To increase margins, many companies are applying this same emphasis on relationships to the supplier side. This has led to a new solutions area known as supplier relationship management (SRM). In each of these cases, “companies have placed not only a focus on automation and other technical improvements, but on emphasizing the relationships. ” (Romala. & Menzigian, 2003) What is SRM? SRM is a fresh way of extending SRM tools and techniques to the supplier side resulting in mutual profitability for both the manufacturer and the suppliers.
It is a new management approach which is all about collaborating with suppliers in an ‘integral’ way, sharing information with them to achieve speed and transparency in operations. This takes SRM to a different level in terms of depth of relationships between the manufacturer and the supplier. Standardization of techniques across suppliers and different manufacturers locations is critical to the success of SRM. SRM trends include e-procurement, data integration and transparency, and information sharing using a common platform. (solutions. epicor. com)
In SRM, conceptually, the things to be improved and the framework against which the improvements are to be measured are collaboratively defined by the buyer and the supplier. Such an effort is hinged on a firm commitment from both sides. Commitments may include resources such as capital and time. Such collaborative efforts can lead to Immediate and well long-term gains. Short term gains may include improvement in lead times while long term gains may include better quality materials at lesser costs. Long-term gains may also include collaborative planning forecasting and replenishment.
SRM is definitely an answer for buyers and suppliers looking for sustainable performance improvement but caution must be exercised while integrating new vendors into the SRM framework. This is because suppliers may be at different stages of there individual learning curves. (Phythian & Allen, Logistics Europe March 2002, p 20-22. ) Increasingly, companies have began to treat their suppliers like they treat their customers As such SRM is an extension of the SRM tools and techniques towards the supplier side. (elix-virtual. tripod. com)
In an effort to run ‘lean’ and more profitable companies, manufactures are looking towards their vendors in the supply chain to drive much needed growth and profitability. SRM as such, works as a strategic tool to create ‘win-win’ situations that are beneficial to both the suppliers and manufacturers. Stages of SRM implementation I. E- Procurement: – Being the first stage of SRM implementation, the emphasis is to enhance day to day manufacturer –supplier relationships like procuring supplies electronically using a common SRM platform. Its advantages include proactive ordering, electronic procurement, reduction in inventory and lead times.
With e-procurement manufacturers are free to canalize their resources towards more strategic issues in the buyer manufacturer relations. II. Collaborative supply chain management: – In this stage the buyer and the suppliers work together to solve common problems. This is presided by some level of mutual information sharing. SRM provides a common platform for this exchange of information to take place. The benefits of these collaborative efforts include ‘just in time’ supplies of materials, less inventory, zero stock outs, reduced overheads, etc. III.
Strategic supply management: – In this stage, management’s team of both the manufacturer and supplier synchronize their resources towards realization of mutually profitable goals. They enter in to a long fruitful relationship which is a by product of increased transparency and aids faster decisions relating to strategic choices like choice of supplier, creating evaluation procedures, etc. (supplyworks. com) The Benefits Offered by SRM The complete implementation of SRM results in several short term and long term benefits like e-procurement, uniform procurement systems across locations reduction in cost, etc. supplyworks. com) Companies using Supplier Relationship Management Kingfisher Asia Ltd is a direct sourcing of global of Kingfisher plc group. The problem faced by Kingfisher Asia Ltd and their main concern was the reliability of suppliers as far as their ability and accountability to maintain service level agreements. Kingfisher Asia Ltd was looking for tools to help them negotiate with suppliers to get products of the right quality at the right price. (Sutcliffe, CEO, Kingfisher, Asia) Kingfisher Asia Ltd implemented SRM in 2002.
SRM helped gather information regarding suppliers and this helped kingfisher negotiate better prices for the right quality materials at the right place and time. (SAS-COM magazine) Bayer Cropscience is the worlds second largest company in its field. For sustainable growth Bayer needed a steady flow of supplies while at the same time reducing cost and supplier risk. SRM tools allowed it to maximize profits through supplier relationships. It uses ‘Supply Chain Intelligence to collect, analyze and leverage’ supplier data. It helps Bayer by reducing wasteful spend on supplies. Bayer) Schneider Electric is the largest manufacturer of electrical distribution systems and components worldwide. The issue faced by Schneider electric was ways to drive cost saving through better change management. Schneider am to match its needs with the right supplier offers. Schneider usually purchase raw materials, means of production, metallic/ plastic components and non-production components. Schneider helped Schneider initiate a ‘supplier monitoring system- a multi lingual, multi currency and web-enabled global action plan for purchasing’.
This was because Schneider wanted to make global purchases focusing on company needs getting the best prices, using spatial leverage. This helped Schneider gain a comprehensive worldwide view of purchasing. (Schneider) Comparison of Companies using Supply Relationship Management. Kingfisher Asia, Bayer Cropscience and Schneider electric all used SRM tools to facilate purchasing via reliable supplier relationships. But the difference in approach lay in their objectives in adopting SRM. Kingfisher Asia adopted SRM techniques to get right quantity of orders from the suppliers at the right time.
