Supplier Relationship Management

(SRM)

Produced by:
Somayeh Dejbord
Somayeh Saghi

April 2007
 Defining SRM
[1]

¾ Successful supplier management in the 21st century mandates

that the relationship between buyers & suppliers be
increasingly convinced as Collaborative Partnership.As lead
time & product life cycles plummet, & pipeline flow voracities
accelerate, supplier partnering in today's global business
environment is no longer an option but has become a strategic
requirement to maintain competitive advantage.

¾ Enhanced by Internet applications that draw buyers &

suppliers together in real time, partnering can assume many
forms based on the dynamics of supply chain. partnering can
be found among allied industries or competitor & may exist
for strategic or operational reasons.
2
 Defining SRM

¾ Whatever the formal arrangement, partnership can be

described as cooperative alliances formed to exponentially
expand the capabilities of involved in materials requisition,
procurement operating procedures & efficiencies, & product
information exchange.
¾ The increasing focus on the development of synchronized,
collaborative relationship between buyer & supplier has
evolved over time & is the result of several marketplace
dynamics.
3
 Traditional Purchasing vs. Collaborative Supplier
Management [1]

Traditional Approach SRM Partnership

Adversarial relationship Collaborative partnering
Many competing suppliers Small core of supply
partners
Contact focus on price Contact focus on long-term
quality, mutual benefits
Evaluation by Bid Evaluation by commitment
to partnership
Supplier excluded from Real-time commitment of
design process design & specification
 Traditional Purchasing vs. Collaborative Supplier
Management [1]

Traditional Approach SRM Partnership

Quality defects residue Mutual responsibility for

with the suppliers total quality management
Clear boundaries of Virtual organization
responsibility
Proprietary product Collaborative sharing of
information information
 Reasons of Supplier Partnership
Development [1]

¾ Increasing requirement for supply chain

collaboration.
¾ Changing nature of the marketplace.
¾ Increasing demand for cost control, quality &
innovation.
¾ Increased demands for risk sharing.
¾ Enabling power of Internet technologies.
¾ Focus on continuous improvement.

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 Increasing requirement for supply chain
collaboration

¾ No company in today’s marketplace can hope to survive

without strong supplier partnerships. As business continue
to divest themselves of non-competencies & increasingly
turn toward to outsourcing ,a deepening of partnering
agreements have been eagerly pursued in all industries as
fundamental to continuous improvement strategies, total
cost management, & competitive advantage.

7
 Changing nature of the marketplace

¾ The dominance of the customer, shortening product life

cycle, demands for configurable products, shrinking
lead times, global competition, participative product
design & others have altered the nature of sourcing &
purchasing & highlighted the importance of supply
chain collaboration.

8
 Increasing demand for cost control, quality
& innovation

¾ While SCM technologies have been receiving most of the

attention, Buyer are more than ever concerned about
traditional purchasing values such as quality & reliability.

¾ Customer are no longer willing to do business with

suppliers who not only can not meet increasingly stringent
product & delivery standard, but also do not possess the
capabilities to continuously unearth the new product
configurations & service management capabilities.
9
 Increased demands for risk sharing

¾ The business partnership means that the needs for trust &
risk sharing must be a serious component in any
collaborative partnership.
¾ As the cost of innovation & operation flexibility grows
exponentially, & the level of profit shrink in the face of
competition, partnership agreement for the equal sharing of
risk have become a critical method for the management of
new product development & controlling spiraling operation
costs.

10
 Enabling power of Internet technologies

¾ The age of “e-business” has had a profound impact on many areas of

purchasing, provided supply chain partners with the abilities to
closely integrate demand & replenishment in ways impossible only a
few years ago.

¾ Application supporting such concepts such as SPF(Supply Chain

Planning) & CPFR(Collaborative Planning, Forecasting, &
Replinishment)enable whole supply networks to syncornize channel
requirenments, cut costly lead times out of channel inventory
management.

¾ In addition, Web-based tools have undercut the need for traditional

purchasing functions as lengthy negotiation, requisitions & paper-
based purchase cost order.
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 Focus on continuous improvement

¾ At the core of SRM can be found to be a strong

commitment to the joint pursuit of continuous improvement
as a dynamic process rather than a static business
principle.where as mutually profitable relations between
trading partners might facilitate the achievement of common
goals, only those companies pursuing closely integrated
collaborative objectives can hope to continually streamline
the development and guarantee the availability of superior
products and services that consistently leapfrog the
competition.
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 Definition of SRM

¾ A set of business practices that involve the

establishment & nurturing of closely intertwined
relationships between buyers & suppliers.[1]

¾ The practices needed to establish the business

rules, & understanding needed for interacting
with suppliers of products & services of varied
critically to profitability enterprise.[2]
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 Definition of SRM

¾ The next generation of e-procurement or more

specifically an integration solution that bridges
product development, sourcing, supply planning,
& procurement across the value change. [2]

