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CHAPTER 5
SUPPLIER RELATIONSHIP MANAGEMENT
5.3.4.1 Misconceptions about SRM
Many organisations have a misconception about SRM, for instance, some see
it as an apparatus for monitoring and improving the performance of suppliers.
This view conflicts with the broader definition of SRM as ‘a discipline of
working collaboratively with those suppliers that are critical to the success of
your organisation, with the intention of maximising the potential value of those
relationships.’ When the former perspective is adopted, SRM becomes a narrow,
one-way process that benefits the buying organisation only, i.e., there is no
win-win situation. The latter, broader view tends to create enhanced value for
both parties, leading to shared benefits in such areas as lowered costs, reduced
risk, increased supply efficiency, enhanced quality, faster time to market and
access to innovation.
5.3.4.2 Central Role
In some organisations, procurement is regarded as a price-focused function.
This perception can cause functional managers to protect their key supplier
relationships jealously and to keep procurement’s involvement to a minimum.
This may be problematic, as procurement should take a central role in co-
ordinating supplier relationships. The reason is that it is procurement that best
understands aspects such as access to supplier information. It also has a sound
understanding of an organisation’s operations.
5.3.4.3 Consolidating the Benefits
Many leading organisations already have potent SRM programmes in place
and are reaping the benefits. But SRM tends to be restricted to ‘pockets of
excellence’ in particular business units or functions, rather than being spread
across the entire enterprise. The challenge for those in procurement is to
develop the skills and capabilities that will enable them to spread the good
practices more widely.
5.3.4.4 Over-Reliance on Suppliers
When the organisation is overly dependent on its suppliers for many activities that
were previously performed in-house, the organisation’s exposure to supplier risk
also increases. For instance, when an organisation is over-reliant on a particular
supplier for key raw materials, and that supplier is declared bankrupt, the buying
organisation is likely to have a shortage of the key raw materials until it can find
a new supplier. Losses are likely to be incurred during that period. In all cases
where market dynamics force an organisation to become over-dependent on its
suppliers, mechanisms to manage supplier risk should be put in place.
5.3.4.5 Suppliers are not Held Responsible for Their Actions
Organisations frequently enter into poorly drafted contractual agreements that do
not hold suppliers accountable for their performance; do not motivate suppliers