Partnering to Win
Within the procurement and supply chain community, supplier relationship management (SRM) continues to be a major focus, and a top priority on the strategic agenda of many C-suite executives. But true SRM cannot be achieved solely through the activity of the procurement function.
To determine the specific SRM practices that deliver the greatest value, enable organisations to benchmark themselves against their peers and cross-industry leaders, and give benefit to all stakeholders, it’s necessary to form and nurture long-term relationships with the right kinds of supply chain partners and service providers -- partnering to win.
The Future Of Supplier Relationship Management In A Digital And Automated World
Supplier Relationship Management is an integrated approach, addressing both buyer and seller, which can provide mutual benefits for both sides. In a digital and automated world, SRM requires principles, processes, communications, and tools that can help organisations better manage their existing suppliers within all areas of the business, during the entire supplier life cycle.
But in the digital age, implementing a successful SRM programme can be challenging, as the adoption of the relevant technology and techniques, plus a more strategic approach to managing suppliers, requires change management, and a shift in perspective both internally and on the part of supplier.
A Supplier Relationship Management programme must be supported by the entire organisation, on both sides. Training is one of the core requirements -- both in rolling out the scheme, to educate the organisation on its benefits and the role it plays in optimising business operations, and in the specifics of how it does these things. Large-scale SRM programmes in particular require management at different levels to extend training to every employee involved, on how best to use the tools available to bring about a successful programme execution.
There are other key factors necessary for effectively implementing SRM, and building beneficial partnerships with suppliers and stakeholders.
Transparent And Open Channels Of Communication
Open and reliable lines of communication between the organisation and its suppliers are critical to keeping everyone on the same page. Maintaining a level of transparency on both sides enables each party to better understand the language and culture of the other, helping to avoid misinterpretation or breakdowns in communication. Transparency also helps to build trust and understanding in the partnership.
Agile And Flexible Contracts
Contract management is one of the most important aspects of Supplier Relationship Management -- so it’s crucial to get it right. Effective contract administration requires a centralised overview of all contracts, with tools for active data capturing and monitoring. Managers must devote time and effort to developing appropriate contract procedures, and provisions for the filing of all relevant documentation.
In delivering a great service to everyone concerned, contract managers must concentrate on building sound relationships with all relevant stakeholders. Establishing and developing long term relationships with partners can also introduce cost efficiencies, with both parties actively looking to avoid unnecessary costs associated with re-tendering, re-negotiating, or being forced to exit existing contracts early.
Improved relationships and increased interaction with suppliers will also lead to fewer incidents or issues of poor performance -- which results in lower costs for managing the relationship, and reduced costs from failures. Healthy long term relationships also provide an opportunity for buyers to engage suppliers in a process of continual improvement of the products and services they provide, and their respective service levels.
Such supplier development works best with a limited number of suppliers or preferred partners, which the organisation can more easily manage, interact with, and monitor to continuously improve or develop new products or services to gain a competitive advantage.
Demonstration Of Business Value And Achieving Outcomes
Through close partnership, both suppliers and buyers can increase their revenue growth. But the successful implementation of an SRM programme requires continuous monitoring and benchmarking, to confirm that strategic objectives and targets are being met along the way.
Particularly where procurement is involved, Supplier Relationship Management needs to communicate its effectiveness and value to the organisation, in order for it be appreciated as more than just a procedural exercise. Demonstration of business value will stem from a deep understanding of who your suppliers are, what they are supplying, and where the best value comes from.
This can be facilitated through strategic planning and execution of the programme, and the development of business-relevant and measurable KPI’s and SLA’s over the course of the contract.
Developing New Markets, Managing Risk, And Making Tactical Decisions
A key objective of supplier development is improving the capabilities and performance of existing suppliers. Through transparency and close integration with partner agencies, both buyer and seller can reap timely benefits, as processes are optimised, new techniques are developed, and technologies evolve. Working in close collaboration or through joint ventures, organisations on both sides of an SRM program can then pursue new market opportunities, sharing the market risks and growth potential.
A strategic SRM program can eliminate supply chain risk, while improving supplier services and support. But for successful implementation, procurement practitioners must make tactical decisions, and create a holistic view of the supply chain to enable them to analyse and mitigate risks in the current environment.
A number of brands are demonstrating how a successful Supplier Relationship Management programme can be run.
Dyson: Why You Should Invest In Your Suppliers
Foreign direct investment is a major driver of development in Malaysia’s manufacturing sector. Over the years, as foreign firms have built their bases in Malaysia, they’ve developed local supply chains to keep costs down, and to preserve the smoothness of their operations. As a result, these local suppliers have become major producers in their own right, employing thousands of engineers, technicians, and other workers.
