Vendor relationship management - Wikipedia
Partner relationship management (PRM) is a system of methodologies, strategies , software, and web-based capabilities that help a vendor to manage partner. Supplier relationship management (SRM) is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply. Welcome to the SAP Supplier Relationship Management (SRM) and Procurement topic. With SAP Supplier Relationship Management, you can.
Despite these gains, companies today face intensifying competitive and global pressures, and are responding by pushing the boundaries of outsourcing and low cost country sourcing in a quest for further cost reduction. Even as they seek new opportunities in sourcing, leading companies are finding themselves dependent on an increasingly complex supply base, with the need to drive further cost and performance improvements, manage supply risk, and streamline costs of supplier interaction.
These companies are developing a new set of Supplier Relationship Management SRM capabilities — including processes, governance mechanisms, and systems to manage suppliers on a day-to-day basis over the full relationship life-cycle.
Early adopters of SRM are realizing savings in existing relationships, remediating relationships that are not working, working with suppliers to build joint capabilities and improve joint processes, effectively managing supplier risk, and reducing internal costs of supplier management. The New Supply Environment: For organizations that are applying strategic sourcing, outsourcing, and low-cost-country sourcing, the supply environment has changed or is changing dramatically.
These efforts have created more concentrated supply bases, often with a handful of large suppliers playing a major role in supporting the organization.
Further, these efforts have shifted business critical processes and value chain activities that had previously been performed internally to outsourcers creating new major supply relationships that are often vital to operational continuity. Accelerated product cycles, vastly more sophisticated supply chains, rapid pace of process and systems change, and the need to work seamlessly with offshore suppliers have made effective supplier relationship management more demanding and more critical than ever before.
Simultaneously, for many companies, a large portion of external spend has reached a mature state after one or more waves of aggressive sourcing.
Spend consolidation, improved supplier selection, spec rationalization, and shrewd negotiation have yielded impressive benefits. However, in categories where these techniques have been applied, further year-on-year improvements through repeated sourcing are likely to provide diminishing returns — fundamental improvement in supplier relationships and joint processes will be required to address remaining inefficiencies. In many companies, the procurement function, traditionally the owner of transactional purchasing, has taken on a broader role leading the business through application of strategic sourcing and outsourcing in category after category, spreading procurement best practices.
In addition, many companies have adopted best practice models for strategic sourcing and many have deployed procurement systems to support the sourcing process and streamline on-going purchasing activities. However, procurement is rarely the gatekeeper for all procurement activities — far from it.
In many large organizations, individual functional groups, such as IT, HR, and Logistics, having gone through the sourcing process with the help of the procurement organization, have now built their own sourcing skill sets and a deep understanding of the supply market, often choosing to drive sourcing activities without inviting the procurement organization to the table.
Furthermore, many product manufacturing organizations have gained a high degree of competency in outsourcing and offshoring production, often in a complex, multi-tiered supply environment. Many organizations have been successful at establishing the new supply environments and obtaining savings through negotiation of new contracts. However, few organizations are adept at or prepared for managing the new set of supplier relationships they have created.
Supplier Relationship Management Challenges: Many companies that have transformed their supplier environment in recent years advanced procurement techniques experience a common set of pain-points and challenges: Increasing reliance on suppliers and exposure to supplier risks: While risk management has received significant boardroom attention, in most organizations, supplier risk remains largely unmanaged while reliance on suppliers and exposure to supplier risk continues to increase dramatically.
Increased focus on strategic sourcing, outsourcing, and low-cost country sourcing has transferred to suppliers many activities that were previously performed in-house and has simultaneously driven consolidation in the supply base.
The result has been dramatically increased reliance on key suppliers, often accompanied by development of more complex supplier interactions with growing numbers of touch-points and dependencies. Many companies do not have a comprehensive view of the risks associated with their supply base, nor do they have a well-thought-out, repeatable approach to managing these risks. Furthermore, it is not clear who in the organization has the responsibility to evaluate and manage supplier risks, what risk conditions should trigger actions or, even what those actions should be.
Ill-defined post-contract supplier management processes and roles: Processes and roles post-transaction are ill-defined, often inhibiting further performance improvements, limiting value from supplier relationships, and making performance gains difficult to sustain.
Vendor relationship management
In many large and even mid-sized companies, the sourcing discipline is well established and repeatable enabling companies to lock in savings in category after category. However, while typical sourcing methodologies provide guidance leading up to execution of a supplier contract, once a contract is signed and the relationship moves into ramp-up and operation phases, there is remarkably little clarity and definition around what management processes must be in place, who within the company is and, equally importantly, is not responsible, how executives should be involved, how management activities can be conducted in an efficient manner, and how the relationship can be managed.
In such environments, supplier relationship activities are little more than a series of reactive firefighting exercises with duplicated effort across the organization, with little management transparency of what actions have been taken or will be needed. The result is relationships that are inefficient and fail to harness the full capabilities of the supplier translating into increased lifetime costs. Suppliers are not accountable for performance — the organization is left holding the bag: While hundreds or even thousands of supplier metrics are tracked and reported, performance problems can persist and organizations often do not recoup resulting costs.
While contracting with a supplier after a major sourcing effort often locks in significant savings, it also locks in a number of headaches and challenges. This results in contracts that do not hold suppliers accountable, that do not motivate suppliers to improve, and that omit actionable steps the organization can take to improve supplier performance.
