Supplier Relationship
Management
Description and Benefits
Definition
The SRM process aligns, provides
structures, and manages the supplier
relationships.
Supplier Relationship Management Description
• Aligns and integrates
• process, information and cash layers within supply chain networks
structure
• social networks & cultural value systems
• process oriented (horizontal) framework within supply chain
networks
• Plans, resources, directs, confirms and adjusts the
relationship between company and key suppliers
• Develops the network bonds of trust, commitment,
cooperation & dependence
• Balances the levels of power within supply networks
• Contract Administration is genesis process for SRM
Outcomes of Supplier Relationship Management
• Integrates external organizations into company’s cross
functional teams
• Develops an environment of trust between company
Suppliers and Internal Customers
• Manages external functions to meet business objectives
• Ensures relationship is mutually beneficial
• Engages talent and skills of suppliers personnel in
achieving company’s business goals
• Extends company’s influence on suppliers supplier
• Deliver maximum value to company
Supplier Relationship Management Process
Enablers of Supplier Relationship Management
• Effective contract administration processes
• Agreements purposely structured for SRM
• Aligned values between company & Supplier
• Skilled, trained and capable personnel
• Leadership that supports & believes in SRM value proposition
Key Indicators of Maturity - SRM
• Foundation: (Defined)
– Basic RM processes, programs, and structures for the organization are defined and
documented, however, are not duplicated in supplier’s organization.
– Company and supplier relationship managers are identified and documented.
• Basic: (Managed)
– RM participates early in Strategic Sourcing processes.
– For each relationship, a balanced, two-way set of RM process measures is in place.
– Performance review is on a regular and formal basis with actions and follow ups
management.
• Advanced: (Leveraged)
– RM processes are well defined, implemented, and duplicated in most relationships.
– Open information sharing about relevant criteria, such as capacity and demand
forecasting, facilitates cross-enterprise decision-making.
– Cross-functional RM teams review optimal rationalization measures for alignment
with organization strategy and strategic sourcing plans.
– Key relationships begin to duplicate process in own organization.
Level 1 – Ad Hoc
Supplier Relationship Management (SRM): Maturity Level 1 Ad Hoc
SRM Bus
Mgmnt.
Team
Functional
Sponsor
Relationship
Manager
From
SS
0010.1
Build
Relationship
Charter
SS
Handoff
0010.2
Organize
Stewardship
To
SCD
Performance Management
0010.5
Monitor
0010.6
Sustain
And
Manage
0010.3
Organize
RM Team
0010.7
Continuous
Improvement
SRM is a very manual, unpredictable, time consuming process that
is largely undefined and left up to individual methods and
preferences.
No forecasting or planning takes place for the relationship.
Suppliers are not involved in anything but “filling the order”.
Communication is one-way and in response to requests from
internal customers.
Contract
Admin
0010.4
Operate
Feedback / Improvements
Supplier performance is not evaluated through any formal process.
Customers
Information flows are unreliable. Information on the relationship is
difficult to find and often resides on spreadsheets in individual
computers.
Suppliers
IT
Systems
IT
System
Level 2 – Defined
SRM is defined but still unpredictable with >50% of the suppliers
not in SRM and largely uncontrolled.
Basic relationship forecasting and planning takes place but by the
SRM people without customer or supplier input. 40% accuracy is
typical.
Suppliers are mostly involved only in response to a request but
some key suppliers have annual agreements with releases being
generated by procurement.
Only these key suppliers are involved in process or product
improvement. Others are asked for input on occasion.
Communication procedures are defined (quarterly meetings,
identified points of contact, frequency, etc.)
Supplier performance is defined but measures are unreliable.
Quarterly reviews are done with key (strategic) suppliers only.
Information flows are manual. Information on the relationship is
easier to find
and resides in a central repository (often a file cabinet).
Supplier Relationship Management (SRM): Maturity Level 2 Defined
SRM Bus
Mgmnt.
Team
Functional
Sponsor
From
SS
0010.1
Build
Relationship
Charter
SS
Handoff
To
SCD
0010.2
Organize
Stewardship
Performance Management
Relationship
Manager
0010.3
Organize
RM Team
0010.6
Sustain
And
Manage
0010.5
Monitor
0010.7
Continuous
Improvement
Feedback / Improvements
Contract
Admin
0010.4
Operate
0010.4
Operate
Customers
0010.4
Operate
Suppliers
IT
Systems
Level 3 – Managed (Linked)
PO
System
Supplier Relationship Management (SRM): Maturity Level 3 Managed
SRM performance is predictable with >80% of the suppliers in
an SRM process.
Relationship forecasting and planning takes place by the SRM
people in collaboration with the customer and supplier. 80%
accuracy is typical.
