SRM definition

Supplier relationship management (SRM) is a comprehensive approach to managing an enterprise’s interactions with the organizations that supply the products it uses. The goal of supplier relationship management (SRM) is to streamline and make more effective the processes between an enterprise and its suppliers.

Procurement function swift from product availability to SRM

The role of the procurement function has drastically changed. Few years ago, procurement was expected to ensure the timely availability of products while also being responsible for accurately processing transactions. Economic developments during the 1980s and 1990s prompted companies to recognize the potential contribution of procurement to meeting cost-out targets. Through the implementation of category management and running strategic sourcing initiatives, procurement was also able to rationalize the supply base and consolidate volumes, resulting in price reductions. Global sourcing and outsourcing of non-core activities became popular as well.

However, the procurement function was still functionally organized, with little collaboration and alignment with other business functions.

Ensuring the best prices through strategic sourcing is no longer perceived as a strategic capability of the procurement function. Organizations are starting to realize that they have become more reliant on suppliers in terms of innovative power, security, corporate social responsibility, and delivering on-going cost savings. Together with sustainability, strategic partnering is at the top of the corporate agenda of many global organizations and is seen as one of few remaining procurement topics that can still make a significant difference.

Companies are now aware that they must integrate and collaborate with suppliers to remain competitive and take the next step towards procurement excellence, supplier relationship management.

SRM is focused on joint value creation based on trust, open communication and collaboration with a limited number of key suppliers. Leveraging on supplier capabilities is mentioned as the most important objective of SRM.

Gaining access to unique knowledge, resources, capabilities, talent and ideas are an integral part of this key objective.

The second most important objective is reducing cost. This would appear to conflict with the focus on value creation, but cost-cutting is still one of the key imperatives. The main difference with traditional approaches is that benefits are now realized and shared together with partners in the SRM process.

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