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 Definition of SRM

¾ SRM is the nurturing of continuously evolving, value-

enriching relationships between supply chain buyers and seller
that requires a firm commitment on the part of all trading
parties to a mutually agreed upon set of goals & is manifested
in the collaborative sharing & timely & cost-effective
execution of sourcing & procurement competencies to facilitate
the entire material replenishment lifecycle from concept to
delivery [1]

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 Definition of SRM

¾ SRM is a means of building closer relationships

with selected strategic suppliers, the purpose being
to discover added features that could enhance the
relationship while improving business performance
as the firms work in a network environment for
mutual benefit and increase the likelihood of
creating profitable new revenues together.[3]
¾ David Hope-Rose:” SRM is a religion, A creed. A
way of life”.[1]
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 The aim of SRM
[3]

¾ Using the advantages gained internally to team with

selected allies to make similar or larger gains
through a networked effort.

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 Component of SRM
[1]

¾ The mission of the purchasing in today’s

environment can be summarized as the real-time
synchronization of the firm’s supply requirements
with the capabilities of supply channel partner in
order to support customers’ demands for made-to-
order, highly quality, just-in-time goods & services
while pursuing reduction in procurement cost &
sustainable improvements in performance .

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 Component of SRM
[1]

¾ Such an approach requires the combination of

three critical components.
Strategic sourcing &
Supply management
Enabling
technologies
Customer-centric
infrastructure &
operations
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 Strategic sourcing & Supply
management
¾ Supplier partnership requires companies to look beyond the everyday
purchase of material to strategic sourcing.

¾ The goal of strategic sourcing is to find & cement close sourcing &
procurement relationship with those trading partners that account for
majority of a company’s purchasing dollars.

¾ While strategic sourcing will drive tactical decision regarding the use of
such technology toolsets as Websites & portal to decide which product to
purchase through the Internet & which through traditional mediums, the
central focus is on selecting those supplier who can support the customer-
centric objective of the company

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 Purchase Categories [3]
Commodities High impact
High •Availability is critical •Availability, quality and
•Significant leverage to influence reliability are critical
costs •Category knowledge is essential
•Purchase costs are high relative •Purchase cost is high relative to
to administrative ones administrative costs
Spend volume
Purchasing
leverage Odds and ends Specialty
•Mature industry products •New industry
•Suppliers are differentiated by •Unplanned usage
price and service •Supplier capabilities are
•Administrative costs are high important
Low

relative to purchase costs •Administrative costs are high

relative to purchase costs

Low High
Product/service complexity 21
 Strategic sourcing & Supply
management

¾ While cost control is critical element, strategic sourcing is a

comprehensive supply management process that involves:

Identifying the business requirement that cause you to purchase a

good or service in the first place, conducting market analysis to
determine typical cost for good or services within a particular supply
system, determining the universe of supplier that best meet your
requirements, determining an overall strategy to procure items in
that category, & then selecting the strategic suppliers.

22
 Strategic sourcing & Supply
management

¾ Depending on the category or type of purchasing to be

sourced, other factors, such as the depth of supplier
competencies, availability of required service, level of desired
product quality, capacity for innovation thinking,&
willingness to collaborate, can also be considered strategic
components.

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 Applying technology to the Management of
SRM

¾ The effective management of procurement has always

depended on the facilities capabilities of communication
technologies.

¾ Over the 50 years, purchasing’s ability to work with

supplier, communicate requirements, & negotiate quality,
pricing, & delivery of goods & services has been driven
by technology tools that either match or exceed the
velocity of marketplace transactions.

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 SRM –Driven Infrastructure & operations

¾ SRM requires companies to constantly deconstruct &

architect processes that can be rapidly deployed to meet
the shifting of customer requirements while focusing on
continuous improvement.

¾ In a way that was impossible in the past, internet-based

procurement toolsets have created an environment where
best practices in purchasing can be automated & applied
to he acquisition of just about any product & services.

25
 SRM –Driven Infrastructure & operations

¾ This standardization & optimization of the work of

the procurement organization extends the expertise
of a firm’s best purchasing process through the
organization & out into the supply chain.

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 Considerable Points about Suppliers
Selection[4]

¾ evaluate the change in suppliers’ supply capabilities over a period in

time.
¾ Suppliers should be evaluated with more than one criterion (e.g. price,
quality, delivery performance).
¾ design a multi-steps model for reducing the complexity of the supplier
selection problem.
¾ select suppliers which can maximize the revenue with different
procurement conditions by each period in time satisfied.
¾ identify the changing supply conditions of the selected suppliers over
the period in time for taking necessary actions.

