however, the engineers can always benefit from someone dealing with PCB on a daily basis. The suppliers also treasure these training opportunities since they are given the chance to present in front of a focus group of design engineers, who are now more inclined to design according to the supplier’s specification. These are great business development opportunities that no suppliers will turn down.
2. Involve supplier in the early stage of product development: one of the many struggles for procurement professionals is company in general does not involve procurement in the early stage of product development. Instead, procurement function is deemed as an overhead process similar to accounting and finance. When the product is finally launched, the procurement department is suddenly held responsible to wring out every penny possible of the design. Instead of using higher impact cost reduction concepts such as DFA, DFM, material selection…etc, procurement officers are only left to conduct hard negotiation sessions, which is never a pleasant experience for suppliers. By involving the preferred suppliers during the product development stage, the company can ensure the best design is already a shoe-in feature, and manufacturing transition could become irrelevant, since the suppliers are already familiar with the design.

A well managed supplier relationship is essential to remain competitive in the current business landscape. It also allows the company to improve its bottom line, and direct its capital to more productive means.

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• Foundational Principles of Supplier Performance Management
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• 10-point Action Agenda for Strategic Supplier Relationship Management
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