srm

Supplier Relationship Management(SRM)

Produced by:Somayeh DejbordSomayeh Saghi

April 2007

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Defining SRM[1]

Successful supplier management in the 21st century mandates that the relationship between buyers & suppliers be increasingly convinced as Collaborative Partnership.As lead time & product life cycles plummet, & pipeline flow voracities accelerate, supplier partnering in today's global business environment is no longer an option but has become a strategic requirement to maintain competitive advantage.

Enhanced by Internet applications that draw buyers & suppliers together in real time, partnering can assume many forms based on the dynamics of supply chain. partnering can be found among allied industries or competitor & may exist for strategic or operational reasons.

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Defining SRM

Whatever the formal arrangement, partnership can be described as cooperative alliances formed to exponentially expand the capabilities of involved in materials requisition, procurement operating procedures & efficiencies, & product information exchange.

The increasing focus on the development of synchronized, collaborative relationship between buyer & supplier has evolved over time & is the result of several marketplace dynamics.

Real-time commitment of design & specification

Supplier excluded from design process

Evaluation by commitment to partnership

Evaluation by Bid

Contact focus on long-term quality, mutual benefits

Contact focus on price

Small core of supply partners

Many competing suppliersCollaborative partneringAdversarial relationshipSRM PartnershipTraditional Approach

Traditional Purchasing vs. Collaborative Supplier Management [1]

Traditional Purchasing vs. Collaborative Supplier Management [1]

SRM PartnershipTraditional Approach

Mutual responsibility for total quality management

Quality defects residue with the suppliers

Virtual organizationClear boundaries of responsibility

Collaborative sharing of information

Proprietary product information

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Reasons of Supplier Partnership Development [1]

Increasing requirement for supply chain collaboration.Changing nature of the marketplace.Increasing demand for cost control, quality & innovation.Increased demands for risk sharing.Enabling power of Internet technologies.Focus on continuous improvement.

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Increasing requirement for supply chain collaboration

No company in today’s marketplace can hope to survive without strong supplier partnerships. As business continue to divest themselves of non-competencies & increasingly turn toward to outsourcing ,a deepening of partnering agreements have been eagerly pursued in all industries as fundamental to continuous improvement strategies, total cost management, & competitive advantage.

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Changing nature of the marketplace

The dominance of the customer, shortening product life cycle, demands for configurable products, shrinking lead times, global competition, participative product design & others have altered the nature of sourcing & purchasing & highlighted the importance of supply chain collaboration.

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Increasing demand for cost control, quality & innovation

While SCM technologies have been receiving most of the attention, Buyer are more than ever concerned about traditional purchasing values such as quality & reliability.

Customer are no longer willing to do business with suppliers who not only can not meet increasingly stringent product & delivery standard, but also do not possess the capabilities to continuously unearth the new product configurations & service management capabilities.

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Increased demands for risk sharing

The business partnership means that the needs for trust & risk sharing must be a serious component in any collaborative partnership.As the cost of innovation & operation flexibility grows exponentially, & the level of profit shrink in the face of competition, partnership agreement for the equal sharing of risk have become a critical method for the management of new product development & controlling spiraling operation costs.

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Enabling power of Internet technologies

The age of “e-business” has had a profound impact on many areas of purchasing, provided supply chain partners with the abilities toclosely integrate demand & replenishment in ways impossible only a few years ago.

Application supporting such concepts such as SPF(Supply Chain Planning) & CPFR(Collaborative Planning, Forecasting, & Replinishment)enable whole supply networks to syncornize channelrequirenments, cut costly lead times out of channel inventory management.

In addition, Web-based tools have undercut the need for traditional purchasing functions as lengthy negotiation, requisitions & paper-based purchase cost order.

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Focus on continuous improvement

At the core of SRM can be found to be a strong commitment to the joint pursuit of continuous improvement as a dynamic process rather than a static business principle.where as mutually profitable relations between trading partners might facilitate the achievement of common goals, only those companies pursuing closely integrated collaborative objectives can hope to continually streamline the development and guarantee the availability of superior products and services that consistently leapfrog the competition.