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 Some factors for selecting suppliers
[6]

¾ Quality
¾ Cost
¾ Service
¾ Flexibility
¾ Delivery

28
 Some factors for selecting suppliers
[6]

¾ Net Price
¾ Maintain & service quality
¾ Geography
¾ Used Technology
¾ Operational Control
¾ Guaranty policy

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 Selecting the Right Suppliers
supplier relationship attribute model
[3]
Supplier
Basic Value Added Preferred Strategic
category/focus

Product or service as Impacts operational

Relationship Process expertise valued Unique advantage in valued
commodity efficiency

Operation Mode Competitive bid Performance incentive Continuous improvement Flexible, agile, collaborative

Fulfill to Deploy specific Customized expertise & Ability to assist with market
Capability
requirement competencies skills changes/demands
Information Direct linkage access to
Limited-electronic Limited-tactical dialogue 2-way Controlled
sharing parts of company database
Risk Incentives and information Process Management, shared
Contract penalties Incentives and penalties
management linkages risk/reward
Joint planning with end No end point, joint strategic
Planning Horizon Current deal Ongoing, near-term
point planning
Confident in ability Confident of execution Confident in expertise; Shared vision, ownership of
Nature of Trust
to fulfill contract performance performance agility intellectual capital
Service level Business results; shared
Metrics Compliance tracking Best practice relationship
benchmarking incentives
Customer Impact individual Impacts major number of
None to limited Enabler of quality
Interaction customers customers
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 Supplier Relationship Matrix
[3]
Strategic importance High Medium Low
Ability to collaborate
High Medium Low
electronically
Ability to provide resources for
High Medium Low
actions
Quality of past relationships High Medium Low
Ability to add network value High Medium Low
Alignment of business thinking High Medium Low
Share the same values High Medium Low
Length of relationship High Medium Low
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 Multiple Criteria by Steps in Supplier
Selection [4]

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 Total Framework of Supplier Selection [4]

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 The move of SRM is Toward:
[3]

¾ Reducing the supplier base

¾ Segmenting the suppliers in term of importance
¾ Beginning work with a few of those suppliers to
build advanced level models that will be beneficial
to both organizations

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 Uncovering the hidden costs of
procurement [3]
Acquisition Reception Possession Utilization Elimination

Cash

Total purchase
discounts
Non-Cash

Supplier •Supplier vetting •Litigation costs for •Engineering costs

Level costs breach of contract •Personnel training
•Contract costs
administration costs •System adoption
•Supplier follow-up costs
costs feedback)
•Supplier change
costs

35
 Uncovering the hidden costs of
procurement [3]
Acquisition Reception Possession Utilization Elimination

cash

•Payment-delay •External
savings or costs transportation costs

Non-Cash

•Ordering Costs •Receiving costs •Internal •Quality control •Waste collection

•Invoice and transportation costs costs
Order payment processing •Production delay
Level costs costs
•Quantity testing
costs
•Quality testing
costs
•Litigation costs for
problems with
quality

36
 Uncovering the hidden costs of
procurement [3]
Acquisition Reception Possession Utilization Elimination

cash

•Price
•Production
discounts

Unit Non-Cash
Level
•Service costs for •Inventory •Production •Cost of
installation and holding costs failure costs removing
assembly •Order picking •Product failure obsolete
•Testing costs costs costs materials
•Maintenance •Disposal
costs management
•Installation costs costs

37
 Advantages of Applying SRM
[2]

¾ Increased satisfaction of goods & services

purchased & speed up product development by
promoting a shared knowledge of suppliers
¾ Increased customer’s satisfaction to attract the
most competitive ones.
¾ Lower prices of good & services by improving
business processes across the supply chain.

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 Advantages of Applying SRM
[3]

¾ Optimize supplier Relationships

¾ Create competitive advantage and drive revenue by jointly
bringing new, better and more customer-centric solutions
to market faster
¾ Lengthen and strengthen critical supplier relationships
¾ Drive profit enhancement through reduced supply chain
and operational costs while maintaining quality

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Advantages of Applying SRM
[5]

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 created Improvements by SRM efforts in a
case study[3]

¾ Inventory turns went from 11 to 24

¾ Procurement costs improved by 17%
¾ Purchase order cycle time was reduced by 50%
¾ Automation of purchase orders went to 70% of
the total
¾ Inventories identified as excess were eliminated
¾ Suppliers rated the effort as good to excellent,
particularly in view of the shared savings

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 References

1. Handfield, Robert B.,“Introduction to Supply Chain”,Supplier Relationship

Management, 1999,pp.242-249
2. Lang A. , Paravicini D., Pigneur Y., Revaz E.,”From Customer
Relationship Management to Supplier Relationship Management”, HEC
Lausanne 2002.
3. Poirier C.C. ,”Using Models to Improve the Supply Chain”, Models for
Supplier Relationship management,2004, pp.163-181.
4. Hong G.H, Park S.C, Jang D.S, Rho H.M,“An effective supplier selection
method for constructing a competitive supply-relationship”, journal of
expert systems with applications, 2005 , pp. from 629 – 639.
5. www.SAP.com
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