I interviewed Amanjeet Singh Sethi who discussed Supplier Relationship Management.
We’re looking forward today to hear your views on this topic of supply and relationship management. My first question is what is the main problem with supply or relationship management today and how can the problem be addressed?
Sure Dustin. It’s a pleasure talking to you as well. To answer your first question about the main problem, with supplier relationship management today: most organizations struggle to manage their relationships with the suppliers systematically. The main reason behind this is the lack of a clear framework with aligned guidelines on supplier management.
In traditional supply relationship management, the interaction between different functions of a company and its supplier can be described as being more transactional and tactical rather than being strategic. So as a result, relationships are lacking information sharing, transparency, not only from an external perspective, but also with respect to internal governance and ownership of the relationships. In traditional supply relationships, also, what has been seen is the interaction between different functions of the company causes lack of communication with the suppliers and the actual information flow isn’t very effective which actually causes the relationship to deter and the full benefits of an effective supply relationship management which we call SRM are not there in place.
The actual pool of a supplier relationship management should be to deliver sustainable commercial excellence through managing the organization’s value chain to deliver world-class services at the lowest possible cost, what we call as value performance.
To address this problem, coming back to your second question, to address this problem, companies should look at supply relationship management as a two-way mutually beneficial relationship. It should be really collaborative and focused on building the activities targeted at the most strategic and critical supply partners that deliver great added value to the firm. For example, the values could be in terms of sustained competitive advantage or it could be innovation with the suppliers.
Therefore, the SRM activities are additional and complementary to supplier performance and contact management activities as it has been traditionally dealt with are over and above these relationships. So before I go into further details of how these problems can be addressed, I think it’s beneficial to talk about some of the benefits of SRM and then we cover how we get those benefits and how SRM can benefit the organization these days by addressing the current situation problem. Some of the benefits that SRM if done properly would deliver is reduce costs and increase efficiency beyond the traditional sourcing and category management efforts by setting up long-term relationships and establishing communication processes. Manage supply risk and compliances is another key benefit, by global transparency and visibility of key relationships.
It will also help them drive supply performance in a transparent and sustainable manner, it’s strategic supplies and collaborative partners and enables continuous improvement of operation throughout relationships again. Finally, which we’ll be briefly touching about is about innovation. If innovation is done jointly by the company and the suppliers, it’s a long way to go in terms of identifying the problems and coming up with innovative solutions that helps improve go-to market time and overall quality of the output of the organization. Some of the key initiatives organizations can take to correct the problem and build a very healthy supplier relationship management, is basically a set of criteria which the organization need to identify starting from their internal governance which is the SRM governance. What that mean is establishing effective governance especially for strategic suppliers.
A prerequisite of this is alignment within the organization obviously so that the internal functions are aligned and the governance process is clearly assigned, the ownerships are clearly identified within the organization. And then accordingly, the ownership of the relationship with the supplier is assigned to a particular function that’s one key piece. The second key piece is monitoring and assisting supply and that basically, it’s essentially going to, setting up Supplier Scorecard which will not only include the Organizations' goals but also some of the financial goals, the operational goals, maybe implementation goals about contract and compliance, communication targets and other supply and relationship KPIs like quality of service, supplier performance, ease of conducting business, etc. These basically are the key elements.
And then from quantitative and qualitative perspective, a few examples would be from quantitative piece tracking and realizing the savings and the benefits, reviewing the expenditure with preferred and non-preferred supplier’-s, cross check with contract's database and match against supply usage, data etc. . The other qualitative monitoring that could be done is conduct interviews, assess user satisfaction, contract, -supply queries, etc. . That helps with the performance. But another piece which is missing in quite a few organization is segmenting the suppliers into various categories and then dealing with them accordingly. By what I mean by segmentation is maybe three to four levels of segmentation the key one being the strategic one, followed by the preferred [ph], followed by approved and then the last one being transactional.
