Supplier relationship management (SRM), like any buzzphrase, tends to mean different things to different people. At one end of the spectrum it is little more than good old-fashioned supplier bashing cloaked in fancy language (those who think of it in this way seem to forget that a “relationship” is supposed to be a two-way thing). At the other, it is one of several possible terms to describe highly collaborative interactions with a small number of strategic partners. In between, SRM encompasses all manner of other issues and perspectives.
This variation was on stark display at the SRM 2008 conference in Geneva last week, the first SRM-specific event run by Worldwide Business Research, organisers of the well-established (and expanding) ProcureCon series. Topics covered by the speakers ranged widely, taking in spend data visibility, performance management, executive sponsorship, managing risk and corporate responsibility issues, innovation and skills development, among others. It wasn’t until towards the end of the day that a speaker actually ventured a definition of SRM – albeit one general enough to include all of the above.
This fuzziness is perhaps understandable when one considers the varying importance of suppliers at whom SRM activities can be directed and the different market conditions that companies face. Bill Knittle, a global procurement director at BP, did a good job of explaining how the oil giant had segmented its supply base. BP had just 6-8 really key strategic suppliers, he said, accounting for less than 0.1 per cent of its total supply base.
The next tier, “sector critical relationships”, comprised around 170 suppliers, and there were another 800 suppliers with whom BP had sector and/or local relationships. Its SRM and supplier performance management (SPM) programme aimed at these different groups was expected to net $300 million in savings, Knittle said.
Dealing with monopolies
Paul Alexander, the new head of procurement at British Airways, and Steven Pink, a former BA manager who now leads the function at private healthcare firm BUPA Insurance, both talked about the challenges of monopolistic supply markets.
Alexander noted that half of his suppliers, covering everything from spare parts to airport landing slots, were in monopoly positions, and that the airline industry was “a tough place to make a living” these days. Pink, meanwhile, described how the six hospital groups that BUPA used in the UK were now all owned by private equity firms (a situation cemented by BUPA’s sale of its own hospitals to Cinven), which are intent on maximising their return on investment.
Pink gave a stark example of how far private equity owners are willing to go to resist margin erosion and boost their profits. One hospital group, unhappy at the way it was being treated as a provider, sent a letter to all of BUPA’s customers denigrating the company. “To say we have relationship issues is a bit of an understatement,” he said.
During his presentation, Pink explained that BUPA was working jointly with another hospital group to launch new products into the market – a good example of collaboration. But he was also open in admitting that much of the firm’s motivation for SRM activities was “to increase our power in the buyer-supplier relationship” in order to try to lower the (escalating) cost of health insurance premiums.
Scary scarcity
Another market phenomenon mentioned by Alexander and a number of the 100-plus attendees at the conference was scarcity. Shortages of some key commodities, from metals to foodstuffs, and the resulting price hikes, meant it was vital that buyers had strong relationships with suppliers to guarantee supply and keep cost increases to a minimum.
Alexander noted that if you ordered one of Boeing’s new 787 Dreamliner aircraft today, you could expect to wait until 2017 for delivery. However, BA had been able to call on “supplier favours” to bring this forward to 2010, he said. Making yourself an “attractive customer” – one that is “easy and efficient to work with” – was essential. Simple gestures such as sending thank-you cards to key supplier personnel were all helpful in building relationships, Alexander argued.
Reverting to type
Listening to this, both from my vantage point on stage as chairman of the morning session and among the audience in the afternoon, I couldn’t help but think that looking at SRM through this type of lens, while perfectly rational, is also somewhat reactive and skin deep. Purchasing managers who almost overnight seem to have swapped the language of volume leverage for the language of relationship building, one feels, will simply revert to type when the balance of power swings back in their favour.
If SRM were simply about short-term tactical advantage, this wouldn’t be a problem. But my own view is that there are exciting opportunities for procurement to broaden its horizons and help deliver long-term business value by pushing their organisations to work proactively and in a more sophisticated way with their most strategic suppliers. Ultimately, this is what I believe will elevate procurement’s status and propel more of its leaders into the boardroom.
Although a joint presentation by Haide Villuendas, a global purchasing director at babyfood maker Numico, and one of her colleagues on product innovation was well received by attendees, it was notable that only a handful signed up for their roundtable session after lunch. My conclusion from this, and from a number of other conferences I’ve attended in recent months, is that most procurement professionals’ agendas are still dominated by this year’s savings targets rather than next year’s and the year after’s competitive advantage.
The skills dilemma
Another interesting live issue at SRM 2008 concerned the skills needed to manage supplier relationships. In particular, is it possible for traditional buyers to fulfil this role or do you need a separate cadre of “supplier relationship managers”?
BA’s Alexander said he thought the skills required were different and not necessarily transferable. “I’m not sure buyers make good supplier managers,” he said. BA has yet to split relationship management responsibilities from those of sourcing and category management, although it has carried out a self-assessment among its buyers to gauge which role they are better suited to.
Alexander argued that SRMs shared some of the characteristics of salespeople, who tended to talk to a wider range of potential buyers than was the case in reverse. Later, afternoon chairman Jonathan Hughes, a partner at specialist relationship management consultancy Vantage Partners in Boston (and an occasional contributor to CPO Agenda), took up this theme, suggesting that procurement professionals interested in SRM could learn a lot from the more established business discipline of account management.
Sheilagh Douglas-Hamilton, head of SRM at the British insurance group Aviva, concurred, saying that she had benefited from her experience working on bid management for its underwriting business. “I’d encourage people to go and work on the sales side and then come back into purchasing,” she said. (Unlike British Airways, Aviva has had a separate SRM unit within its central procurement function since 2005, responsible for developing best practice, providing guidance and so on.)
However, two former sales managers I spoke to during a coffee break were adamant that it was wrong to separate out relationship management from other purchasing responsibilities. They likened this to sales practices of a decade ago, where individuals selling a product or service had no post-deal responsibility for successful implementation. This, they argued, produced not only a lack of accountability but also ignorance about the day-to-day issues customers faced.
Next week I’ll get the chance to explore this question in more detail when I visit a leading Swiss plastics company and first-tier supplier to the automotive industry. It has identified six different roles within its 140-strong procurement function, including that of “innovation scout”. I’ll be reporting on how it manages relationships with its own suppliers in the next (spring) issue of CPO Agenda, which is published in March.
In the meantime, I’d be interested to hear your views on the skills issue, or indeed anything else to do with SRM. Just send an e-mail to me at geraint.john@cpoagenda.com.
