Supplier Relationship Management

originally published in Auto Plant Magazine

As the business world kneels at the altar of customer relationship management (CRM) and the software used to make it better, supplier relationship management (SRM) concepts and solutions get relatively short shrift, even in the manufacturing industry.

That is rapidly changing, though, as manufacturers continue to squeeze costs out of their organizations. Business leaders are following the lead of the Dells of the world as they strive to share information with their trading partners up and down the supply chain.

Auto manufacturers, many of which are currently inclined to build plants in expanding markets such as China and Russia, are also getting a better handle on important aspects of the supplier relationships they must build. These include: strategic sourcing, operational procurement, contract management and compliance, supply performance management and spend analytics.

“A few years back, there were point solution providers who covered one or another of these areas, but not all,” said Clint Reiser, a research analyst with ARC Advisory Group, a research and advisory firm in manufacturing and supply chain solutions based in Dedham, Massachusetts. Recent mergers and acquisitions have since given birth to suite applications from firms like Ariba, i2, Emptor, SAP and Oracle.

“You’re seeing record gains in the stock market again,” said Joel Martin, vice-president of enterprise applications for IDC Canada. Speaking of computer manufacturers, he said: “That’s directly attributable to global firms sourcing the best suppliers most efficiently.”

He sees Ford, General Motors and other automakers being more introspective, asking questions like: “How do we find the best way to acquire our supplies so we can deliver vehicles more efficiently to our customers?”

Sharing information across the supply chain has been critical to the success of manufacturing firms for years. Sharing information electronically has been the norm for almost as long, as Ian Braby, Vice President, Product Strategy for Vancouver-based SRM vendor ECMarket, explains. Global firms “compete on a value chain. That’s bigger than just a supply chain. That’s the entire ecosystem of companies working together to deliver to a customer.”

When they follow just-in-time and lean manufacturing concepts, firms order less more often, and “that’s a recipe for a paperwork nightmare,” Braby said. “It takes the same amount of paperwork to order one as it does to order a thousand and one.” Braby opined that both just-in-time and lean manufacturing, though not new, have spread rapidly throughout industry in the last five to seven years, and that spread has driven the need for better supplier relations.

SRM started with procurement, streamlining the requisition process through to the reconciliation process. “This sort of solution began here,” said Reiser, for the reason mentioned above and to minimize “maverick spend” in favour of volume discounts.

According to Martin, the legacy systems in place haven’t been adequate. “Making sure the information gets out in a meaningful form and fashion to suppliers has been the biggest difficulty,” he said, adding that it’s often most cost-effective to acquire new systems “and let the old just wither on the vine.”

The drive for efficient procurement led to strategic sourcing, a rethinking of the process of obtaining new suppliers. Buyers distribute information that potential suppliers can use to craft requests for information, requests for proposal, and other ways of starting a business relationship. “This allows you to run reverse auctions, where you can play suppliers against each other, have them see one another’s bids, and hopefully drive down your costs,” said Reiser.

Once in the relationship, SRM suites provide a repository for service level agreements, volume agreements, pricing agreements, and other contracts that govern the relationship. “The general idea behind contract management is to let managers easily pull up contracts to see if everything is going according to the guidelines that you spent so much time and effort obtaining at the beginning of your relationship with a particular supplier,” Reiser explained. He adds the ability to track changes and monitor compliance as additional benefits.

Martin views suppliers as investors in SRM as well, as they monitor their own inventory and pass savings across the chain rather than push the cost uphill. “With this global market, people look for just in time, all the time,” Martin said.

Reiser noted that supplier performance management, the ability to create scorecards for individual suppliers, is still in its infancy. Spend analytics solutions, on the other hand, have spread widely owing to the ongoing need to categorize, classify and cleanse spend data, at times down to the commodity level.

What separates good SRM systems from their marginal cousins? The better systems, said ECMarket’s Braby, are the ones every partner, customer and supplier can work with.

“EDI is great for big relationships, where buyers can cost-justify the amount of money it takes to build and maintain an EDI connection,” said Braby, “but for smaller, local suppliers who may receive 12 purchase orders a year, it is not cost-justifiable.”

This gap makes many buyers maintain two systems: one electronic, such as EDI, and one manual, consisting of fax machine, letters, couriers, and people on either end receiving pieces of paper and keying them into systems.

Braby did not discount the influence of EDI, the 800-pound gorilla of the SRM market. Systems must accommodate both EDI connections with partners who want them and data exchanges with enterprise resource planning (ERP) systems, whether brand-name or home-grown. Braby said collaboration and other SRM goals may be difficult to achieve “if the solution isn’t built on the latest open standards so it can communicate easily with other systems.”

Using the upcoming creation of the new Camaro in Canada as an example, Martin foresees GM applying “the latest tools that automate functions from assembly though to part acquisition.”

On an optimistic note, he adds: “Everybody can benefit from SRM, but we’re finally seeing applications that can be adopted by small- and mid-sized suppliers.”

Many best-of-breed solutions are moving to hosted, or on-demand, solutions. Software developers now offer to maintain the hardware, update the software and deal with the minutiae of keeping the application available.

Hosting appeals to firms that don’t retain dedicated IT staff and simply want to use the system. Compared to traditional “behind the firewall” installations, hosting lets firms spread costs over time and perhaps realize a return on investment more quickly. “Small firms can benefit from the on-demand model because of advantageous pricing,” said Reiser.

Martin views this setup as the next step in the evolution of SRM, which he calls SRM Net Services. He said that it “will be one of the key building blocks of next-generation SRM offerings. Service parts management, which includes features such as reverse logistics, returns and warranty management, will become a natural extension of the SRM market as both buyers and suppliers require greater visibility into different aspects of the after-sale market to raise customer satisfaction and retention levels.”

Future drivers for the SRM market look similar to those already seen, according to Martin. “For the next several years, the focus will revolve around globalization, with companies extending their physical and service supply chains to different parts of the world to squeeze out any remaining inefficiencies and combat the soaring costs of doing business,” he said.

To satisfy your customers, “you must know that your suppliers can supply what you’re looking for on time and in full,” adds Braby. “You must look at both sides of your equation. You can’t do it on your own anymore.”

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