Chapter Two

Introducing the orchestra of Supplier Relationship Management (SRM)

Defining SRM
SRM is the overarching strategic approach to determine and implement different supplier - based
interventions, including the development of collaborative relationships with the critical few
suppliers who can make the greatest difference; prioritized against available resources, applied as
appropriate across an entire supply base to maximize value to the organization, reduce supply chain
risk and enable the organization to achieve its goals and enhance value to the end customer.

Supplier relationship management (SRM) deals with and manages third-party suppliers who
supply your company with goods, materials, and services.

Who is a Supplier?
A supplier is a company that provides goods or services to another company. The term is most
commonly used in the business world, where businesses purchase raw materials or finished
products from other businesses. A supplier can also be an individual, such as a freelance writer or
graphic designer, who provides services or products to another individual or business
The story so far
In the 1960s, the intervention with suppliers was “decentralized” to the extent of focusing on
warehouse management, transportation and operations management (Hieber, 2002). In the 70s
and 80s, “Centralization” drove new ways for supplier management and as the “quality movement”
arrived organizations embraced Deming, Kaizen, Total Quality Management, Total Cost
Management and Continuous Improvement. Then the way organizations viewed suppliers began
to change and objectives to optimize cost, quality and customer service came to the fore (Hieber,
2002). The Japanese showed the world how partnerships with suppliers could add great value to
an organization.
The concept of ‘supply chain management’ gained momentum in the 1990s where, for the first
time, the supply base was seen as an important enabler to help organizations achieve their
aspirations and targets. Companies started to develop strategies for their entire supply chains with
visions, objectives and goals being set; a new type of relationship with certain important suppliers
was emerging.
The philosophy of supplier relationship management (SRM) emerged around the millennium as a
single, overarching strategic approach to bring some order to the different types of supplier
intervention that enabled the firm to reach its goals. The concepts of ‘supplier management’,
‘supplier performance measurement’ and ‘supply chain management’ naturally fell under the SRM
umbrella as approaches relevant for certain groups of suppliers.
In 2010 the world’s first formal standard for supplier collaborative relationships was launched,
initially as a British Standard (BS11000) and then an international standard (ISO11000) defining,
for the first time, a framework for establishing and improving collaborative relationships between

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organizations enabling firms to achieve internationally recognized accreditation for putting such
arrangements in place.
SRM: An organization-wide philosophy
For SRM to have a purpose and to contribute effectively to organizational success it requires wider
terms of reference and cross-functional participation. If an SRM initiative is to have any
significant impact then it must be an integral component in the way the organization connects its
sourcing with the way it satisfies its end customers and the overarching strategy of the firm. The
relationship between these three is fundamental if an organization wishes to gain competitive
advantage by capitalizing on the potential that resides in the supply base.
Purpose of SRM
The purpose of SRM to enable this is to drive a convergence of Sourcing and Satisfying customers
and Strategy. The key to understanding how to achieve this convergence in practice lies with the
way value flows into and through an organization and on to the end customer.
The flow of value
Sourcing is the primary externally facing role of Purchasing team. Satisfying what customers need
and might want is the primary externally facing role of sales and marketing teams. In between
these two are all the different functions, departments, processes, handoffs and steps that transform
what is sourced into something that satisfies the customer so they buy and keep buying. Ideally
this transformation adds some value in some way.
What is value chain?
Porter (1985) describes the concept of the ‘value chain’ with products passing through an
organization and each business function directly or indirectly adding value in some way to create
the final or service.
Satisfying customers
Satisfying customers requires companies to be clear about the value proposition that will resonate
with customers and will therefore drive demand. This means the firm must get close to customers,
develop a deep understanding of what would they would and develop a differentiated offering.
What is Value Proposition?
According to (Lanning, 1980), the value that satisfies the end customers is called the value
proposition, which is the reason they buy; because a need or want will be fulfilled in some way; it
is a promise of value to be delivered together with a belief held by the customer that the value will
be secured or experienced.
Barnes et al (2009) define the value proposition as:
Value = benefits – cost

