Supplier Management: Relationships take time to cultivate, and good ones take a lot of time. Companies that want to see the fruits of SCM must be prepared to invest time in all aspects of supplier management, including advanced reporting, auditing and relationship building. The supplier relationship manager is the tip of the spear of SCM efforts.
Contract Management: Creative relationships must be governed by creative contracts, and advanced contract management is the centerpiece of effective SCM. By employing the systems and skills required to be best-in-class contract managers, companies create significant efficiencies while mitigating the risk associated with long-term contracts.
Talent Management: When companies moved from traditional procurement practices to strategic sourcing, they identified a talent gap, and the migration to SCM will be no different. Developing the right people is perhaps the biggest obstacle to companies becoming leading SCM practitioners. A deep understanding of what skills will be required, where to find them and how to keep them is fundamental to the next generation of spend management.
Information Management: “Trust but verify” means having something to verify. The ability to gather information from suppliers, users and outside sources is a critical element of SCM. In the absence of this information the ability to understand market dynamics and what represents best of breed is lost. Furthermore, companies cannot just rely on having this information; they also must know how to read and respond to it.
Supplier Development: With the impact of strategic sourcing ebbing and the need to create savings on the rise, the final component of SCM is arguably the most important. Supplier development means the ability to apply the category expertise and supplier relationship management to identify opportunities to create total cost savings above and beyond piece price reductions.
Applied together, these functions give procurement groups the ability to create dramatic and sustainable value for their companies. But with so many parties involved, the risk of confusing the situation is elevated. The following is an example of how this approach works.
The SCM approach begins by marrying the critical skill sets within the buying organization to ensure that all of the objectives of the company are being met and that a unified front is being shown to the supply community. This approach is important for a lot of reasons, but most notably because it gives supplier relationship managers access to the category knowledge resident within their organizations.
In this example, the HR lead and the supplier relationship manager work together to develop a strategic category management strategy for the relocation services category. This includes, but is not limited to:
• An evaluation of the current state of the supplier relationship.
• A high-level of analysis of the market.
• What pricing and service improvements are required by the organization.
• How the category can be best promoted to optimize compliance.
• What information and reporting are crucial to the ongoing monitoring of the supplier.
• A plan for the future of the contract and the supplier relationship.
In putting this plan together the HR lead and supplier relationship manager will interact with both their internal teams and the supplier or suppliers. They may determine that this is a category that still needs to be rationalized by means of strategic sourcing, but for the purpose of this example, let’s presume that the company is already beyond that point.
Once the information in the plan is populated, the HR lead and supplier relationship manager team up to execute on it, with support from their respective teams. Over the lifecycle of the relationship, they combine to solicit feedback from end users, practitioners and the supplier for use by the SCM team in making improvements to the agreement and the relationship.
In this situation, the agreement can be framed as a “lifetime contract,” with safeguards put into place to avoid falling out of market. This increases the importance of both the contract management and analysis functions that will have primary responsibility for periodic benchmarking and auditing of the agreement to establish the consistency of its value.