Collaboration with Stakeholders is Critical for Procurement Success

Gone are the days when we worked on procurement projects by ourselves.  Collaboration with internal stakeholders is critical for a number of reasons.

·      Alignment. Collaboration  is critical in because it strengthens the alignment between procurement objectives and broader organizational goals, leading to more effective and efficient outcomes.  The feeling is more of a shared goal and results in far more cooperation with internal customers and also helps prioritize the work.  This often begins by procurement understanding the organization’s key goals and objectives and then enlisting clients to participate on project teams to meet the organization’s sourcing needs.  And that alignment almost comes readymade when the organization sets spend reduction targets as part of the annual budget process.

·      Subject Matter Expertise. While it’s great to have your team knowledgeable and conversant in the subject matter, it is not always possible or practical.  Stakeholders often bring deep subject matter knowledge to the team, ensuring that the specifications are properly set, providing valuable insights on relevant industries and suggesting suppliers to consider that might not be on the radar screen of procurement. We still provide the framework and process for sourcing but they become an invaluable partner.     

·      Trust and Transparency.  Working on the project together, fosters trust and transparency.  Your internal stakeholders become more knowledgeable about your processes, timeline’s and how the various suppliers might meet their needs.  The developing trust and positive experiences working with procurement elevates procurement to a strategic partner encourages the client  to reach out for their future sourcing needs.  I can recall a difficult experience working with R&D where they didn’t think that we should be involved in the business.  But by working with them to problem solve and bringing the appropriate suppliers to the table for them to consider, we gained their trust and met their needs.  That same client came to rely on us and always included us when they knew that they needed help finding a critical supplier.

·      Improved Efficiency.  Working closely with your internal clients allows you to brainstorm potential solutions upfront and eliminate backtracking. Everyone works to the agreed upon plan and understands expected deliverables and timelines.  How many times have you had your project delayed or derailed because a key stakeholder was either unaware and not in agreement with key elements of the project?

Involving stakeholders right from the beginning and openly communicating goes a long way to building trust and strengthening relationships. I always maintained that we provided the business with realistic options and never picked suppliers for the business.  But by agreeing on selection criteria, we very seldom disagreed on which supplier best met our needs.  Procurement became more of a strategic partner in the business and a valuable and trusted resource to achieving organization goals and objectives. 

Setting Procurement Savings Goals

MARCH 12, 2013

Often procurement can be too focused on savings, to the detriment of other important goals such as risk management, driving innovation, talent management, and supplier diversity, among others.  But let’s face it, a big part of why companies invest in the procurement function is to put a reliable supply base in place and improve profitability.  A study by AT Kearney pegs the difference in procurement savings between leaders and laggards in the range of 33% to 50%, often representing a huge impact on the overall profitability of the organization. Over the years, I have seen a number of things that work in organizations to help them set and achieve a high level of procurement savings and wanted to share my thoughts with you.

These factors taken collectively, create the “perfect storm” and help a procurement organization achieve significant savings.  Here are a couple of things that I have experienced first hand.

• Find Your Burning Platform.  Both at Bristol-Myers Squibb and at WellPoint, we went through a period where increasing profitability was top of mind for everyone.  That made it very easy for us to get the attention of business leaders right up through the CEO, and share what we thought we could do to help.  What was important was for us to have done our homework, looking at spend data, new category strategies, specifications needing right sizing and leakage outside the purview of the procurement policy (i.e. violations or areas not previously sourced), and quantifying the upside possibilities for saving.  What we found were very receptive business leaders, especially when the only other options for them were to reduce headcount or cut back on investments in the business.

• Set the Bar High.  There is often some resistance to setting big goals for savings, for once that is done, the fear is that you will be busy day and night working to achieve the goal.  The key is to set high procurement savings goals but not so high that they are self-defeating and discourage the group.  But if you only set goals where you know exactly how you will achieve them, I would argue that you have set the bar too low and this can often be self fulfilling and limiting.  I used to enjoy reading the letter to the shareholders of GE, written by Jack Welch.  He argued that if you set small, incremental goals that you weren’t doing your job as a key leader in the organization.  It was only by setting transformational goals (e.g. 25-50% improvement) that you forced yourself out of your comfort zone and explored radical new ways to do things.  I tend to agree.  My first year at WellPoint, I inherited a savings goal of $20 million and there was panic that we would fall short.  We overshot that goal, achieving $33 million and I set the following goal at $100 million despite great push back from my team.  But I knew that we had barely scratched the surface in creating impactful and necessary category strategies, pushing on compliance and recruiting and developing the type of talent necessary to support the business.  And we went on to not only achieve that target but doubled actual savings again the following year.  We were forced outside the box and worked hard to find new ways to create value for the company.