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Definition of SRM

A set of business practices that involve the establishment & nurturing of closely intertwined relationships between buyers & suppliers.[1]

The practices needed to establish the business rules, & understanding needed for interacting with suppliers of products & services of varied critically to profitability enterprise.[2]

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Definition of SRM

The next generation of e-procurement or more specifically an integration solution that bridges product development, sourcing, supply planning, & procurement across the value change. [2]

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Definition of SRM

SRM is the nurturing of continuously evolving, value-enriching relationships between supply chain buyers and seller that requires a firm commitment on the part of all trading parties to a mutually agreed upon set of goals & is manifested in the collaborative sharing & timely & cost-effective execution of sourcing & procurement competencies to facilitate the entire material replenishment lifecycle from concept to delivery [1]

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Definition of SRM

SRM is a means of building closer relationships with selected strategic suppliers, the purpose being to discover added features that could enhance the relationship while improving business performance as the firms work in a network environment for mutual benefit and increase the likelihood of creating profitable new revenues together.[3]David Hope-Rose:” SRM is a religion, A creed. A way of life”.[1]

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The aim of SRM[3]

Using the advantages gained internally to team with selected allies to make similar or larger gains through a networked effort.

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Component of SRM[1]

The mission of the purchasing in today’s environment can be summarized as the real-time synchronization of the firm’s supply requirements with the capabilities of supply channel partner in order to support customers’ demands for made-to-order, highly quality, just-in-time goods & services while pursuing reduction in procurement cost & sustainable improvements in performance .

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Component of SRM[1]

Such an approach requires the combination of three critical components.

Enabling technologies

Strategic sourcing & Supply management

Customer-centric infrastructure &

operations

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Supplier partnership requires companies to look beyond the everyday purchase of material to strategic sourcing.

The goal of strategic sourcing is to find & cement close sourcing & procurement relationship with those trading partners that account for majority of a company’s purchasing dollars.

While strategic sourcing will drive tactical decision regarding the use of such technology toolsets as Websites & portal to decide which product to purchase through the Internet & which through traditional mediums, the central focus is on selecting those supplier who can support the customer-centric objective of the company

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Purchase Categories [3]

High impact•Availability, quality and reliability are critical•Category knowledge is essential•Purchase cost is high relative to administrative costs

Commodities•Availability is critical•Significant leverage to influence costs•Purchase costs are high relative to administrative ones

Specialty•New industry•Unplanned usage•Supplier capabilities are important•Administrative costs are high relative to purchase costs

Odds and ends•Mature industry products•Suppliers are differentiated by price and service•Administrative costs are high relative to purchase costs

Low

Low

Hig

h

HighProduct/service complexity

Spend volume Purchasing

leverage

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While cost control is critical element, strategic sourcing is a comprehensive supply management process that involves:

Identifying the business requirement that cause you to purchase a good or service in the first place, conducting market analysis to determine typical cost for good or services within a particular supply system, determining the universe of supplier that best meet yourrequirements, determining an overall strategy to procure items in that category, & then selecting the strategic suppliers.

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Depending on the category or type of purchasing to be sourced, other factors, such as the depth of supplier competencies, availability of required service, level of desiredproduct quality, capacity for innovation thinking,& willingness to collaborate, can also be considered strategic components.

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Applying technology to the Management of SRM

The effective management of procurement has always depended on the facilities capabilities of communication technologies.

Over the 50 years, purchasing’s ability to work with supplier, communicate requirements, & negotiate quality, pricing, & delivery of goods & services has been driven by technology tools that either match or exceed the velocity of marketplace transactions.

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SRM –Driven Infrastructure & operations

SRM requires companies to constantly deconstruct & architect processes that can be rapidly deployed to meet the shifting of customer requirements while focusing on continuous improvement.

In a way that was impossible in the past, internet-based procurement toolsets have created an environment where best practices in purchasing can be automated & applied to he acquisition of just about any product & services.

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SRM –Driven Infrastructure & operations

This standardization & optimization of the work of the procurement organization extends the expertise of a firm’s best purchasing process through the organization & out into the supply chain.

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Considerable Points about Suppliers Selection[4]

evaluate the change in suppliers’ supply capabilities over a period in time.Suppliers should be evaluated with more than one criterion (e.g. price, quality, delivery performance).design a multi-steps model for reducing the complexity of the supplier selection problem.select suppliers which can maximize the revenue with different procurement conditions by each period in time satisfied.identify the changing supply conditions of the selected suppliers over the period in time for taking necessary actions.

