The Good, the Bad, and the Ugly of Supplier Relationship Management (SRM)
SRM is a fundamental element of any contract management process. Having a relationship and being connected with your supplier/s will assist with reducing risks, the potential for enhanced performance, driving cost efficiencies, being aware of market challenges, increased customer satisfaction, and being able to put plans in place to develop or mitigate these areas where necessary.
However, this can only be achieved if you involve suppliers in all aspects of a contract; the Good, the Bad, and the Ugly. All parties can benefit from the good, but trust can be built so that a supplier can have open communication to discuss the bad and the ugly.
Communication is the pivotal point in gaining this trust, it needs to be effective and not one-sided; all parties need to bring something to the table but also need to feel comfortable in doing this. Honest and open discussions will help any contract or relationship develop and grow.
So, the key word is relationship, right?
Consider the definition of relationship: “the way in which two or more people or things are connected ”, without the connection, the relationship cannot exist. Connected is defined as “brought together or into contact so that a real or notional link is established ”, and that is what we should all strive to achieve with our suppliers, bringing together thoughts and ideas to establish a united link between parties.
Now, you might be wondering if it’s truly necessary to continue about the importance of SRM.
The answer is a resounding YES.
Even though there are many tools to assist with the management of suppliers and their performance, these could prove fatal in a relationship if not developed together, with expectations set out and agreed from the start. The use of these tools and techniques could be seen as being ‘done to’ rather than ‘done with’ the supplier. Any performance reviews need to be done in collaboration with various stakeholders, those that manage, those that deliver and those that receive the service. Sometimes they are not always connected, and this can have a negative outcome on performance as expectations might not be achievable. So, right from the start, the bad has already commenced, which could result in the ugly.
What are the key elements to achieving a positive SRM?
Firstly, you will need to know who your key suppliers are to focus your SRM (ideally your top ten) and their importance i.e., how strategic they are to the business, as well as understanding what your importance is to them.
Your supplier’s will no doubt be looking at SRM from the same angle as you, so you will need to ensure that you have established effective and honest two-way communication, so that you are seen but your supplier as an important contact too, as confirmed in The Kraljic’s model, but I will leave that for another day. (However, I do recommend that you look it up as it is an extremely useful assessment).
SRM needs to span the entire duration of a contract, extending beyond the initial mobilisation phase or the early days. Just as relationships evolve over time, SRM must be nurtured consistently, from inception to demobilisation to ensure that the end user is always in the forefront of all commercial activities. The continuous commitment to your SRM guarantees that the needs and expectations of the end user are always prioritised throughout the contract’s lifecycle.
So, to sum everything up. Many existing supplier relationships will consist of some good, some bad and perhaps even some ugly. Evaluating those relationships now and preparing appropriately for new relationships, where you can establish honest and effective communication in both directions, and from the offset, will enable swifter transitions on dealing with any of the bad and ensuring it doesn’t become the ugly.
What would you see in the Good, the Bad, and the Ugly forms of SRM?
- Acknowledgement of positive results.
- Openness and honesty.
- Joint creation of performance expectations for both sides of the relationship and monitoring tools.
- Regular meetings to discuss areas that are working or not, to stop them turning bad.
- Happy stakeholders, end user’s and suppliers resulting in contract development and efficiencies.
- Cost effective contract with savings.
- Low risk of contract failure.
- Only acknowledging the areas that are not working.
- Closed discussions.
- Setting unrealistic expectations.
- The use of tools in isolation.
- Meeting only when there is a perceived non-performance, resulting in the ugly.
- Unhappy stakeholders, end users and potential disgruntled suppliers.
- No understanding of the financial position of the contract.
- Medium risk of contract failure.
- No understanding of the contract’s true performance.
- No discussions.
- No expectation set.
- No performance measurements agreed.
- No performance review meetings.
- No understanding of the stakeholders or end user’s perceptions of the contract and an unengaged supplier.
- Over budget contract.
- High risk of contract failure.
If you would like to discuss your organisations SRM, please contact one of Altair’s Commercial team members so that we can help you keep your SRM good and away from the bad or the ugly.
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