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Value is subjective and a perception of value is unique to the individual and situation. The benefits
that represent value can be tangible such as a cold drink on a hot day or intangible such as how we
feel about showing off the latest designer sunglasses on the same hot day.
The value proposition is the way a supplier defines what it will do and offer and how it organizes
itself so as to provide value to the customer experience. Barnes et al (2009) state that ‘by building
a value proposition you will provide profitable and superior customer value, more profitable and
more superior than if you hadn’t built on’. Therefore, if a firm can build customer value and satisfy
its customers this in turn creates sustainable value for the organization (Kaplan and Norton, 2004).
So, the more you can satisfy customers the more value you create.
Sourcing value
Effective sourcing and the relationships with suppliers need to be much more coordinated and
managed if we are to secure the value, we need beyond that we currently get. Furthermore, there
must be a strong linkage to how the organization develops its value proposition to the customer.
Shaping strategy
Strategy is a much-used and misused word in business. It is derived from the Greek strategos
meaning office of general command, presidency, army leader, period of command or campaign or
a force of men (Liddell and Scott, 1940). Sun Tzu (circa 2000bc), the ancient Chinese military
general, strategist and philosopher from the Zhou Dynasty, is famous for his writings around
military tactics and strategy contained in The Art of War. These continue to influence modern war,
and indeed business tactics because they define a series of courses of action to gain or retain
advantage according to certain situations. Strategy is therefore about the direction we take and
today our use of the term is more about direction than a leader.
Corporate strategy
Johnson and Scholes (1993), describes corporate strategy as the direction and scope of an
organization over the long term: ideally, which matches its resources to its changing environment
and in particular its markets, customers or clients so as to meet stakeholder expectations.
So how does strategy connect to sourcing and satisfying?
Effective corporate strategies must respond to and be determined by the external environment
within both the supply base and customer base. Strategies are therefore two-way; they inform and
are informed by end customer current and potential wants and needs together with what might be
possible in the supply base. This is the fundamental concept that underpins and creates a purpose
for an effective SRM program.

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The three pillars of SRM
• Supporting the sourcing, satisfying and strategy philosophy of SRM are three pillars of
SRM. These are the three interrelated components that must come together and happen to
establish an effective SRM approach as for any structure, all the pillars are necessary to
make it whole. The pillars of SRM are what, with whom and how:
• What... the organization needs from its supply base in order to
realize strategic goals, determined using VIPER macro relationship requirements.
• With whom... we need a relationship or some sort of intervention in order to realize
strategic goals, defined through supplier segmentation.
• How... we will deploy specific interventions with the supply base
to achieve strategic goals.
SRM: an overarching philosophy and framework
The following are well-known and much used approaches all have their place and belong within
SRM: Strategic collaborative relationships (SCR), Supplier performance measurement (SPM),
Supplier improvement and development (SI&D), Supplier management (SM) and Supply chain
management (SCM).
Strategic collaborative relationships (SCR)
Strategic collaborative relationships (SCR) – an approach to establish and improve relationships
at a strategic level with the critical few suppliers who can add the most value to the organization.
The term collaborative relationship was popularized by the British Standard BS11000, however
this strategic component of SRM is sometimes referred to as strategic relationship management
(also ‘SRM’ to really confuse things) or relationship management or strategic relationships.
Supplier performance measurement (SPM)
Supplier performance measurement (SPM)– an approach specifically centered around measuring
supplier performance and perhaps coordinating improvement initiatives in response to findings.
Supplier improvement and development (SI&D)
Supplier improvement and development (SI&D) – specific interventions with a supplier to drive
some sort of improvement or develop supplier capability. Initiatives here might range from simple
corrective action to joint initiatives where parties collaborate to reach a new goal.
Supplier management (SM)
Supplier management (SM) – an approach for important suppliers that addresses the day-to-day
management, interaction, relationship management, contract management, performance
management, review and coordination of improvement initiatives.

