“When the economic tide goes out, you find out who is swimming naked.” – Warren Buffet.
This famous quote came to mind this week as I reviewed some recent articles, and leads me to conclude the CPO is wearing new clothes in the form of supplier relationship management (SRM). SM
published What does good SRM look like?
and the latest issue of CPO Agenda
ran When do we get to SRM?
In reality the SRM suit has never really gone away, but instead has been hung up in the wardrobe and brought out on formal occasions when the CPO wants to be seen as implementing leading-edge procurement practice. But why does SRM take a back seat given the important role suppliers play to the overall success of a business?
One reason is our propensity for short-term thinking, which results in a politically expedient approach to SRM by governments and organisations – the former to garner favour with voters and the latter to seek to satisfy investor demands. Both come at the expense of sustainable long-term growth despite the fact economic cycles are predictable and can be planned for.
The problem is evident at the very highest levels, seen most recently with the government
seeking to renegotiate contracts to achieve short-term savings. This short-term grab for cash is the result of past policy and leadership failures, and a distinction between those organisations that “get” procurement and those that don’t. Those that do carefully integrate their sourcing, negotiation, and SRM strategies
don’t have to resort to damaging knee-jerk reactions.
Another reason is that SRM is just plain complicated. It is difficult to understand and even more difficult to implement and make work. Ask a variety of procurement professionals what it is, there will be a variety of vague and differing answers.
From a macro perspective it covers the entire procurement cycle. At a micro level it includes supplier positioning, approval, selection, performance monitoring, development, and de-selection. Each of these categories can be further divided. To further complicate matters, you must also consider SRM’s cross-functional impact, resulting in competing needs and agendas, and its impact upon the organisation’s strategy for innovation and growth. Pulling all this together into a succinct strategy is the preserve of an elite few.
Most organisations still struggle with managing the conflicting agendas of their own internal stakeholders and cannot hope to optimise links across external boundaries. But the successful integration of internal and external resources is arguably the single largest competitive advantage a business can achieve - and should be the ultimate goal of any CPO.
So how can we break the cycle of managing supplier relationships as a knee-jerk reaction to economic cycles? The CPO needs to be on the board to articulate the need for sustainable SRM and influence business strategy accordingly. Then they must build the necessary capability and structure to ensure alignment, processes, skills and resources are in place to integrate the internal and external value-adding resources of the organisation. In most organisations these days more than 50 per cent of these resources rest in the supply base.
The next economic downturn will expose those CPOs not wearing any clothes.