In the first years of professional procurement, it was all about consolidating suppliers and using leverage to reduce costs. As more cost comes out of the supply chain, the projects and ideas that result from a good SRM relationship are the new places where value can be added and risk mitigated. SRM is the next treasure chest of opportunity.

Whether they realize it or not, companies are hugely dependent on their supplier community way beyond the quality and cost of the goods that receive so much attention. Other goals: diversity, social responsibility, data security, continuity of supply, innovation – none of them can be achieved without the right suppliers who are aligned with your company’s goals and will put their actions behind it. We have to mitigate risk and create new products and can’t do it well without supplier involvement. Hence SRM. 

A Google search or a professional conference like ProcureCon can give you many examples of good SRM programs. Here are two keys to a strong program that can easily get overlooked:

Leading an SRM program is a “different” concept for many procurement professionals

While companies are good at identifying risk they often don’t follow up and actually mitigate it. 

Really addressing risks and investing in long term outcomes requires a new skill set for the standard procurement professional. A much more strategic one, which our folks may not have the right capabilities for. Influence skills. Patience and fortitude to complete projects where value creation will be measured over time. You can’t take someone who has been measuring their success by calculating the near-term value of the cost reductions they negotiate and expect them to be taking the long view without good coaching and a realignment of their objectives.  It’s a different kind of discussion.

SRM programs should not look the same across your supplier base

There are some nonnegotiable elements of risk management that need to be in place across all suppliers. They must all meet your requirements in data privacy, social responsibility, etc. Beyond that, supplier initiatives can and should look very different. 

We have a tendency to take action based on a pareto analysis of spend with our suppliers. The bigger the spend, the higher the focus. This is comfortable, but wrong. 

SRM programs should be segmented based on risk and based on potential contribution to your company’s strategic goals. You may spend a lot more on packaging than on some of your direct material components, but many packaging items are practically commodities and are easily substitutable if there is a service disruption. The risk mitigation may be as simple as buying from a different source, albeit at perhaps a higher price. 

But there will be some components that are single sourced, tightly specified, or key to your company. For example, beverage and snack food businesses depend heavily on flavor innovations – those suppliers will be crucial no matter what the spend. The same for single sourced commodities. Successful SRM here means that you will be a client of choice for these suppliers. It requires management commitment at the highest levels, perhaps joint research, and both parties need to be convinced that outcomes from collaboration will be good for their companies.