• Enlist The Help of Your Clients.  Sourcing and achieving results is a shared responsibility between procurement and your clients in the business.  Your team should be working with their respective clients, sharing spend data, looking at their goals and objectives for the next year and partnering with them to help them be successful.  It is easy to charge ahead with your own goals and tell the business what you want them to do to help you.  But from my experience, you will gain more support from them and work on more important projects by first understanding their goals and then sharing what you bring to the table in skills and resources to support them.  I will always remember a meeting I had with the president of the Nutritional business at Bristol-Myers Squibb.  The relationship between procurement and the business was strained but when I started our planning session asking Steve what his goals were and what he thought we could do to support him and his business, things changed.  He smiled and said that this approach would open new doors for us and it did, resulting in a significant impact far beyond what had been achieved in the past.  Your clients should help you set your goals, own them with you, and be willing to put the savings commitments in their goals, just as you do in yours.  And they must be willing to put the appropriate people from their organization on the project teams to leverage their deep knowledge of their business and markets.  Alignment with your business partners is critical.

• Leverage the Deep Knowledge of Your Suppliers.  If you aren’t using your key suppliers to align with and meet the needs of your organization, you are missing a huge opportunity.  Your suppliers often know more about your business, in the niche that they serve, than you do.  They work with many customers every day that have needs very similar to yours, and have a rich database of best practices that they have seen successfully employed by their clients.  Supplier Relationship Management (SRM) programs recognize this and are part of the repertoire of all leading supply management organizations.  Don’t miss the opportunity to ask them for their best ideas or share your most pressing problems for which you would like their input.

• Talented People are Critical.  There is no substitute for having talented people in your organization.  This comes from a careful selection process that explores behavioral as well as functional skills, a recruitment process that includes targeting the best supply management schools and an investment in training and development. While it is important to have people well skilled at procurement methodology and processes, it is also important, in many areas, to have people who have deep subject matter expertise (SME). I would be the first to admit that our internal clients generally know more about their category than those in procurement, but having some of this knowledge helps build trust with your clients that you will be acting in their best interests and earns you a seat at the table.  I have found that using a blend of SME’s and pure procurement professionals can be a very successful approach.  And quite honestly, it is easier to teach a SME about procurement than the other way around.  The end product is that you bring much relevant thinking to the table when you are building impactful category strategies for the business, rather than simply reacting to what is asked of you by your clients.

Setting and achieving high and impactful goals is motivating for an organization just like being on a winning sports team.  What you will find is that your people will get more enjoyment from their jobs, procurement will be an exciting and highly sought place to work in the organization, and your staff will have many opportunities to work in new areas, develop new skills and grow professionally.

Ethics in Procurement. It’s Absolutely Essential!

JULY 19, 2013

When Susan Avery asked me to participate in a recent My Purchasing Center webcast on Ethics in Procurement, my first reaction was “What do I know about the topic that would be useful discussing with the audience?” But as I thought more about it, I realized that this is a topic that is essential to all of us as supply management professionals and something that I have very strong feelings about. I wanted to share with you some of the things we covered in the webcast.

All one has to do is pick up the newspaper and you will see, almost on a daily basis, a number of stories detailing bad ethics and poor moral judgment. Beyond the failings of Enron, BP and the sub prime mortgage debacle, of which we are continually reminded, I picked up an internet article recently that listed the top 100 corporate crime stories of 2011 and listed only a few of them. The ethical failings ranged from FDA sanctions, poor product quality and OSHA violations, to bribery, FCPA prosecutions and false advertising and product claims. And the surprising thing is that the violators are mostly very well known, large and successful companies. So, this is a topic near and dear to all types of organizations, in the US and around the world.

