Introduction to
Supplier / Vendor
Relationship Management

Introduction

In most papers on supplier relationship management you'll tend to see something like the following slide.

That said, whilst it's a helpful steer, the best supplier relationship approaches are typically to be found within the manufacturing sector and specifically the extraordinary supplier development work of companies like Toyota and Nissan. Such companies really drive amazing levels of supplier development not least by continuing to improve quality in the face of ever increasing product complexity and relentless demands for cost reduction. If we use these as the foundation of our model and then develop it, we tend towards a view of SRM which arguably looks more like this:

Supplier Relationship Management Contributions To the Sourcing Process

• Supplier Selection - SQA and process capability reviews
• Risk Analyis & Mitigation Workshops
• SLA Development

Whilst Supplier Relationship Management doesn't own the sourcing process, it must be intimately involved in the tail end of sourcing (the blue portion to the left of the above slide). Supplier Relationship Managers are ultimately responsible for the ongoing relationship development thereafter. It therefore makes considerable sense to get them (and indeed other customers such as appropriate internal line managers) involved in reviews of Supplier Quality Assurance and specifically process capability. Supplier Relationship Managers also need to be involved in the brainstorming of likely operational risks (not unlike an FMEA in principle) and developing courses of action to mitigate them, preferably through tools such as Poka Yoke or process capability improvement initiatives to address the root cause, rather than by treating the effects by simply drafting bespoke contractual clauses.

That said, Supplier Relationship Managers nevetheless need to be substantially involved in drafting the contract (another part of the sourcing process owned by the sourcing category manager); particularly the specification of the objectives for Service Level Agreements (SLAs) which will form a critical foundation for the management of the relationship into the future. They also need to be closely involved in drafting clauses associated with supplier performance improvement incentivisation and mal-performance disincentivisation (risk / reward mechanisms). Without this their influence on the relationship could be substantially curtailed.

Supplier Relationship Management

In addition to contributing to the tail end of the sourcing process, the Supplier Relationship Management process can be presented in the following way.

• Selection for Supplier Development Attention
• Supplier Relationship Management Scorecards: KPIs for Cost, Quality, Delivery, Innovation, Service etc. See a specific example of a Supplier Relationship Management scorecard
• Industry Benchmarking for Supply Relationship Management (SRM)
• Open Book Costing Audits , and
• Bottom Up Cost Modeling
• Supplier Management Team Shaping / Interventions
• Supplier Relationship Management (SRM) Business Improvement Diagnostics
• Full-Time Multi-disciplinary Step-change Task-force Interventions for Supplier Relationship Management
• Continuous Improvement Workshop Interventions
• Training Programmes for suppliers where the value of more direct intervention is less obvious (e.g. Small / Medium Enterprises)

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© www .interim-management-purchasing.co.uk December 2006