Supplier Relationship Management

Description and Benefits

Definition

The SRM process aligns, provides structures, and manages the supplier

relationships.

Supplier Relationship Management Description

• Aligns and integrates• process, information and cash layers within supply chain networks

structure

• social networks & cultural value systems

• process oriented (horizontal) framework within supply chain networks

• Plans, resources, directs, confirms and adjusts the relationship between company and key suppliers

• Develops the network bonds of trust, commitment, cooperation & dependence

• Balances the levels of power within supply networks• Contract Administration is genesis process for SRM

Outcomes of Supplier Relationship Management

• Integrates external organizations into company’s cross functional teams

• Develops an environment of trust between company Suppliers and Internal Customers

• Manages external functions to meet business objectives• Ensures relationship is mutually beneficial• Engages talent and skills of suppliers personnel in

achieving company’s business goals• Extends company’s influence on suppliers supplier• Deliver maximum value to company

Supplier Relationship Management Process

Enablers of Supplier Relationship Management

• Effective contract administration processes

• Agreements purposely structured for SRM

• Aligned values between company & Supplier

• Skilled, trained and capable personnel

• Leadership that supports & believes in SRM value proposition

Key Indicators of Maturity - SRM• Foundation: (Defined)

– Basic RM processes, programs, and structures for the organization are defined and

documented, however, are not duplicated in supplier’s organization.

– Company and supplier relationship managers are identified and documented.

• Basic: (Managed)

– RM participates early in Strategic Sourcing processes.

– For each relationship, a balanced, two-way set of RM process measures is in place.

– Performance review is on a regular and formal basis with actions and follow ups

management.

• Advanced: (Leveraged)

– RM processes are well defined, implemented, and duplicated in most relationships.

– Open information sharing about relevant criteria, such as capacity and demand forecasting,

facilitates cross-enterprise decision-making.

– Cross-functional RM teams review optimal rationalization measures for alignment with

organization strategy and strategic sourcing plans.

– Key relationships begin to duplicate process in own organization.

Supplier Relationship Management (SRM): Maturity Level 1 Ad Hoc

SRM Bus Mgmnt. Team

FunctionalSponsor

RelationshipManager

ContractAdmin

Suppliers

ITSystems

ITSystem

From SS 0010.1

Build RelationshipCharter

Customers

0010.2OrganizeStewardship

0010.3OrganizeRM Team

0010.4Operate

SSHand-

off

0010.5Monitor

0010.6Sustain

And Manage

0010.7Continuous

Improvement

ToSCD

Performance Management

Feedback / Improvements

Level 1 – Ad Hoc

SRM is a very manual, unpredictable, time consuming process that is largely undefined and left up to individual methods and preferences.

No forecasting or planning takes place for the relationship.

Suppliers are not involved in anything but “filling the order”.

Communication is one-way and in response to requests from internal customers.

Supplier performance is not evaluated through any formal process.

Information flows are unreliable. Information on the relationship is difficult to find and often resides on spreadsheets in individual computers.

Supplier Relationship Management (SRM): Maturity Level 2 Defined

SRM Bus Mgmnt. Team

FunctionalSponsor

RelationshipManager

ContractAdmin

Suppliers

ITSystems

POSystem

From SS 0010.1

Build RelationshipCharter

Customers

0010.2OrganizeStewardship

0010.3OrganizeRM Team

0010.4Operate

SSHand-

off

0010.5Monitor

0010.6Sustain

And Manage

0010.7Continuous

Improvement

ToSCD

Performance Management

Feedback / Improvements

0010.4Operate

0010.4Operate

Supplier Relationship Management (SRM): Maturity Level 3 Managed

SRM Bus Mgmnt. Team

FunctionalSponsor

RelationshipManager

ContractAdmin

Suppliers

ITSystems

From SS 0010.1

Build RelationshipCharter

Customers

0010.2OrganizeStewardship

0010.3OrganizeRM Team

SSHand-

off

0010.5Monitor

0010.6Sustain

And Manage

0010.7Continuous

Improvement

ToSCD

Performance Management

Feedback / Improvements

ITSystem

0010.4Operate

0010.4Operate

0010.4Operate

Matching PM and CI

Level 2 – Defined

Level 3 – Managed (Linked)

SRM is defined but still unpredictable with >50% of the suppliers not in SRM and largely uncontrolled. Basic relationship forecasting and planning takes place but by the SRM people without customer or supplier input. 40% accuracy is typical. Suppliers are mostly involved only in response to a request but some key suppliers have annual agreements with releases being generated by procurement. Only these key suppliers are involved in process or product improvement. Others are asked for input on occasion. Communication procedures are defined (quarterly meetings, identified points of contact, frequency, etc.)Supplier performance is defined but measures are unreliable. Quarterly reviews are done with key (strategic) suppliers only.Information flows are manual. Information on the relationship is easier to find and resides in a central repository (often a file cabinet).

