Public procurement knows cost is just what you pay, value is what you receive and SRM (Supplier Relationship Management) brings value to procurement.
In 1983, McKinsey consultant Peter Kraljic became the first to propose to the world that purchasers get more strategic and proactive in the supply chains in a Harvard Business Review article. From this article grew the professionalization of SRM into the world of public procurement that we see across state offices today.
What is SRM?
Forbes put it simply: SRM is the process for organizations determining the supply categories that are important and creating the strategies that manage these items in an intelligent fashion.[1]
SRM can be broken down into 3 easy steps:
Why SRM?
Academics from the Eli Broad Graduate School at Michigan State University highlight two main approaches to SRM: reactive and strategic.
The reactive approach to SRM means the relationship between supplier and purchaser begins when an unfortunate event happens:
- Late payment
- Untimely delivery
- Unsatisfactory deliverable
When these events occur, procurement staff work to identify how they will improve the unsatisfactory supplier and when first communication happens with them—that is the framework for discussion.
On the other hand, in the strategic approach, the relationship between supplier and procurement starts even before that first contract is signed. When relationships start in the early stages of engagement, the purchaser is able to ensure a competitive advantage in the long run.
5 advantages of a well-managed supplier relationship[2]:
- Lower Costs
- Improved Efficiency
- Consolidated Supply Chain
- Outsourcing Activities
- Ongoing Improved Operations
On the surface, advantages 1, 2, & 5 align seamlessly with public procurement. But why should state procurement care about the supply chain of their goods and services? Because a full picture of the supply chain creates the space and time needed to adapt to disruptions, i.e. shortages of PPE, microchips, and other consumer goods due to COVID-19, blocked trades routes, and labor shortages.
For example, Apple has a history of having one of the most well-ranked supply chains in the world. One of the defining features of Apple’s supply chain: strong supplier relationships. Apple’s example shows us that strengthening relationships helps to ensure end-to-end reliability and transparency[3]. Those two factors for public procurement matter even more now, as the world is still in the midst of a pandemic.
As you build your plans for the future, make sure to plan for the business enterprise thinking of SRM.
[1]Jonathan Webb. (2017, February 21) Forbes. Retrieved from: https://www.forbes.com/sites/jwebb/2017/02/21/what-is-supplier-relationship-management/?sh=5e0bbc7aec5a
[2] The Advantages of a Well Managed Supplier Relationship. (2020, January 21). Retrieved from: https://www.oxfordcollegeofprocurementandsupply.com/the-advantages-of-a-well-managed-supplier-relationship/
[3] Lara Ross (2020, June 30) Thomas Insights. Retrieved from: https://www.thomasnet.com/insights/apple-supply-chain/
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