Many organisations spend significantly more than 50% of their income on buying in goods, services and works. But it is a sad fact that many of these fail to realise the critical importance of managing their suppliers, almost neglecting it (or leaving it as something that the Procurement department does in its spare time), whilst applying significantly more effort to managing their in-house activities.
In contrast, successful management of this bought-in spend (and therefore of the suppliers who provide the goods, services and works) should be a key activity and will create huge value for the organisation.
It’s all very well choosing the right suppliers and getting the best deals (applying the principles of Strategic Sourcing will do this), but actually choosing a supplier and signing a contract delivers no value at all. It’s what happens next that is critically important – the chosen supplier must be managed in the right way to deliver the value expected from the deal. And this is done by applying the principles of Supplier Relationship Management, or SRM.
SRM is all about managing suppliers in the right way. A few, carefully chosen strategic suppliers will need to be managed closely through a collaborative relationship. Others will need attention to ensure that quality and other performance targets are met. Yet more will only need to be managed by exception – if something goes wrong. The following diagram shows what will happen in practice. If you neglect your suppliers, then after a few months all that extra value you thought you had created when you signed the contract will have faded away. If you collaborate with your strategic suppliers, however, not only will you capture that value but you will find ways to create yet more.
That is why SRM is so important!