Introduction to Supplier

Relationship Management (SRM)

Instructor: Dr. Hassan Younis

Customer-Supplier Relationships Management
LOGS323
Lecture 5
 Purchasing as a strategic function
• Increasingly suppliers are being engaged
to make greater contributions.
• Twenty years ago purchasing was rarely Initially, Procurement was defined as an
considered a strategic function operational activity to acquire material,
goods and/or services from 3rd parties to
• The role of purchasing has changed to
ensure operations of a company.
become a strategic contributor to the
bottom line rather than a cost center.
• The view of purchasing’s role is shifting
to the center of the business - aligned
with all the other strategic contributors
to enable the organization to pursue its
goals.
• Purchasing needs to engage with the
suppliers in a new way and get them
engaged to make greater contributions
 Purchasing as a strategic function
Share of purchasing spend in total costs
- for selected industries -

Consumer goods 80-90%

§ Cost makes the biggest part

Manufacturing industry 40-80% of final product price

§ Cost management is key for

Transportation 30-75% competitiveness and
company‘s success
Telecommunications 25-40%
§ Purchasing accounts for a
significant share of total
10-25% cost for most industries
Banks & Insurances

Public institutions 20%

100% total costs

Source: A.T. Kearney 2008 AEP study

 Purchasing cost reduction has a much higher impact on profit than
turnover increase

Correlation between turnover increase, profit and purchasing cost reduction

Turnover
increase %

40 Purchasing cost § 1% purchasing cost reduction has same

reduction 3.5% impact on profit as 10% turnover increase
35
§ 3.5% purchasing cost reduction has same
30 impact on profit as 30% turnover increase
25

20

15 Purchasing cost
reduction 1%
10

5
Share of
purchasing
10 20 30 40 50 spend in %

Source: A.T. Kearney 2008 AEP study

The role of Procurement evolved from an administrative operation to a valuable strategic function

Source: A.T. Kearney 2008 AEP study

Leaders are seen to have dynamic value creation strategies to respond to
the challenges of the supply market
Assessment of Excellence in Procurement (AEP) Study – House of
Purchasing and Supply ManagementTM

Leaders are seen to have

dynamic value creation
strategies to respond to
the challenges of the
supply market
Source: A.T. Kearney 2008 AEP study
 Latest trends display segregation of procurement processes by their core activities

Leaders are seen to have

dynamic value creation
strategies to respond to
the challenges of the
supply market
Source: A.T. Kearney 2008 AEP study
 Better, faster and just for you right now
“Better, faster, cheaper” is the new motto that force
organizations to compete or die.

The main factors behind such competition are:

• Different alternatives; Securing lowest cost in the
market for non-differentiated and commonly available
goods and services
• Globalization means the marketplaces have wider or no
boundaries opening up huge choice and alternatives
• The internet has created a new form of competitive
tension allowing us access to all markets and real-time
comparative pricing data. (e.g. trivago)
• e-Auctions create a competitive environment for a
specific requirement at organizational level and
consumers can now find the lowest price in seconds
online. (e.g. MIC stationery tender)
• With the help of Machine Learning and intelligible
algorithms supplier selection would be more predictive
and intelligible than ever before; creating a platform for
success from the very first collaborations.
Source: A.T. Kearney 2008 AEP study
Using eProcurement tools results in increased efficiencies
and enables further saving opportunities

Sourcing related eProcurement tools:

§ eRFX / eAuctions
§ Collaborative Optimisation
§ Supplier Portal
§ Web-based Procurement Manual
§ Contract database

Operational Procurement related tools:

§ eProcurement Engine
§ Request-to-Pay (R-2-P) Tool
§ eCatalogs solutions
§ Electronic receipts & credit memo
Better, faster and just for you right
now
Standardized Personalized

How can then businesses keep up their performance in this competing

market?
 Supplier, friend or foe?

“Keep your friends close and your enemies closer” – Macchiavelli

Suppliers should be considered both:

• Friends
• Enemies

§ Considering suppliers as enemies could be viewed as unproductive and

confrontational
§ Similarly it can also be disadvantageous to view suppliers as friends;