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Companies Confusing Supplier Performance with Supplier Relationships, Study Finds
Focus is on holding suppliers to account, rather than collaborating to create value, State of Flux reports
London — June 22, 2009 — Many organizations see supplier relationship management (SRM) as a process focused on monitoring the performance of their suppliers rather than as a collaborative, two-way relationship that can deliver value for both parties, according to a study released earlier this month by supply chain consultancy State of Flux.
The global survey of 223 procurement, supply chain and supplier relationship management executives found that almost two-thirds (62 percent) admitted that they did not have an accepted definition of SRM in their companies.
When asked about the topics most commonly discussed at review meetings with key suppliers, performance and service issues topped the list, followed by cost reduction opportunities. Business strategy and plans, new supplier products/services and value delivered came lower down the list, while customer performance — how easy the buying organization was to deal with — came last.
"Many organizations have confused supplier performance management (SPM) with supplier relationship management (SRM)," said Alan Day, managing director of U.K.-based State of Flux. "SPM is about getting what you have been promised in a contract, whereas SRM is about collaboratively driving value as part of a two-way relationship."
Day said that while good SPM yields both bottom-line savings and top-line competitive advantages that most organizations cannot afford to ignore, it is only one aspect of SRM. "Engaging proactively with your most strategic suppliers to capture innovation, jointly develop new products and services, improve the efficiency of your operations and speed up your time to market requires a much broader and more relationship based approach," he said.
Nine out of 10 respondents to the survey said SRM would grow in importance, but a significant number of procurement functions were ill-equipped to manage it effectively. Half admitted they were unable to measure the benefits, despite an intuitive belief that value was created through closer relations. Fifty-seven per cent acknowledged that the time they spent on SRM was insufficient, 47 percent had not trained staff in relationship management skills, and 53 percent did not have designated teams or account managers in place to deal with key suppliers.
"In practice, supplier relationship management tends to be an add-on to the day job of buyers and category managers, rather than a core role. When you compare this with the highly trained, well-informed and full-time key account managers on the sales side, there is a danger of a real imbalance in the relationship," said Day.
The global survey of 223 procurement, supply chain and supplier relationship management executives found that almost two-thirds (62 percent) admitted that they did not have an accepted definition of SRM in their companies.
When asked about the topics most commonly discussed at review meetings with key suppliers, performance and service issues topped the list, followed by cost reduction opportunities. Business strategy and plans, new supplier products/services and value delivered came lower down the list, while customer performance — how easy the buying organization was to deal with — came last.
"Many organizations have confused supplier performance management (SPM) with supplier relationship management (SRM)," said Alan Day, managing director of U.K.-based State of Flux. "SPM is about getting what you have been promised in a contract, whereas SRM is about collaboratively driving value as part of a two-way relationship."
Day said that while good SPM yields both bottom-line savings and top-line competitive advantages that most organizations cannot afford to ignore, it is only one aspect of SRM. "Engaging proactively with your most strategic suppliers to capture innovation, jointly develop new products and services, improve the efficiency of your operations and speed up your time to market requires a much broader and more relationship based approach," he said.
Nine out of 10 respondents to the survey said SRM would grow in importance, but a significant number of procurement functions were ill-equipped to manage it effectively. Half admitted they were unable to measure the benefits, despite an intuitive belief that value was created through closer relations. Fifty-seven per cent acknowledged that the time they spent on SRM was insufficient, 47 percent had not trained staff in relationship management skills, and 53 percent did not have designated teams or account managers in place to deal with key suppliers.
"In practice, supplier relationship management tends to be an add-on to the day job of buyers and category managers, rather than a core role. When you compare this with the highly trained, well-informed and full-time key account managers on the sales side, there is a danger of a real imbalance in the relationship," said Day.
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