Wednesday 20 March 2013

Supplier Relationship Management: Crucial to Supply Chain Success and EPS

Authored by Mickey North Rizza 

Much has been written about Supplier Relationship Management (or SRM), from the process of SRM, to the value of SRM, to issues with SRM. SRM is crucial to improving operating margins, return on invested capital, return on assets and earnings per share. But few companies focus on the value that can be derived from their supplier relationships. A few months ago I had a discussion with a client on how to improve their supplier relationships. When I asked what the issues were I received the following responses: 

1. Our suppliers do not listen to us. 
2. Our suppliers do not deliver what we request. 
3. Our suppliers would rather work with competitors rather than us. 

I didn’t ask for specifics, but the more I listened the more I discovered this business was dictating their needs to all suppliers regardless if they supplied nuts and bolts, packaging, housings or electronic components. I asked the VP of Sourcing and Procurement if they had ever heard of supplier segmentation. The answer was a resounding “no.” So we started peeling back the onion and much to their delight, they discovered suppliers are not all equal; supplier issues may or may not impact the supply; and suppliers do want to satisfy demand, but conflicting signals within the company can impede progress. Perhaps most surprising to this team was the fact their suppliers want to be treated as trusted partners and reap the value along with them of satisfying their clients demands. 

The process has begun to assess suppliers, their respective capabilities and attributes and tie them to the products and supply chains that can support them. The company has a long way to go, but this simple focus on what the supply base can and cannot do, how it is viewed and how it is managed was a great lesson. The company is now re-evaluating its supply base looking for opportunities to strengthen relationships, bring more collaborative value and ultimately impact the company’s EPS.

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