Q

Finding the business value of supplier relationship management software

In this expert response, discover the features and benefits of supplier relationship management software.

Is supplier relationship management software worth the technology investment? What functionalities can a SRM-based package offer that can't be found in a general supply chain management package?

As soon as you hear the word "relationship," you know it means something important. Just like in our personal lives, our business relationships need cultivating -- but structure and understanding of mutual value needs to be the core. Supplier relationship management (SRM) is a bit different than procurement, often called procure to pay, or P2P.

The term SRM falls in and out of favor in the market, but it generally includes sourcing -- a more strategic element -- and procurement -- a more execution-based element.

Is SRM worth it? Absolutely! How a company manages its suppliers makes a huge difference in profitability, performance and the resilience of the business. From tactically seeking best performance (price, quality, timeliness), to reducing risk (supply assurance and regulatory compliance), to fair trade and sustainability, SRM is critical. If you have many suppliers that are sourced from many locales, looking at the total cost to source isn't easy without some automation. In my previous answer, I listed the modules you should expect in the SRM portfolio, though most providers don't have all of those.

Procurement is very labor- and data-intensive with a lot of moving parts. Companies that have implemented procurement are way ahead in terms of overall product cost and time to market, as well as the productivity of the procurement team.

Generally, these modules are not in a typical supply chain package, though vendors do have "requirements planning" or supplier collaboration modules that can send current requirements and orders to suppliers. There are major SRM providers in the market that provide either best-of-breed supplier management modules or whole suites. SRM software usually involves:

Direct vs. indirect procurements: These tend to be for different types of purchasing professionals and are represented by different software modules. You don't see many procurement modules within supply chain software, as indirect procurement is not part of the supply chain.

Sourcing vs. procurement: Strategy may only happen once a year and involves research and proposal evaluations from suppliers. Procurement is the execution of the purchase orders.

Supplier discovery or supplier information management: These functionalities are becoming in vogue as a way for buyers to seek out new sources and for suppliers to get noticed. They can include critical information, such as certification data.

Supplier risk: Again, the features of supply risk software are differentiated in the market by direct or indirect procurement. Today we are seeing supplier-risk software for retailers as well, which manage supplier audits for contract manufacturing to assure fair business practices and compliance.

Collaboration: This includes the social supply chain and any discussion forums, and may link to a product design or product lifecycle management system.

You may not find all these features in a general supply chain package. Sourcing, reverse auctions/pricing and contract management are software features normally sold to purchasing professionals, a different user base than supply chain planning (demand/direct material planning, transportation planning) and execution (manufacturing and distribution). The buyers of this software differ by function, and thus the software market responds with apps focused on, and relevant to, that buying group.

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Next Steps

Read how Hyundai improved its SRM

Find out how to build a supplier risk management strategy

Learn the importance of supplier risk management

This was first published in July 2014

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