SRM performance is predictable with >80% of the suppliers in an SRM process.Relationship forecasting and planning takes place by the SRM people in collaboration with the customer and supplier. 80% accuracy is typical. The majority of Suppliers are involved in process or product improvement. Supplier are often involved in annual planning and budgeting discussions.Joint communication processes are in place and institutionalized. Formal relationship structure are in place on both sides (Executive Sponsor, Relationship Manager, teams, etc.)Supplier performance is defined and measures are aligned with strategy. Relationship performance reviews are a continuous process.Information flows are connected. Information on the relationship is easily available on line.

Supplier Relationship Management (SRM): Maturity Level 4 Leveraged

SRM Bus Mgmnt. Team

FunctionalSponsor

RelationshipManager

ContractAdmin

Suppliers

ITSystems

ITSystem

From SS 0010.1

Build RelationshipCharter

Customers

0010.2OrganizeStewardship

0010.3OrganizeRM Team

0010.4Operate

SSHand-

off

0010.5Monitor

0010.6Sustain

And Manage

0010.7Continuous

Improvement

ToSCD

Performance Management

Feedback / Im

provements

Supplier Relationship Management (SRM): Maturity Level 4 Leveraged

SRM Bus Mgmnt. Team

FunctionalSponsor

RelationshipManager

ContractAdmin

Suppliers

ITSystems

Shared IT System

From SS 0010.1

Build RelationshipCharter

Customers

0010.2OrganizeStewardship

0010.3OrganizeRM Team

0010.4Operate

SSHand-

off

0010.5Monitor

0010.6Sustain

And Manage

0010.7Continuous

Improvement

ToSCD

Performance Management

Feedback / Im

provements

Level 4– Leveraged

Level 5 – Optimized

SRM performance is predictable and variability is reduced. 100% of the suppliers are in an SRM process.Relationship forecasting and planning takes place by the SRM people and suppliers Often manage this process without company involvement.80% accuracy is a minimum requirement. Suppliers are involved in process or product improvement and often lead this effort. Suppliers are a formal part of the annual planning and budgeting discussions.Communication across companies is almost “frictionless”. Trust is high and an “open book” environment exists. Company relationship structure run together.Supplier and Company performance is clearly defined and measures are aligned with both strategies (suppliers and company). Relationship performance reviews are “two-way”, sometimes lead by the supplier.Information flows are integrated. Two-way Information on the relationship is easily available on line.

Suppliers are active and formal members of the process teams.Suppliers share responsibility for performance improvement. Suppliers share in the rewards of performance improvements.Customers share responsibility for performance improvement.Customers share in the rewards of performance improvements.Suppliers and customer IT systems are deeply connected (two way interaction) with your IT systems.Suppliers, customers and the process team members feel like they are “all in this together” in regards to process performance and improvement.Process management and optimization across the network is a major focus.

Ad Hoc

Defined

Managed(Linked)

Leveraged(Integrated)

1. Source: “Procurement: Current Benchmark Findings.” The Hacket Group, 2004

Optimized

SCM Maturity and Associated Performance

7700No. of SuppliersPer $B Spend 1.0

2.0

3.0

4.01700

No. of SuppliersPer $B Spend

1% of SpendProcurement

Costs

0.7% of SpendProcurement

Costs

104No. of FTEs

Per $B Spend

54No. of FTEs

Per $B Spend

RM ProcessesLT=1SS=1PO=1

RM ProcessesLT<40%SS<40%PO>40%

2. “The Quit Revolution in Supplier Management.” Aberdeen Group, 2004

1 1 12

Anticipated Performance at the Top Maturity LevelsROI = 20% ROCE = 19.5%

Suncor Performance at Current Maturity Levels ROI = 16.5% ROCE = 16%

3. A Presentation to SCC Members “Supply Chain Practice Maturity Model and Performance Assessment”, The Performance Measurement Group, November 6th, 2001.

3

LT = LeadtimeSS = Safety StockPO = Perfect Order

SRM Results

Supplier Improvements from Measurement Programs