30 MAY 2017
driverless cars and 3-D printers in health care.
These are also great examples of collaborative
consumption — which is possible when
suppliers and supply managers leverage their
unique relationships to create competitive
Far too many organizations — usually at the
direction of executives — assume the most
useful role suppliers can play is to cut prices
and thereby reduce the cost base. However,
cost reduction is not the solution to everything.
In the book The Three Rules: How Exceptional
Companies Think, authors Michael E. Raynor
and Mumtaz Ahmed suggest that very few
companies manage to compete successfully on
price, and that successful organizations prioritize
revenue over cost reduction.
Successful companies devise ways to create
competitive advantage not through lower
costs from suppliers, but through heightened
collaboration with them to find new value,
especially over the course of a relationship. This
means creating a framework for sustainable
supplier collaboration that requires and
encourages internal and external stakeholders to
effectively deliver the table stakes, while actively
identifying opportunities to create competitive
advantage from the relationship.
Elevating basic supplier performance
management to a comprehensive SRM program
• Developing a “single source of truth” about
suppliers, ensuring relevant information is
available and current
• Finding ways to reduce effort, time and cost for holistic supplier
management, like simplifying the invoicing and payment processes,
extending contract timelines, and minimizing RFx requests and
• Managing contracts with each unique supplier appropriately, and
ensuring contract details, KPIs and other performance measures are
• Having a clear, enterprise-level view of supplier activity, from
spend and sourcing exercises to such total strategic relationship
management data elements as ( 1) quantifiable relationship
contributions and thought leadership, ( 2) cost of doing business, ( 3)
revenue generation and ( 4) risk exposure and mitigation
• Establishing a foundation where trust and consistency are the basis
of all supplier interactions.
The shift to comprehensive SRM starts with a documented and
consistent framework designed to assess and differentiate suppliers.
The elements of managing the supplier relationship and capitalizing
on differentiated product and service revenue generation are ( 1)
on-boarding and supplier master data, ( 2) qualification and selection,
( 3) supplier/supply chain risk, ( 4) segmentation, ( 5) performance
management, ( 6) collaboration and ( 7) validation and recognition.
Once the framework is in place to create a sustainable mechanism
for determining the right suppliers and ensuring a methodology for
identifying, developing, delivering and validating competitive advantage
opportunities, true collaboration is possible. According to Michael E.
Porter, a renowned economist, in his book Competitive Advantage:
Creating and Sustaining Superior Performance, innovation is the
chief source of advantage for businesses. This entails developing
new products, services and ideas — a shift to strategic first-mover
strategy based on market direction — and ensuring differentiation with
The most salient point of defining competitive advantage for your
organization is that suppliers will have a major role to play, and effective
end-to-end SRM is key to releasing value from the supplier base. It
comes down to thinking of suppliers as driving sources for revenue.
The culture shift must begin with procurement, whose primary measure
is bottom-line savings, rather than the generation and implementation
of innovation — so much so that strategic suppliers are often selected
because they can drive savings, rather than revenue generation or
competitive advantage quantified into the total cost of doing business.
There must be quid pro quo with key supplier partners to become a
customer of choice and create the ability for competitive advantage
and new revenue streams.
BECOMING A CUSTOMER OF CHOICE
To become a customer of choice with a key supplier, an organization
needs to ensure that the metrics and expectations of a SRM program
are mutually developed and forward-focused. An environment where
organizations are regulated and must protect confidential data is
manifested in supplier relationships with such statements as, “We can’t
tell our suppliers this.” Suppliers will only perform as well as you let
them perform — they need as much information from you as you need
The shift to
SRM starts with a
designed to assess