I thought that this definition from Wikipedia captured the essence of what business ethics is all about. And I particularly liked the references to self-interests, profits and actions affecting others.

“Business Ethics” can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affect others.

While doing some research on this topic, I found an interesting article in the HBR (Ethical Breakdowns: Why Good People Often Let Bad Things Happen. Harvard Business Review, Max Bazerman and Ann Tenbrunsel , April 2011) that dealt with the underlying causes of ethics failures.

• ill Conceived Goals. We all need to think carefully about how we set goals, as they absolutely do drive behaviors. If your procurement group rewards only those who achieve a certain level of savings goals without balance across other key objectives, you may create some bad behaviors on your team and push teamwork, and fair treatment of suppliers to the back burner. I can think of an instance where a very senior executive needed to get a system in place by a certain date or lose virtually their entire bonus for the year. As a consequence, the executive and team pushed ahead without the required due diligence. While they all celebrated the accomplishment, over the next 2 years they dealt with the problem with a bad plan, bad supplier and failed effort to bring up the system properly that touched many of our customers.
• Motivated Blindness. How many times do we see people turn a blind eye, when the unethical actions benefit us? It is only the highly ethical and courageous person who will push back and this is where a strong company culture of ethics and integrity will ensure you make the right business decisions.
• Indirect Blindness. We often soften our assessment of unethical behavior when it’s carried out by third parties. We all need to take ownership of the implications when we outsource or work with third parties.
• The Slippery Slope mutes our awareness when unethical behavior develops gradually over time. Be alert for even trivial infractions and investigate them immediately
• Overvaluing Outcomes may lead us to give a pass to unethical behavior. Examine good outcomes to ensure they’re not driven by unethical tactics.

ISM developed Principles and Standards of Ethical Supply Management Conduct and I believe that they should be top of mind for all supply management professionals. They address a number of critical areas that include integrity in decisions and actions, conflicts of interest, confidentiality and proprietary information and reciprocity, among others. You can access the complete set of Principles and Standards at http://www.ism.ws/tools/content.cfm?ItemNumber=4740

I always believed that we could benefit by sharing our procurement goals, supplier code of conduct and standards for behavior with our suppliers. That way it was perfectly clear what we expected from them and what acceptable behavior looked like. The profession has come a long way from the hard nosed, zero sum form of negotiations that can damage the relationship with suppliers and keep them from considering you a customer of choice and sharing their best ideas and access. Something I always talked about with our suppliers was fair price (for you), fair profit (for them). If you are working with the best suppliers who are continually learning and improving, this works and can form the basis of a long and productive relationship.

A big part of ethics rests on culture and visible behaviors. Let me finish with a couple of thoughts that make this work, in my view, at the best companies in the world.
• Focus on the social norms. Leaders need to model behaviors that make it clear that unethical behavior is outside the norm and will not be tolerated, within the company or from suppliers/partners.
• Results and the corresponding behaviors used to achieve those results are both important. Make strong ethics a part of what you interview for and key promotional criteria.
• Unequal treatment is the gateway to rationalizing misconduct. Walk the Talk as leaders as discrepancies only give employees a reason to act inappropriately in their own self-interests.
• No Yes Men allowed. Surround yourself with people with the courage to question if actions truly fit into the ethical culture and fabric of the company. It is so easy to go astray without this input.

While we may often think that high ethical standards are a given, it is an area that needs to be continually managed and monitored.

Shorten Your Sourcing Cycle Times

MARCH 4, 2016

There isn’t a procurement group in the world that wouldn’t like to have more resources. As the leader of procurement organizations at Bristol-Myers Squibb, WellPoint and Biogen, most members of my teams would often be working on 4-6 active projects at the same time with many more in queue that desperately needed resources. But this is not an insurmountable problem. There are many ways in which to increase the efficiency of the procurement organization without sacrificing the overall quality of the sourcing process and I share just a few things that I have seen to be incredibly impactful over my time in this profession.