SRM helped Kingfisher Asia not only achieve this but to leverage this supplier knowledge to drive better prices. Bayer Cropscience adopted SRM to gain a steady flow of supplies. It also aimed to reduce cost by reducing supplier risk. SRM techniques helped Bayer achieve this. Schneider electric adopted SRM to build and use a global database regarding suppliers of production/non production components. It developed a ‘multi lingual, multi currency and web-enabled global action plan for purchasing’. It used the spatial leverage thus gained to drive best prices of components. Details about SAP’s SRM Solution
Developing Supply Strategy: – Depending on the past procurements patterns and current market trends to project future spending’s appropriately it further more develops the way expenses are incurred at all different locations by supervising all suppliers based on their performance to give a comprehensive view for strategic sourcing. It also helps in the supply shortage risk as increasing the supplier visibility it helps you make better supplier qualification decisions at the right time. Services such as discussion forums, project calendars, task managers and team management tools helps to manage collaborative sourcing projects.
Operational Sourcing: – In emergencies, operational sourcing can help procurement professional find the alternative suppliers through predefined selection processes. It also keeps a close check on monitoring your supplier relationships and suppliers performance including their financial status, external rankings, sourcing contracts and more. Self Service Procurement: – It relieves your purchasing department of administrative tasks by empowering employees to create and manage their own requisitions in synch of the company rules.
Plan Driven Procurement: – As materials used in core business process are usually procured through enterprise systems, a slight change in plan can disrupt production schedules, transport logistics, just in time inventory etc. To solve this problem, mySAP SRM integrates supply chain with e-procurement. Supplier Self Services: – The purchasing company can extend mySAP SRM’s supplier self services to their suppliers to share common information and product data. It saves redundancy of data and duplication of work from the buyer’s perspective.
Companies can connect suppliers who are using XML based document exchange. Suppliers also benefit through the visibility of buyers requirement and direct channel for communication. Content Management: – It provides tools and techniques to manage the flow of content between multiple trading partners. You can directly import suppliers product catalogues, standard product hierarchies or schemas from anywhere in the application as it supports multiple data formats. (sap. com) Examples of companies who have implemented SRM & Implementation Issues
Having realized the importance and significance of Supplier Relationship Management in today’s competitive global atmosphere companies have incorporated this approach in their business. Many software vendors are available in market that provides softwares and technologies to support this mechanism. eg. SAP, Accenture, Deloitte, i2, Peoplesoft, J. D. Edwards, Manugistic, Agile, HP Consulting, CSC, etc. (sap. com) Companies that implemented Sap’s SRM solution AGL, AOK, Deutsche Bank, Royal Dutch / Shell Group, Clariant, Huntsman, Kosa, Mercedes-Benz, Nissan Motor Co.
Ltd. , Lockheed Martin, Novo Nordisk, Seattle Public Schools, Steelcase, Stinnes AG. (sap. com) Example of a company who implemented this component and issues associated with this implementation. Mercedes-Benz Espana In the year June 2000 Mercedes-Benz Espana the Spanish automaker having more than 4000 employees both in Vitoria and Barcelona begin a project to apply e-procurement for buying of their non-production goods and services as their was a great prospective in deduction of costs by looking at the orders placed at the companies plant.
The project study revealed that SRM, bulk ordering and blanket agreements were insufficiently handled and broken. Due to this slow process by the management it was a lengthy process for each purchase. Three main objectives were to optimize purchasing strategies, streamline the entire procurement and accounting and implementing an e-procurement solution. As Mercedes-Benz Espana Vitoria plant operated on SAP solution, it decided to opt for mySAP E-Procurement. It had the flexibility needed for support of their procurement processes. In April 2001 the software Enterprise Buyer Professional Edition release 1. 0 was upgraded to release 2. . By loading an e-catalog of one of its suppliers it made DaimlerChrysler the first Original Equipment Manufacturer in Europe to work with Covisint. Considerable changes were being noticed. Norbert Litzkow, General Director for Finance, Controlling, Procurement and IT, “far fewer people are now authorized to place orders . a mere 50 compared to 350 under the previous system. New workflows have streamlined the procurement process, which in most cases comprises just one or two steps. ” The supplier gets proactive ordering, electronic procurement, and reduction in inventory so to deliver materials at the right place and time.
The new approval work is consent for purchasing worth US$530 or more. With mySAP E-Procurement, Mercedes-Benz Espana’s Vitoria has reduced their workforce dramatically. Above all the total number of supplier relationships the plant maintains is predicted to fall from 1,500 to around 200, which in turn make relationships and a better quality promise. E-Procurement will help Mercedes-Benz Espana make savings about 1. 5 to 3 million annually.