The majority of Suppliers are involved in process or product
improvement. Supplier are often involved in annual planning
and budgeting discussions.
Joint communication processes are in place and
institutionalized. Formal relationship structure are in place on
both sides (Executive Sponsor, Relationship Manager,
teams, etc.)
Supplier performance is defined and measures are aligned with
strategy.
Relationship performance reviews are a continuous process.
Information flows are connected. Information on the
relationship is easily available on line.
SRM Bus
Mgmnt.
Team
Functional
Sponsor
Relationship
Manager
Contract
Admin
From
SS
0010.1
Build
Relationship
Charter
SS
Handoff
0010.2
Organize
Stewardship
0010.6
Sustain
And
Manage
0010.5
Monitor
0010.7
Continuous
Improvement
0010.3
Organize
RM Team
Feedback / Improvements
0010.4
Operate
0010.4
Operate
Customers
0010.4
Operate
Suppliers
IT
Systems
To
SCD
Performance Management
IT
System
Matching PM and CI
SRM performance is predictable and variability is reduced. 100%
of the suppliers are in an SRM process.
Relationship forecasting and planning takes place by the SRM
people and suppliers Often manage this process without company
involvement.
80% accuracy is a minimum requirement.
Suppliers are involved in process or product improvement and
often lead this effort.
Suppliers are a formal part of the annual planning and budgeting
discussions.
Communication across companies is almost “frictionless”. Trust is
high and an “open book” environment exists. Company
relationship structure run together.
Supplier and Company performance is clearly defined and
measures are aligned with both strategies (suppliers and
company).
Relationship performance reviews are “two-way”, sometimes lead
by the supplier.
Information flows are integrated. Two-way Information on the
relationship is easily available on line.
Level 4– Leveraged
Supplier Relationship Management (SRM): Maturity Level 4 Leveraged
SRM Bus
Mgmnt.
Team
Functional
Sponsor
0010.1
Build
Relationship
Charter
SS
Handoff
0010.2
Organize
Stewardship
To
SCD
Performance Management
0010.5
Monitor
0010.6
Sustain
And
Manage
0010.7
Continuous
Improvement
0010.3
Organize
RM Team
Contract
Admin
0010.4
Operate
Feedback / Improvements
Relationship
Manager
From
SS
Customers
Suppliers
IT
Systems
Level 5 – Optimized
IT
System
Supplier Relationship Management (SRM): Maturity Level 4 Leveraged
SRM Bus
Mgmnt.
Team
Functional
Sponsor
Relationship
Manager
From
SS
0010.1
Build
Relationship
Charter
SS
Handoff
0010.2
Organize
Stewardship
To
SCD
Performance Management
0010.5
Monitor
0010.6
Sustain
And
Manage
0010.7
Continuous
Improvement
Feedback / Improvements
Suppliers are active and formal members of the process teams.
Suppliers share responsibility for performance improvement.
Suppliers share in the rewards of performance improvements.
Customers share responsibility for performance improvement.
Customers share in the rewards of performance improvements.
Suppliers and customer IT systems are deeply connected (two way
interaction) with your IT systems.
Suppliers, customers and the process team members feel like they
are “all in this together” in regards to process performance and
improvement.
Process management and optimization across the network is a
major focus.
0010.3
Organize
RM Team
Contract
Admin
0010.4
Operate
Customers
Suppliers
IT
Systems
Shared IT System
SCM Maturity and Associated Performance
Optimized
400
1
1
1700
No. of Suppliers
Per $B Spend
0.7% of Spend
Procurement
Costs
1
54
No. of FTEs
Per $B Spend
RM Processes
LT<40%
SS<40%
PO>40%
4.0
Leveraged
(Integrated)
3.0
3
Anticipated Performance at the Top Maturity Levels
ROI = 20% ROCE = 19.5%
300
2
Managed
(Linked)
Suncor Performance at Current Maturity Levels
ROI = 16.5% ROCE = 16%
2.0
SCM Maturity
200
Defined
7700
No. of Suppliers
Per $B Spend
1% of Spend
Procurement
Costs
104
No. of FTEs
Per $B Spend
RM Processes
LT=1
SS=1
PO=1
1.0
Ad Hoc
100
4
6
8
10
12
Performance
1.
Source: “Procurement: Current Benchmark Findings.” The Hacket Group, 2004
2.
“The Quit Revolution in Supplier Management.” Aberdeen Group, 2004
14
16
18
LT = Leadtime
SS = Safety Stock
PO = Perfect Order
3. A Presentation to SCC Members “Supply Chain Practice Maturity Model and Performance Assessment”,
The Performance Measurement Group, November 6th, 2001.
20
SRM Results
Supplier Improvements from
Measurement Programs