Getting the Most Out of SRM

This is an excerpt of the original article. It was written for the January-February 2012 edition of Supply Chain Management Review. The full article is available to current subscribers.

January-February 2012

The potential risk of supply chain disruption has never been greater. In fact, it’s become the new normal, say authors and educators Robert Trent and Greg Schlegel. The problem for many companies is that they are ill prepared to handle a disruption should one occur. This article argues for a new set of risk management techniques in a world where heightened supply chain risk has become a fact of business life.

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Only a few years ago, supplier relationship management (SRM) was generally thought of as a software tool. That’s not surprising as SAP, Oracle, Ariba, and others have offered multiple products that bear the label “SRM.” But true SRM entails much more than purchasing new software. Done right, it’s a systematic approach to supply chain collaboration that enhances the business performance of both customers and supplier. But just as customer relationship management (CRM) has proven to be far more about creating a customer-centric culture, transforming business practices, and building new mindsets and skills than simply an IT solution, successfully implementing SRM requires more than the purchase of new software.

In a sense, SRM is picking up where strategic sourcing left off. Despite the significant savings many companies have realized through strategic sourcing over the past two decades, the limitations of this discipline have become increasingly apparent. In a 2008-09 global research study we conducted involving more than 500 companies, buy-side respondents reported that nearly half (46 percent) of potential value from supplier contracts isn’t realized during implementation.1 Perhaps even more surprisingly, sell-side respondents reported delivering only 66 percent of potential contract value.

These sobering statistics point to a key driver behind the development and evolution of SRM as a formal supply chain management discipline. Strategic sourcing, in practice, has led to an enormous focus on interactions with suppliers up to the point of signing new contracts. Yet it has provided relatively little guidance on how to effectively manage the complex and critical interactions between customers and suppliers as they work together to execute against agreements.

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