Since 2003, Dyson Ltd - a UK-based producer of high-tech home appliances - has made Senai in the southern state of Johor its global manufacturing hub. Dyson has injected billions of ringgit into the Malaysian economy by outsourcing its production to local contract manufacturers, in partnerships enabling the company to produce 15 million units, which are exported to more than 75 countries worldwide.
Each partnership is founded on the sharing of knowledge, skills, and technology, because locally produced parts and components have to meet Dyson’s high standards of quality. These standards are so high that, when Dyson first decided to move its production to Johor, it had to source a lot of other parts elsewhere, because the local producers didn’t have the required capability.
As it’s in the interests of both Dyson and its suppliers to meet the standard requirements, the company has invested resources, knowledge, and skills in its supply chain partners. For instance, teaching Malaysian producers to make aluminium parts to Dyson’s stringent specifications and quality standards, and importing specific machines and tools to enable them to fulfil their contracts, has greatly increased the level of skills and technological capabilities of local manufacturers.
Dyson has also developed and tapped Malaysian talent by setting up a research, design, and development (RDD) centre in Senai. The Malaysian Development Centre (MDC) employs 1,200 people, with 80% of the workforce being Malaysian. Dyson has partnered with local universities to train graduates that meet the company’s standards, and co-developed programmes to cultivate the available talent in the country.
These investments, and Dyson’s commitment to making every product unique and cutting-edge, result in higher price levels and a sizable financial commitment on the part of the company. But the benefit is a closer partnership with local suppliers coming to an understanding of Dyson’s high quality standards.
And it’s an approach that’s profitable. In 2017, turnover jumped 40% to £3.5 billion, while Dyson’s earnings before interest, tax, depreciation and amortisation grew 27% to £801 million. Just under three-quarters of the company’s growth came from Asia.
B. Braun: Promoting Transparency And Maintaining Standards
The medical device market is one of the most regulated industries in the world, and for Braun Medical Inc. -- the 15th largest medical device manufacturer in the world -- keeping up with those requirements is a constant challenge. Government agencies, customers, and B. Braun Medical itself continue to demand greater transparency regarding its products. Meanwhile, manufacturers must keep careful track of every material and compound used in their products, to ensure they meet the relevant standards.
So manufacturers like B. Braun Medical must carefully cultivate their supply chains. And in turn, hospitals are looking for suppliers to function as holistic partners that can help them improve overall care and reduce costs.
In this light, the company engaged in an innovative programme with St. Luke’s University Health Network, a nine-hospital network with 300 outpatient sites based in Pennsylvania, USA. The collaborative scheme known as B. Braun’s Enterprise Initiatives® requires close contact and understanding with St. Luke’s, and enables strategic procurement to begin identifying potential sources for materials before the product development process even begins.
Once a supplier is approved, B. Braun Medical requests sample materials, and performs a product evaluation. If the product meets specifications and the total cost of ownership is good, B. Braun Medical will enter into a multi-year supply agreement.
Supplier management is an ongoing process. Over time, B. Braun Medical continues to measure supplier performance using metrics such as on-time delivery, quality, sustainability, cost savings, and participation in idea generation. And B. Braun Medical regularly meets with its suppliers to review these metrics, discuss the relationship between the two companies, and identify problems to address.
Telekom Malaysia (TM): Going Digital For A Win-Win
In 2018, Telekom Malaysia Berhad (TM) and Tenderin Sdn Bhd (Tenderin) signed a Collaboration Agreement for the realisation of Lapasar, one of TM’s ‘Go Digital’ initiatives to transform its traditional procurement process to a digital platform.
The procurement platform allows TM to purchase general office supplies for its business operations, providing an online and in-app purchasing platform with a real-time price comparison function and other Business-to-Consumer (B2C) features such as ‘shopping-cart and checkout’ functions.
The platform provides Telekom Malaysia with digital procurement without compromising corporate governance, while increasing the efficiency and convenience of procurement operations within a controlled environment.
With this collaboration, both partners will be exploring opportunities for creating better savings, increasing efficiency, and providing more opportunities for local vendors to grow their businesses throughout the country using digital.
Closing Thoughts
Organisations that foster partnerships and practise Supplier Relationship Management enjoy increased efficiencies through improved communications and a better understanding with suppliers. The structure and controls in an SRM programme allow both sides to identify and tackle problems more effectively.
Through closer ties and improved relationships, buyers and suppliers can increase their revenue growth, while reducing costs through greater understanding of risks and market conditions, and with a coordinated response. This leaves both parties free to develop new products or processes, explore new market opportunities, and work together for continual improvement.
(Image source: sipmm.edu.sg)
SRM and strong partnerships make good business sense. So get the most out of your supplier relationships – through improved contract management, better integration (with a preferred partner), greater transparency, and more productive collaboration.