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Some factors for selecting suppliers[6]

QualityCostServiceFlexibilityDelivery

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Some factors for selecting suppliers[6]

Net PriceMaintain & service qualityGeographyUsed TechnologyOperational ControlGuaranty policy

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Selecting the Right Supplierssupplier relationship attribute model

[3]

Impacts major number of customers

Impact individual customersEnabler of qualityNone to limitedCustomer

Interaction

Business results; shared incentivesBest practice relationshipService level

benchmarkingCompliance trackingMetrics

Shared vision, ownership of intellectual capital

Confident in expertise; performance agility

Confident of execution performance

Confident in ability to fulfill contractNature of Trust

No end point, joint strategic planning

Joint planning with end pointOngoing, near-termCurrent dealPlanning Horizon

Process Management, shared risk/reward

Incentives and information linkagesIncentives and penaltiesContract penaltiesRisk

management

Direct linkage access to parts of company database2-way ControlledLimited-tactical dialogueLimited-electronicInformation

sharing

Ability to assist with market changes/demands

Customized expertise & skills

Deploy specific competencies

Fulfill to requirementCapability

Flexible, agile, collaborativeContinuous improvementPerformance incentiveCompetitive bidOperation Mode

Unique advantage in valuedProcess expertise valuedImpacts operational efficiency

Product or service as commodityRelationship

StrategicPreferredValue AddedBasicSupplier category/focus

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Supplier Relationship Matrix[3]

LowMediumHighLength of relationship

LowMediumHighShare the same values

LowMediumHighAlignment of business thinking

LowMediumHighAbility to add network value

LowMediumHighQuality of past relationships

LowMediumHighAbility to provide resources for actions

LowMediumHighAbility to collaborate electronically

LowMediumHighStrategic importance

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Multiple Criteria by Steps in Supplier Selection [4]

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Total Framework of Supplier Selection [4]

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The move of SRM is Toward:[3]

Reducing the supplier baseSegmenting the suppliers in term of importanceBeginning work with a few of those suppliers to build advanced level models that will be beneficial to both organizations

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Uncovering the hidden costs of procurement [3]

•Engineering costs•Personnel training costs•System adoption costs

•Litigation costs for breach of contract

•Supplier vetting costs•Contract administration costs•Supplier follow-up costs feedback)•Supplier change costs

Non-Cash

Total purchase discounts

Cash

Supplier Level

EliminationUtilizationPossessionReceptionAcquisition

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•Waste collection•Quality control costs•Production delay costs

•Internal transportation costs

•Receiving costs•Invoice and payment processing costs•Quantity testing costs•Quality testing costs•Litigation costs for problems with quality

•Ordering Costs

Non-Cash

•External transportation costs

•Payment-delay savings or costs

cash

Order Level

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•Cost of removing obsolete materials•Disposal management costs

•Production failure costs•Product failure costs•Maintenance costs•Installation costs

•Inventory holding costs•Order picking costs

•Service costs for installation and assembly •Testing costs

Non-Cash

•Price•Production discounts

cash

Unit Level

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Advantages of Applying SRM[2]

Increased satisfaction of goods & services purchased & speed up product development by promoting a shared knowledge of suppliers Increased customer’s satisfaction to attract the most competitive ones.Lower prices of good & services by improving business processes across the supply chain.

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Optimize supplier RelationshipsCreate competitive advantage and drive revenue by jointly bringing new, better and more customer-centric solutions to market fasterLengthen and strengthen critical supplier relationshipsDrive profit enhancement through reduced supply chain and operational costs while maintaining quality

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created Improvements by SRM efforts in a case study[3]

Inventory turns went from 11 to 24Procurement costs improved by 17%Purchase order cycle time was reduced by 50%Automation of purchase orders went to 70% of the totalInventories identified as excess were eliminatedSuppliers rated the effort as good to excellent, particularly in view of the shared savings

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References

1. Handfield, Robert B.,“Introduction to Supply Chain”,Supplier Relationship Management, 1999,pp.242-249

2. Lang A. , Paravicini D., Pigneur Y., Revaz E.,”From Customer Relationship Management to Supplier Relationship Management”, HEC Lausanne 2002.

3. Poirier C.C. ,”Using Models to Improve the Supply Chain”, Models for Supplier Relationship management,2004, pp.163-181.

4. Hong G.H, Park S.C, Jang D.S, Rho H.M,“An effective supplier selection method for constructing a competitive supply-relationship”, journal of expert systems with applications, 2005 , pp. from 629 – 639.

5. www.SAP.comه ازمدلهاي آمي ،قدسي فائزفرهاد، حل مسئله انتخاب تامين آننده و تخصيص سفارشات با استفاد 6.

پور،

srm

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