1. Set Your Sourcing Limits Appropriately. There will be many purchases by your clients that will not have an impact on the company, whether that be from a cost perspective or from choosing the very best supplier. Those smaller purchases can be handled by the use of P Cards or by setting simple parameters for others outside of procurement to make intelligent supplier selection decisions. More and more companies are also putting Buying Groups or Tailspend Management processes in place either internal to the organization or more likely through outsourced arrangements with leading suppliers who have well-established capabilities and a presence around the world. This can easily generate as much as 5-10% savings on things that would likely not be addressed by procurement. Don’t sweat the small stuff when your resources should be managing the sourcing process for the more impactful buys of the company. Put your attention on that 20% of the spend that will have 80% of the impact.

2. Onboard Sourcing Projects Appropriately with Your Clients. I see too many projects started without fully understanding the key requirements of the internal client or developing the most appropriate and impactful strategy for the company. More time spent upfront will eliminate stops and starts, taking time out of the entire sourcing cycle time and more importantly, making sure that the right supplier is selected that can meet both the immediate needs of the business as well as intermediate and longer term needs. A critical part of this onboarding process is to ensure that you have buy in up the chain of command of your client group. All too often, a project approaches completion only to have a more senior member of the client organization weigh in with something that completely changes the scope or direction of the project. Get them onboard early, get their perspective and set them up as executive sponsors that can support making the project a success. Sourcing cycle times can easily be reduced by an average of 10-20% through a well thought out onboarding process.

3. Use Technology to Your Advantage. I often think back to when I was appointed to lead the Global Sourcing & Supplier Management Group at Bristol-Myers Squibb. Having just completed several years managing the worldwide SAP implementation project, I was a big believer that technology could dramatically transform the procurement organization and improve our efficiency and effectiveness. There were a number of things that we did at BMS and elsewhere to use technology to our best advantage.

• We got control of the data through the development of a global data warehouse for spend management and used this in conjunction with great spend analytics software that helped us properly classify our spend. This allowed us to properly address spend on a regional or global basis and truly understand the magnitude of the sourcing opportunities in front of us. The ability to drill down by category, country and supplier helped us set appropriate strategies with the appropriate underpinnings of the historical spend and to rationalize the supply base.

• Deploying eSourcing tools is essential. Electronic RFX and auctions can not only reduce sourcing cycle times, but will also provide the opportunity to significantly reduce costs. The process of preparing and administering RFIs or RFPs can take much of the time of a procurement group. But with the use of technology, this administrative burden can be reduced. With the right tools, RFXs can be prepared more quickly by using templates with standard sections and with the ability to better submit requests to suppliers, track supplier responses and ultimately analyze responses and proceed to the best supplier selection. And in this day of transparency of pricing in our personal lives through the use of the internet, reverse auctions provide this same capability for businesses. Not only do you ensure you are getting the best market pricing (my experience shows incremental pricing benefits of 5-10% on average), but you are also able to take 4-6 weeks of negotiations time out of the process. And this frees up resources to work on other critical projects. Leading companies are using reverse auctions on as much as 50% of their sourceable spend. If done properly, including only suppliers qualified to win the business, and with a system having the right functionality, this can be the most impactful thing a procurement group can do to improve their performance.

While I would never say that you should sacrifice speed for quality, there are many things that can be done to make our procurement organizations much more efficient. If your organization is operating at less than an 8 to 1 ROI (benefits over expenses), or is unable to support your clients as a result of lack of resources, take a hard look at how you can improve your efficiency using some of the ideas I have presented and expand the benefits that your organization contributes to your company.

High Hanging Fruit

We addressed so many challenges and enablers in our early days of scaling strategic sourcing at Bristol Myers Squibb. There included how to best build out our organization, employing a rigorous sourcing methodology, employing technology, engaging our internal customers and supplier . Read the entire article written by Purchasing Magazine here. https://aesconsult.com/wp-content/uploads/2013/01/high-hanging-fruit-bms.pdf

A Compelling Framework for Developing Your Category Strategy

JANUARY 10, 2005

I was looking through some older presentations, thinking about a good topic for my next blog and came upon this Procurement Strategy Council (PSC) hierarchy for developing a category strategy.

All too often, sourcing is approached in a simplistic fashion, and doesn’t look at the key elements to create the greatest value for the organization. While some of these tiers may at first appear self evident, let me share some thoughts on key activities you should pursue in developing your category strategies.

