Where SRAA sits in the organization
Integration not islands
If SRM is to be successful in an organization then it should not be considered an 'island' - a standalone initiative for a single purpose. Organizations that have recognized the significant contribution purchasing can make naturally want to respond by embarking on a journey to better resource and enable purchasing, and SRM is one enabler here. However, SRM is not the only
FIGURE 15.4 An example programme plan for SRM and other strategic initiatives
FIGURE 15.5 Factors that shape the programme plan
game in town, it is just one component that comprises modern best practice or world-class purchasing. A business might be working on operational initiatives such as vendor rationalization, implementing an ERP system or catalogue buying. eSourcing or Lean initiatives could be driving benefits and there may be tactical initiatives to simply negotiate or buy better. There might also be other key strategic enablers such as category management and supply side CSR and here integration of strategic initiatives is important otherwise we run the risk of duplicating effort and missing vital interconnections between them. Across the landscape of different initiatives, it is the strategic approaches and crucially their integration that drives the greatest value. In practice, integration happens through good governance. Purchasing maturity is therefore primarily the degree to which key strategic initiatives are effective and work together to deliver dramatic benefits. Figure 15.6 shows the stages of purchasing maturity, where different approaches tend to exist within these and the typical nature and scale of value possible.
The link to category management
My first book Category Management in Purchasing (O'Brien, 2012) outlined the methodology that enables organizations to take a strategic approach to their entire third party spend by segmenting it into groups of products or services, or 'categories', that mirror how market places are organized (Figure 15.7). Category management is also an approach for cross-functional teams, who work on individual categories and determine and implement new strategic sourcing strategies that can deliver breakthrough benefits. It is possibly the single most vital component of modern best practice purchasing. Indeed today category management is firmly established and standard practice for large organizations all over the world and is a well-proven approach that delivers real and sustainable benefit including significant reductions in price and cost but also risk and can create additional value and new innovation.
SRM is also a strategic sourcing methodology, but of course focused on suppliers rather than categories of spend, so which one should be used and when? And if it is both then which order should they be deployed in? The answer is it depends. Both category management and SRM can add great value to an organization and despite differences in their focus, many of the supporting tools and approaches are common. Category management is spend or category centric whilst SRM is of course is supplier focused (Figure 15.8). Both have their place within a strategic purchasing function and each should be selected and deployed accordingly as part of common governance programme planning.
Category management is, more often than not, the initiative organizations begin with, later putting some form of SRM initiative in place, often as category strategies get implemented and the project then reaches maturity shifting the emphasis towards ongoing supplier management in various forms and driving improvements. This makes sense but the two approaches are not necessarily sequential, in fact each could be deployed according to
FIGURE 15.6 The stages of purchasing maturity
FIGURE 15.7 Segmentation of categories of spend
FIGURE 15.8 Categories versus suppliers
the outcomes needed and at any time it may be appropriate to transition from one to the other or even to do both.
The key to success, however, is the integration or connectivity between approaches. For example, if an individual leading a category project conducts analysis and develops insights that suggests the most appropriate way forward is to work on a key supplier relationship rather than try to leverage benefit through a competitive process it would be appropriate for that person to then switch to deploying SRM. Equally work with a supplier might suggest there are greater opportunities by looking at the wider marketplace for certain categories. Here the same individual is leading and simply selecting the most appropriate process and toolkit to use creating a natural integration of the two approaches, sanctioned through the governance arrangements. Indeed in organizations where senior practitioners manage portfolios of categories and also have responsibility to manage the suppliers associated with the categories tend to be the most effective overall - the category manager may also be the supplier relationship manager!
If category management and SRM exist separately, as if 'islands', resourced by different teams then unless there is exceptional communication between the two, the structure creates a natural disconnect that works against the organization. Furthermore many of the tools and approaches are common across both, just applied with a different lens. Category management and SRM therefore have an integral relationship.
The link to supply side corporate social responsibility (CSR)
In Chapter 12 we explored CSR and there is a similar linkage here between SRM and also category management. Supply side CSR requires the ability to understand supply chains, measure performance in key areas, drive improvements and develop relationships with suppliers who are critical. In fact, it demands all of the things SRM purports to deliver. It also connects with category management to provide a guiding requirement that helps shape future sourcing strategy. In fact there is significant crossover between supply side CSR, category management and SRM; indeed they share similar tools and approaches. Figure 15.9 shows all three key strategic initiatives and the crossover between them, but crucially the areas of commonality where similar tools or approaches are used. This illustrates the need for an integrated approach, coordinated through good governance.
SRM and public sector buying
In many parts of the world there are strict rules governing public sector buying. In Europe there are a number of directives and regulations. Any governmental or public purchasing entity is required to comply with the legislation for expenditure where the likely spend will exceed a certain, published threshold. In this case the opportunity must be advertised in the Official Journal of the European Union (OJEU). Prospective suppliers can then register their interest and potentially be invited to participate in a tender exercise according to one of four procedures.
Depending upon which approach is used, the degree for building a relationship with a supplier might appear limited and in conflict with the legislation. It would be very easy to conclude that SRM doesn't apply where EU rules apply because 'all suppliers need to treated equally so we can't do SRM'. This is not the case.
In any commercial interaction with a supplier there has to be a relationship dimension; it is unavoidable. It also follows that a supplier will need to be managed, measured and interacted with on a daily basis to ensure compliance, delivery to target and smooth running of the contact. SRM is
FIGURE 15.9 The commonality between SRM, category management and supply side CSR
therefore very much part of a public sector supplier relationship. However, and depending upon the contracting procedure used, there are some things that need to be done slightly differently to what might happen in a pure commercial environment. These are:
• Clear definition of the requirements upfront so they include SRM elements (performance measurement, management, relationship planning, joint reviews etc). All suppliers that bidding for work are doing so in the knowledge of how the relationship will be managed before they bid. Don't add them afterwards.
• Make SRM activities part of the contract, eg with obligations to participate in review meetings, maintain a relationship charter, supply performance information, agree KPIs etc.
• Ensure that any joint goals and objectives within a continuous improvement approach is a feature of the overall contract.