Programmes of Supplier Relationship Management (or SRM) are designed to create a closer working partnership with your critical and strategic suppliers. This should result in better value for both organisations. However, there are mixed views as to whether the benefits exceed the potential risks.
Arguments for SRM
– Eliminates waste and barriers to effective service. Contracts set out what has been agreed between the buyer and seller in terms of what will be delivered and for what price. In practice waste can be created due to inefficiencies in how the processes, systems and ways of working of the two sides come together. A SRM programme can identify these sources of waste and eliminate them, creating lower costs and improved service.
– Builds mutual dependency. If both sides value the benefits they get from the relationship created by your SRM programme then they acquire an expectation that the relationship will be long-lasting. This means that in times of scarcity, your organisation is unlikely to affected by any need for the supplier to ration their output.
– Encourages investment. If critical and strategic suppliers in your SRM programme see that it creates value for them and that the business relationship is likely to be a long one, then they are more likely to make investments that increase their capacity and capability to deliver what you need.
– Motivates suppliers to go the extra mile. Arms-length and adversarial supplier relationships in which every problem is seen to belong to the supplier create disillusionment and disinterest for them and result in a lack of motivation. SRM programmes create a shared responsibility and this fairness translates into motivated suppliers who go out of their way to help you.
Arguments against SRM
– Creates barriers to exit. Long-term relationships with key suppliers that build dependency (for example by investing in shared IT systems) can create a barrier to switching suppliers. The risk is that new entrants to the market are discouraged and you may miss out on innovation from other suppliers.
– Makes it difficult to test the market. It is economically healthy to test your current prices and sourcing solutions from time to time against alternatives. If your SRM programme has, in effect, created a bespoke solution then you may not be able to find a comparable alternative to test whether you are still getting value for money.
– Can result in complacency. A long-term relationship with key suppliers can result in both sides becoming over familiar with each other. The result of this can be an acceptance of the status quo ways of working with new ideas drying up.
– Need to select the right supplier first time round. Obviously, if you are going to enter into a long term relationship with a supplier and implement SRM it is vitally important that you make this selection on the right criteria as it will become increasingly difficult to swap suppliers if a better one emerges later. Treat choosing SRM suppliers as if you were going to marry them. Easy to do but with dire consequences later on if the choice was wrong!