Understand Your Spend

• There is no substitute for deep category knowledge, in creating impactful and appropriate category strategies. That usually comes from including knowledgeable internal clients on the sourcing team, including this expertise directly in your sourcing organization for your more significant categories and/or researching the category and understanding the related best practices. I have always thought that the most effective organizations had a good balance of pure procurement talent and subject matter experts, who can be trained in our methodology and negotiation skills.

• Rationalizing your supply base has many benefits that are often not easily quantified but significant, nonetheless. Think of all the costs with maintaining your supply base: all the interactions in negotiating and managing the contracts; the complexities of your supply chain, whether that be physical or administrative; the on-going interactions of your internal clients with your suppliers; and more importantly, the lost opportunities from not creating a big enough relationship where you have some leverage, create economies of scale for your supplier, and you becoming important enough for your supplier to share innovative ideas and give your company preference in supply and service.

• Leveraging your spend across the enterprise is clearly a major driver of value, and should be a starting point for any basic supply strategy. Unfortunately, many companies do not have the basic systems or capabilities to fully understand their spend, and as a consequence, lose major opportunities for value. And in many cases, the sourcing activities are done in more of a transactional mode, dealing with ad hoc spend, rather than standing back and looking at the entire category. By looking at the value drivers in a category and determining how to assess fair value, you can structure the appropriate contracts and take much work off your plate, allowing your teams to spend time sourcing other categories.

• There is no better way to assess market pricing than by conducting on-line auctions. Often, your internal clients will strongly resist putting their spend up for auction, thinking that they will lose control of the decision making process, disrupt their business or damage a relationship. To counter this, make it clear that you will include in the auctions, only qualified suppliers (no shills just to lower price); that while price is important, it is only one of the criteria for supplier selection; and lastly, that the selection of the ultimate supplier rests with the client, obviously with input from the project team that includes client and sourcing representation and is guided by objective criteria for evaluating and selecting the supplier. My experience has been that by using auctions, an incremental 10-20% cost reduction is possible and it can reduce sourcing and negotiations time by as much as 50%. These savings in time are important in and of themself.

Understand Your Total Costs of Ownership

• That starts with understanding the needs of your internal clients and making sure that you have the appropriate specifications for the spend. All too often, your client will assume that they can get the very best of everything, not understanding the cost and supply implications of over specifying their needs. I have seen good programs of managing specifications and demand (usage) at companies where 20-30% of the cost could be taken out as a direct result of these efforts, without even addressing basic pricing.

• There are so many hidden costs to consider beyond simple unit costs. Clearly, you need to look at maintenance costs, obsolescence, usage rates, quality, etc. But also consider your company’s hidden costs in interacting with and dealing with the supplier. Is the supplier delivering the best quality and dealing with customer service issues in an efficient way that eliminates work for your company? Or is it a constant chore to get the supplier to perform in the way you expected when you signed their contract? And also consider upstream and downstream costs. Are there other subassemblies or related services that should be sourced with this spend, that create other efficiencies if bundled? I have seen much out-tasking vs. outsourcing that deals with individual components rather than the full spend, that miss significant sourcing savings for the company.

Understand Your Supplier’s Industry and Economics

• Modeling “Should Costs” can often give you a very different reference point for what a product or service should cost, eliminating the grounding that often happens when simply looking at past costs. I can remember my group looking at cans for infant formula, using this approach. What started as shock and incredulity by our suppliers, quickly turned to acceptance of some starting points, upon which we put a fair profit margin. This was one of the largest sourcing gains for this division, paving the way for more closely partnering on other spend categories. You may find that the supplier you are using is charging you a fair price based on their cost, but they may not be competitive in the industry, a good sign that a supplier switch is necessary.

• Your best suppliers should be committed to continuous improvement and sharing some of these gains with you. Some benefits will result from better planning with your suppliers. Bigger gains are often the result of improvements in supplier operations, and the best are often using six sigma and lean programs to do that. I often used a continuous improvement clause in our contracts. Sometimes requiring as much as a 5-7% year on year improvement when processes or the relationship was new and sometimes making it aspirational, keeping this in front of the supplier and reminding them that this parameter was part of their balanced scorecard and had implications for them keeping our business. It is amazing how often our suppliers came up with great cost and quality improvement ideas, simply because we measured them on this.