As a result, many organizations find themselves with contractual Service Level Agreements SLAs that are not aligned with business value drivers, few, if any individuals that understand what suppliers are actually accountable for, and a lack of clarity in what actions should be taken when issues occur. The result is significantly diminished value from the supplier relationships, lost opportunity in recouping costs from ill-performing suppliers, and frustrated employees who know that suppliers are underperforming, but can not correct the problem.
Strategic suppliers are not truly strategic: Most organizations can not precisely identify which suppliers are truly strategic or even how such strategic supplier relationships should be managed, leading to an inability to effectively focus resources or realize strategic value from the supply base.
When managed effectively, strategic relationships can deliver impressive returns and competitive advantage to both companies and their suppliers.
Through strategic relationships, companies and their suppliers can drive lower total lifetime costs while allowing suppliers to profit, can reduce risk for both parties, can help create advanced joint capabilities not available to other competitors, and can provide strategic options for additional value for both parties. While most organizations are proud to declare that they view some suppliers as strategic, few organizations can describe the implications of making a supplier strategic.
Many organizations have not formally spelled out a set of expectations for what makes suppliers strategic, how such suppliers will be managed differently, and what suppliers must deliver in return to maintain their strategic status.
Furthermore, in many organizations, asking 10 individuals to name the strategic suppliers will yield 10 different answers. As a result, many organizations manage strategic and non-strategic suppliers in an undifferentiated fashion, resulting in too much time wasted on non-strategic suppliers while little strategic value is derived from strategic relationships.
Companies should manage suppliers vs. In the absence of a clear set of supplier management processes and roles in the organization, suppliers are often able to set the agenda and canvass the organization to build business. Major supplier relationships tend to have multiple facets and touch points — operational, contractual, financial, executive-to-executive, etc.
While the organization can gain value from consolidating business with key suppliers and forming strategic, multi-faceted relationships, such relationships should be defined in a structured transparent manner rather than through a free-for-all sales frenzy, that can distract many individuals across the organization, consume a lot of time, and lead to poor procurement choices.
While initial aggressive sourcing in a category has for many companies yielded dramatic savings and other benefits, sustaining those benefits and attaining further reductions can be difficult without effective SRM.
However, re-sourcing categories where significant savings have already extracted often yields disappointing returns and often has a very poor ROI.
This is because once spend is consolidated, specs rationalized, excess supplier profit margins removed, and work offshored where applicablesourcing offers little on-going opportunity. In order to unlock the next layer of savings, companies are finding that they must address the structural and process inefficiencies in supplier relationships and collaborate with suppliers to improve joint capabilities.
SAP SRM - Supplier Relationship Management - SCN Wiki
Employees are not equipped with supplier management skills and knowledge: Procurement brings to bear resources with transactional or sourcing skill sets, operations brings to bear resources with functional and people management skills — none are a good fit for day-to-day supplier management.
In most organizations, the personnel responsible for on-going supplier management are the same individuals who drove strategic sourcing and those who managed internal functional departments before they were outsourced. In both cases, such individuals often lack both the knowledge and the skills required to manage supplier relationships effectively.
Procurement personnel are trained in sourcing methodologies, negotiation, and other procurement skills. Operational personnel have a deep functional understanding and can be excellent people managers; however, they often lack the understanding of procurement best practices.
The result is that the best skills and knowledge are not brought to bear in managing supplier relationships. The result is that supplier accountability is diminished and internal costs can rise. Formal supplier development programs are lacking or ineffective: However, most companies lack effective programs for supplier development.
Everybody has become a vendor manager: Inefficiency introduced as too many employees spend time on unnecessary or redundant interactions with suppliers. Effective SRM requires not only institutionalizing new ways of collaborating with key suppliers, but also actively dismantling existing policies and practices that can impede collaboration and limit the potential value that can be derived from key supplier relationships. Organizational structure[ edit ] While there is no one correct model for deploying SRM at an organizational level, there are sets of structural elements that are relevant in most contexts: A formal SRM team or office at the corporate level.
The purpose of such a group is to facilitate and coordinate SRM activities across functions and business units. SRM is inherently cross-functional, and requires a good combination of commercial, technical and interpersonal skills.
Such individuals often sit within the business unit that interacts most frequently with that supplier, or may be filled by a category manager in the procurement function. This role can be a full-time, dedicated positions, although relationship management responsibilities may be part of broader roles depending on the complexity and importance of the supplier relationship see Supplier Segmentation.
An executive sponsor and, for complex, strategic supplier relationships, a cross-functional steering committee.
What is Supplier Relationship Management (SRM)? - Definition from Techopedia
Effective governance should comprise not only designation of senior executive sponsors at both customer and supplier and dedicated relationship managers, but also a face-off model connecting personnel in engineering, procurement, operations, quality and logistics with their supplier counterparts; a regular cadence of operational and strategic planning and review meetings; and well-defined escalation procedures to ensure speedy resolution of problems or conflicts at the appropriate organizational level.
Further, suppliers can be segmented by the degree of risk to which the realization of that value is subject. Executive-to-executive meetings Strategic business planning meetings, where relationship leaders and technical experts meet to discuss joint opportunities, potential roadblocks to collaboration, activities and resources required, and share strategies and relevant market trends.
Joint business planning meetings are often accompanied by a clear process to capture supplier ideas and innovations, direct them to relevant stakeholders, and ensure that they are evaluated for commercial suitability, and developed and implemented if they are deemed commercially viable.