Why CPOs need to focus on Supplier Relationship Management

Tim Williams at Commitment Matters recently posted an article discussing the results of an IACCM survey exploring buyer-supplier relationships.

The results indicate the recession may have brought buyers and sellers closer together:

46% feel that "Overall our trading partner relationships today are stronger, more collaborative, more innovative, and more mutually-beneficial than they were 24 months ago

Tim argues that large numbers of today's purchasing staff believe their responsibilities include the need for "building relationships and credibility and contributing to trading partner collaboration and satisfaction."

However, other results reveal less than 30% measure trading partner satisfaction.

5 Symptoms of poor supplier relationship management

Jason Busch at Spend Matters picked up on the theme suggesting that too many procurement groups don't prioritize an investment in SRM, and he further expanded the discussion with some thoughts on why in recession and recovery, it is important to focus on supplier relationship management.

He details 5 Symptoms of poor supplier relationship management:

1. Overall customer risk goes up

SRM allows clients to intervene more early and act on initial symptoms of issues, rather than waiting until those problems cause damage to brands, customers, revenues, etc 

2. The cost of supplier risk incidents increases

The later the client acts to address issues, the greater the cost of interventions and the higher the risk of the intervention not being successful  

3. Old measurement habits stick around

Companies that prioritize more traditional KPIs such as PPV (purchase price variance) over broader SRM metrics perpetuate assessments which ultimately retard the development of the purchasing function    

4. Procurement loses control of quality

While companies that don't focus on SRM might not see a reduction in direct inputs, they don't give themselves the best chance to build greater value for their organisation via overall supplier performance    

5. Companies pay less on a per unit basis but more on a total cost basis 

Spend Matters research indicates that companies that focus on improving supplier relationships "are more likely to encounter suppliers that come up with creative ways of reducing overall supply chain costs than those that continually focus on just unit-related metrics.    

 Author: VJ Ratnam (Decideware)