• Gain sharing can be a powerful tool and incentive for your suppliers and can get them to perform well beyond contractual terms, which is where you want all of your suppliers. Some of the difficulty here is separating the things that your suppliers should be doing from those types of things requiring investment and expertise on the part of your suppliers. These are the types of programs that allow you to see the very best resources and commitment from your supply base, so why wouldn’t you want to reward them for that type of commitment? The key is to determine what the specific outcome means to you, ensure that the benefits are directly attributable to your suppliers’ efforts and time bound the benefits as you may go through other changes that obviate the changes made by the supplier. If there are some shared investments, you will often see both parties recouping their investments prior to some sort of gain sharing arrangement. Always keep in mind that some of these projects may benefit the supplier in their interactions with other customers, so don’t give up the farm, especially when you are putting in some of the intellectual capital.

• Look at what is happening to profitability and growth in the suppliers’ industry. You can do that by looking at analysts’ reports and the companies’ financial statements. Knowing a company and industry’s financial health, can give you an idea of how aggressive they will be in bidding for your business. Last but not least, make sure that as you put together your annual sourcing strategies, that you partner with your clients to get ownership and buy in. Sourcing is not something you should be doing “to” your internal stakeholders, but activities with your stakeholders to assist them in achieving their goals and objectives. Gaining that buy in and partnership will take some effort but will pay great dividends in the end

SRM, the Next Logical Step

Supplier Relationship Management or SRM is still a relatively untapped area of opportunity for many companies and in many cases, badly misunderstood. A simple definition is “SRM is the process of fully leveraging your supply base to ensure that you are taking advantage of the assets, knowledge, technology and deep expertise of your key suppliers.” So often, your suppliers are in a position to see your company from many different perspectives, across multiple divisions and in many cases, how you operate across many different geographies. If you have done a good job in selecting the very best suppliers, then why wouldn’t you want to engage them to the fullest extent and get their input and ideas? When I addressed suppliers participating in SRM programs I have run, I would often say to them that they know more about the particular area in which they serve our business than we do. That comes from what they do so well for our company and for many other similar customers. And I always wanted to hear what they were doing with their best customers that they were not doing with us.

The following chart from Vantage Partners, a thought leader in SRM, does a good job in defining what SRM is and is not.

Along so many different parameters, the SRM view of the relationship with suppliers is based on mutual respect, trust and open and honest communications. This is a major step forward from the old school approach to dealing with our suppliers that was based on limited and infrequent communications, mistrust , coercion and zero sum negotiations. I will always remember sitting in on another company’s SRM forum with so many of their suppliers and the first words out of the CPO’s mouth were that the suppliers needed to reduce their prices by 5% across the board. You can imagine how that was received by the participants and what that did to their engagement.

So why am I such a big fan of SRM? I have seen what SRM can deliver, if done well. In those situations where you have sourced a category for many years and experienced diminishing returns, it is time to think about different ways to create value. SRM can uncover new ideas and ways in which to work with your key supplier/partners that you would not ordinarily find through the normal sourcing process. The time normally dedicated to the long and arduous RFP process can be invested in working with a select group of key suppliers, yielding incredible results, if done properly. Some of the activities and focus of SRM are:

• Process efficiencies for the customer and supplier. This could relate to how the companies plan and interact as well as the more technical aspects of how each company operates in producing the specific goods or services. The supplier often has many similar customers and can draw on a deep body of best practices that they have seen in the marketplace.

• New Product or Revenue Ideas. This takes Procurement to a very different place in the eyes of their company when they are participating, as they should, in driving the revenues of the company.

• Specifications and product design. Suppliers can provide important input to specifications and product improvements and provide important resources and ideas for continuous improvement.

• Demand management or what I like to call consumption and specification management. This involves right sizing the specifications and making sure that demand is monitored appropriately within the company. A simple example of this was the work we did in travel, making sure that our employees traveled with the appropriate airlines and on the appropriate class of service, with reservations made 15 days or more in advance of the travel to ensure that the very best rates were obtained.