Each one has its own features and qualifications. Let me quickly touch upon the few attributes of each. Strategic would be the suppliers which have high business criticality, complexity and high supply chain risk, and very high collaborative opportunities. In that case the approach, would be a little different which will be engaging in SRM and performance and contract management and executive level engagement is needed in such cases. The next one is preferred which again, has high business criticality but relationship dependencies exist. In this, business leaders should engage. The third one being approved wherein medium business criticality is there, low collaborative opportunities are there.
For this traditional performance contract management, is good enough. Last piece being transactional which has low criticality, and low impact on switching suppliers, that can be managed as an exception. If organizations follow these pieces, I believe there is a lot of scope of improvement in SRM.
Do you have any success stories or examples?
I’ll briefly walk through an example where lead management was covered through SRM and how the lead time was time was reduced and overall output was increased dramatically because of that. And then I would also like to briefly touch points upon certain roadblocks while implementing these. Actually, first let me go through the roadblocks so that once I get the sample, I can hit upon which roadblocks were covered so that will give more perspective to the audience. One key roadblock is commitment from the leadership. Usually when implementing SRM, though the companies try to role it out. But if there’s limited engagement from the top leaders and sponsors, the program is not implemented the way it should and then that’s what this lack of commitment from these business owners, that’s a key roadblock and it has to be top-driven from the CXO level.
Sometimes, there’s also conflict of interest which is too much focused on cost instead of the value on the buyer side. That should never happen in SRM specifically for the strategic partnerships. Also, organizational alignment which we briefly talked about, internal alignment is a key. And then sometimes, there’s lack of trust in terms of sharing information within functions and also with the supply partners. For strategic partners, that level of trust needs to be there so that if, we are planning to come up with innovative solutions, there should be full transparency of data. Now, let me give a brief example of a manufacturing company who was transferring products to customers at shortest possible lead time, was the key goal. But unfortunately, there were drastic delays in the lead time and that was being in the competitive landscape that they were, that was affecting their performance and sales in- return.
There were many reasons for this delay, but the first stage of Supply Chain which is SRM. Focusing on the long lead time was the critical problem that they identified. And then they basically led this SRM initiative with the aim of reducing the lead time using SRM approach. The two key reasons, when they dived deep into the data, what they found was two key reasons of long lead time were,-poor communication between the procurement department of the company and the suppliers and within the procurement department, communication itself as well. The key pieces that we talked about earlier also was lack of communication internally as well as externally and the lack of trust.
Here is what, they did- so they categorized it, it applies into the four categories we talked about. Each group was assigned a separate SRM adviser to improve the communication and manage the relationship according to the category that each supplier belonged to and these SRM advisers would train SRM experts. This was followed up with meetings, close relationships with suppliers for the first two categories especially which is the strategic and the preferred ones.
An internet supply portal was also deployed for faster and easier communication of data and information. The results were astonishing with just the SRM piece. The lead time was reduced by five days. This was approximately about 33% reduction in the lead time, from a period of 10 to 15 days, to 5 to 10 days. This literally shows all the benefits to what extent SRM CAN GO AND this one classic example in a manufacturing sector.
Thanks. Can you provide a brief background of yourself?
Sure. I’m basically a mechanical engineer and an MBA in supply chain and operations. I’ve been working for overall, 10 plus years in consulting and industry across various functions of that strategy development, operations management, supply chain management, process improvement, vendor management, client relationship management and a lot of global transformations as well. I also have experience in setting up functions, business units, developing end to end strategy and then executing it. includes P&L management, business development and people management across industries such as e-commerce, retail, pharmaceutical and medical devices in Asian and North American geographies.
Thank you again for sharing today.
Sure. It was my pleasure Dustin. Thank you.
About Amanjeet Singh Sethi
Amanjeet Singh Sethi
AVP (Head), Studios Strategy & Operations @ Pepperfry, Ex Deloitte -Management Consulting