Building the Business Case for Supplier Relationship Management Investment
Investing in enhanced supplier relationship management (SRM) capabilities is frequently discussed within procurement organizations but not often executed. The immediate need to achieve annual savings targets and satisfy stakeholders often drives a focus on sourcing, with its easily demonstrable return on investment, at the expense of SRM.
SRM is an integrated approach to managing suppliers by creating value and minimizing risk in support of internal business requirements. Broadly, this includes supplier segmentation, risk assessment, performance management, supplier development and contract management. Effective SRM leverages a governance model, specific business practices and technology to deliver supplier performance improvements and overarching organizational objectives.
The basic value derived from robust SRM includes incremental gains in traditional procurement focus areas, such as price improvement, enhanced inventory management and improved order-delivery cycle time. Even greater value derives from more aspirational areas such as risk reduction and the promotion of innovation and supplier diversity.
Where would Apple be today without the suppliers that helped tackle the manufacturing and technological challenges of devices dreamed up by Steve Jobs? Supplier innovation can generate value far exceeding the amount spent with them in any given year.
In this series of blogs, we will develop the business case for SRM investment based on quantifiable metrics supporting your business strategy. But dedicating the time and resources to SRM only makes sense if it addresses actual challenges your organization is experiencing. Here are five challenges that come up time and again in my discussions with business leaders and how SRM can help.
Table 1. Business Challenges Addressed by SRM
In the blogs that follow, we will address each of these elements in more detail, discussing real-world situations and explaining how a dynamic SRM solution addresses supplier-related challenges. We’ll also discuss how to quantify the hard-dollar impact and other benefits of investment in SRM.