Unleashing the Power of SRM in Procurement

Editor's Note: This article was originally published in Procurement Magazine.

Supplier relationship management (SRM) is the lifeblood of procurement, helping to build partnerships, achieve cost savings and contribute to success

In an era of rapidly-advancing technology, supplier relationship management (SRM) programmes have emerged as indispensable tools for organisations striving for excellence in supply chain management.

These sophisticated systems are pivotal when it comes to optimising supplier relationships, streamlining procurement processes, mitigating risks, fostering innovation and achieving strategic objectives.

Particularly for large enterprises grappling with complex supplier ecosystems and high procurement volumes, these systems offer invaluable support.

Clearly, as technology evolves, new challenges and opportunities emerge in the realm of SRM.

Procurement Magazine speaks to experts from leading organisations to delve deeper into the nuances of unlocking value in this area.

Traditional SRM challenges

The implementation of SRM programmes has the potential to cause numerous problems that must be addressed effectively to ensure their success. These include a lack of supplier visibility, when accurate and comprehensive information is hard to obtain, and supplier performance measurement, which makes it a challenge to identify areas for improvement and recognise top-performing suppliers.

Shannon Kirk, Global Director of Legal Industry Solutions at Icertis, is well placed to comment on SRM. Her company handles lifecycle management for more than 10 millions contracts and offers its own SRM application.

She believes a lack of visibility complicates the effective management of supplier performance, compliance and risk.

“Supply chains are the arteries of our economic system, extending across geographies and sectors,” she says. “Their scale and complexity underscore the critical need for maintaining efficient and mutually beneficial supplier relationships.

“Many large organisations face significant challenges in achieving enterprise-wide visibility into their supplier relationships, particularly when managing hundreds of global suppliers.”

Scott Goodfellow, Senior Manager, Consulting, at GEP, believes a lack of transparency would cause problems.

He adds: “Without a clear vision on how an organisation’s supply chain can support its corporate prioritised objectives, it’s been difficult to work out which suppliers to target and what to do with them.”

Meanwhile, Brad Hibbert, Chief Operating Officer and Chief Strategy Officer at Prevalent, emphasises that supply chains are exposed to a myriad of risks, from physical disruptions and data breaches to reputational associations and regulatory problems.

He explains: “To effectively address these risks, organisations must overcome three challenges. The first is a lack of coordination. Different teams may look at risks that are unique to them, with little enterprise coordination. This fragmented approach to risk management creates gaps.

“Next is manual processes; often, teams managing suppliers do so using manual, disjointed spreadsheet-based approaches that overcomplicate management and limit the ability to identify, understand and act on risks.

"Finally, limited risk insights – for example, focusing only on physical disruptions and ignoring cybersecurity weaknesses.”

Overcoming teething problems

All three of the aforementioned companies offer their own SRM programmes and platforms.

Icertis enables businesses to handle both standard supplier management challenges and those unique to their business cases, processes and policies.

“Every supplier relationship is governed by a contract – the single source of truth in every business transaction,” says Shannon.

"Contracts are one of the most powerful data sources to gain visibility and insights into supplier performance and potential supply chain weaknesses. By applying AI to contracts and integrating their data into core operations, businesses can surface unique insights that enable better decision-making and optimise the intent of their supplier agreements, ultimately leading to cost savings and reduced risk.”

GEP offers GEP SMART, a tool aimed at reducing complexity by providing customers with useful, actionable insights into supplier performance that yield better outcomes and drive real savings.

Scott adds: “We really help our clients to be crystal clear of the value they’re looking for from third-party suppliers – be it metrics, cost, security, alignment with governmental regulations – so suppliers know exactly what they’re to be measured against.

“It’s crucial to target an SRM programme around those suppliers with whom the organisation partners to drive value or the ones most critical to the supply chain, rather than just segmenting on the basis of spend alone.”

Also of note is Prevalent’s third-party risk management platform, useful for eliminating the security and compliance exposures that come from working with third parties.

The 'hidden value' of SRM in procurement

While relying on other businesses brings with it inherent risk, it also offers numerous benefits in terms of improving a company’s bottom line – stretching from cost reduction right the way through to enhanced visibility.

Brad’s belief is that a comprehensive SRM strategy can reduce risk and protect businesses in ways that a manual or disjointed approach to managing suppliers cannot.

“SRM ensures organisations are centrally tracking a multitude of risks and have the insights to act on them,” he goes on.

Expanding on this, Scott contends that the highest-performing procurement teams are those embracing their SRM programmes.

He adds: “Over the past few years of supply chain volatility, many have built true partnerships with their key suppliers in which they co-invest in solutions and mutual growth plans, rather than squeezing on price reduction.”

SRM mistakes to avoid

Implementing a new SRM system can be complex and organisations will inevitably encounter several hurdles during the process.

Companies must approach implementation with clear aims and objectives – or risk causing confusion later down the line.

They should also attempt to understand the impact it could have on their team members. Underestimating this could result in resistance, low adoption rates and, ultimately, project failure.

Scott says the top three mistakes he consistently sees are:

• Failing to target the most valuable and critical suppliers
• Insufficiently tailoring the programme to specific suppliers
• Setting up a “fancy” SRM system that doesn’t benefit from the key data that should feed it.

"These are all avoided by properly determining the objectives of the programme and selecting a supporting system that fits them and the wider data landscape,” he adds.

The importance of high-quality data

High-quality data is essential to ensure the effectiveness and success of an SRM system as it leads to informed decision making, efficient operations and effective risk management.

Overall, it makes the software more accurate and more reliable.

Brad adds: "In terms of monitoring sources, there are plenty of reputable providers. However, what really matters is what you do with the data you consume.

“That’s where SRM solutions can add value – providing a data-driven approach that correlates between multiple sources and reveals hidden patterns and trends with analytics.”

The future of SRM in procurement

SRM’s potential is significant given advancements in technology, changing market dynamics and evolving stakeholder expectations.

Scott believes AI will be at the forefront when it comes to unlocking the “next level of value.”

He says: “AI-enabled point solutions allow more streamlined data interfaces, helping large multinationals with complex IT landscapes to unify datasets and bring together insights across operational, commercial and supplier data.

“The increased accessibility of such insights helps procurement teams match suppliers’ insights to enhance negotiation outcomes, or, even better, share knowledge and grow strategic partnerships.”

Brad’s take is that SRM systems will continue to evolve to improve the identification of risks and form the basis of strategies to fortify against disruptions.

He concludes: “By leveraging a wealth of data and AI-driven insights, organisations can navigate market complexities with heightened agility and foresight, leading to improved outcomes and a stronger competitive edge.”