• Joint planning. So many of the inefficiencies we see in our operations and in those of our suppliers have to do with lack of coordinated planning. This is a simple activity that will ensure that each party clearly understands their commitments and timelines for delivery, to avoid unnecessary delays, inventory builds or added costs to expedite.

• Market Intelligence. Your suppliers are a valuable source of information on the marketplace in general (sales, growth, new products, pricing, etc.) as well as for specifics on competitors.

Key components of all of these processes are a formal governance process that lays out exactly what and when you will do certain activities, a commitment to frequent and candid communications and two way feedback.

So why aren’t more companies embracing SRM? I think that many companies still see significant and measurable value through traditional sourcing and have not yet seen the pressure of diminishing returns. So many of our sourcing professionals have been measured and rewarded from the traditional activities and have a hard time devoting the time and effort to something that they are not sure will deliver value. So part of this is making sure that SRM is part of a team’s goals and objectives and making sure that you do this with a select group of suppliers who are as interested in doing this as you are. Focus on those suppliers who can have a significant impact on your business and only work on those ideas that can generate great value for both parties. And lastly, dedicate the appropriate resources to these activities across the company, and closely track your progress. Here is to SRM and to expanding the ways in which Procurement can add value to the enterprise!

Along so many different parameters, the SRM view of the relationship with suppliers is based on mutual respect, trust and open and honest communications. This is a major step forward from the old school approach to dealing with our suppliers that was based on limited and infrequent communications, mistrust , coercion and zero sum negotiations. I will always remember sitting in on another company’s SRM forum with so many of their suppliers and the first words out of the CPO’s mouth were that the suppliers needed to reduce their prices by 5% across the board. You can imagine how that was received by the participants and what that did to their engagement.

So why am I such a big fan of SRM? I have seen what SRM can deliver, if done well. In those situations where you have sourced a category for many years and experienced diminishing returns, it is time to think about different ways to create value. SRM can uncover new ideas and ways in which to work with your key supplier/partners that you would not ordinarily find through the normal sourcing process. The time normally dedicated to the long and arduous RFP process can be invested in working with a select group of key suppliers, yielding incredible results, if done properly. Some of the activities and focus of SRM are:

• Process efficiencies for the customer and supplier. This could relate to how the companies plan and interact as well as the more technical aspects of how each company operates in producing the specific goods or services. The supplier often has many similar customers and can draw on a deep body of best practices that they have seen in the marketplace.

• New Product or Revenue Ideas. This takes Procurement to a very different place in the eyes of their company when they are participating, as they should, in driving the revenues of the company.

• Specifications and product design. Suppliers can provide important input to specifications and product improvements and provide important resources and ideas for continuous improvement.

• Demand management or what I like to call consumption and specification management. This involves right sizing the specifications and making sure that demand is monitored appropriately within the company. A simple example of this was the work we did in travel, making sure that our employees traveled with the appropriate airlines and on the appropriate class of service, with reservations made 15 days or more in advance of the travel to ensure that the very best rates were obtained.

• Joint planning. So many of the inefficiencies we see in our operations and in those of our suppliers have to do with lack of coordinated planning. This is a simple activity that will ensure that each party clearly understands their commitments and timelines for delivery, to avoid unnecessary delays, inventory builds or added costs to expedite.

• Market Intelligence. Your suppliers are a valuable source of information on the marketplace in general (sales, growth, new products, pricing, etc.) as well as for specifics on competitors.

Key components of all of these processes are a formal governance process that lays out exactly what and when you will do certain activities, a commitment to frequent and candid communications and two way feedback.

So why aren’t more companies embracing SRM? I think that many companies still see significant and measurable value through traditional sourcing and have not yet seen the pressure of diminishing returns. So many of our sourcing professionals have been measured and rewarded from the traditional activities and have a hard time devoting the time and effort to something that they are not sure will deliver value. So part of this is making sure that SRM is part of a team’s goals and objectives and making sure that you do this with a select group of suppliers who are as interested in doing this as you are. Focus on those suppliers who can have a significant impact on your business and only work on those ideas that can generate great value for both parties. And lastly, dedicate the appropriate resources to these activities across the company, and closely track your progress. Here is to SRM and to expanding the ways in which Procurement can add value to the enterprise.