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Supply chain management (SCM)
Supply chain management (SCM) – an approach to understand and manage the entire supply chain
and possibly even the end-to-end value chain extending to the end customer. Typically concerned
with arrangements to ensure flows of information and coordinate logistics, storage and flows of
goods right through the supply chain.
Enabling principles
several enabling principles required to support an effective SRM program are emerging. These
include adopting an ‘end-to-end’ value focus, working cross-functionally with the wider
organization and integrating the approach with other strategic initiatives such as category
management.
Introducing ‘the orchestra’ of SRM
SRM is in fact like an orchestra. Each of the sections of an orchestra play when needed according
to the piece of music, all working in unison and taking their lead from a single conductor. This is
precisely how SRM needs to work in order to be successful. Each component of the orchestra of
SRM; the areas of focus, the different approaches and interventions, must play as and when
needed according to what is appropriate for the circumstances, the current environment and the
point in time with the conductor providing a governance framework that guides how the various
interventions come in or drop back.
Benefits of Supplier Relationship Management
1. Improved quality of goods and services
SRM can help to improve the quality of goods and services by establishing and maintaining
relationships with high-performing suppliers. This can lead to improved communication and
collaboration, which can, in turn, lead to better quality products and services.
2. Reduced costs
SRM can help reduce costs by negotiating better prices with suppliers and improving efficiencies
in the supply chain.
3. Improved supplier performance
SRM can help to improve supplier performance by setting clear expectations and providing
feedback on supplier performance. This can lead to improved communication and collaboration,
which can, in turn, lead to better quality products and services.
4. Greater transparency and visibility
SRM can help to improve transparency and visibility into the supply chain by providing visibility
into supplier performance and establishing clear communication channels.
5. Improved communication and collaboration

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SRM can help improve communication and collaboration between a company and its suppliers,
leading to improved quality products and services.
6. Greater innovation
SRM can help drive innovation by establishing relationships with creative and innovative
suppliers. This can lead to new products and services that can help a company gain a competitive
advantage.
7. Increased customer satisfaction
SRM can help to increase customer satisfaction by ensuring that customers receive the products
and services they need when they need them.
8. Improved risk management
SRM can help improve risk management by identifying and mitigating risks in the supply chain.
This can lead to improved quality products and services.
9. Greater agility
SRM can help to improve agility by establishing relationships with suppliers that are flexible and
responsive to change. This can lead to improved quality products and services.
10. Improved business continuity
SRM can help improve business continuity by establishing reliable relationships with reliable
suppliers and having a good track record. This can lead to improved quality products and services.
Supplier Relationship Management Process
The following depicts an efficient SRM Process.
1. Supplier Segmentation
Create separate groups for your major suppliers, such as strategic, tactical, and tail suppliers. Each
of these supplier groups will require its management strategy, and each will necessitate a distinct
strategy and set of resources.
2. Set Objectives
Whether your objective is cost savings, innovation, or saving time, you will need to determine how
you set up your objectives for SRM.
3. Measure Supplier Performance
You won’t be able to fulfill your goals if you don’t track your suppliers’ performance against them.
As a result, evaluate the performance of your most essential supplier to see if it matches your goals.
This entails keeping track of the metrics with your strategic and tactical vendors. The tail suppliers
aren’t as significant as the head suppliers.
4. Create a Supplier Management Strategy

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Create a strategy for staying in touch with suppliers and ensuring that they reach the goals you’ve
set. This will aid in the enhancement of your company’s competitive advantage. This form of
collaboration benefits both the organization and the supplier and assists in meeting the needs of
the customers.
5. Continue Improving
Your SRM must be examined and updated regularly as you interact with suppliers to keep costs
low and creativity high. Schedule regular meetings with your suppliers to focus on their quality,
delivery, performance, and service to develop improved supplier performance management.
Sharing data and being clear about your company’s objectives in working with your suppliers are
part of that strategy.