1. Extended ERP - Supplier Relationship Management

2. Supplier Relationship Management
Supplier Relationship Management is the systematic management of supplier relationships to optimize value through cost reduction, innovation, risk mitigation and growth throughout the relationship lifecycle
Supplier Relationship Management is a ‘business-wide’ standard for the interaction with suppliers
SRM ensures that appropriate controls and governance are in place to define how we engage with and manage our suppliers across a broad range of capabilities
SRM is an over-arching framework that includes multiple capability areas including: Supplier Performance Management (SPM), Supplier Qualification & Accreditation (SQ&A), Supplier Development & Collaboration (SD&C), Supplier Segmentation etc.
SRM allows high-performing businesses to work collaboratively with their supply-base to tap into their best ideas, identify growth opportunities, address environmental, supply and brand reputation risks and strip out unnecessary costs
UNSPC : United Nations Standard Products and Services Code

3. Supplier Relationship Management
An erosion of the typical sources of value for procurement organizations and a new set of challenges encountered has further elevated the role of SRM
Volatility: Simple “cost down” tactics to supplier management insufficient against a backdrop of volatility, scarcity and rapidly evolving technology
Competitiveness: Companies increasingly inhibited by market dynamics and their legacy competitive position
Supplier-Based Risk: Supply-base not meeting cost, innovation and risk requirements
Performance Management: No structured way to address challenges of supplier performance management
Optimization & Collaboration: Failure to optimise supplier relationship or leverage additional value through effective collaboration with suppliers

4. Supplier Relationship Management Value Proposition
SRM Initiative
Opportunity Areas
Value Levers
Collaborative R&D Projects
Core and Top Supplier Management
Supplier Process Collaboration
Increase Revenue
Improved Product/Service Quality Leading to Consumer Satisfaction
Supplier Rating and Development
Increase
Profits
Supplier-driven Cost Optimization
Reduces Non-contract Purchase/Maverick Spend
Reduce Cost of Goods Sold
Typical Value 2-3% COGS
Increase
Shareholder
Value
Decrease Operating
Costs
Supplier Performance Management (SPM)
Reduces Cost of Purchase through Better Supplier Operation Efficiency and Joint Materials Planning
Reduces Procurement Support Costs (Order Management)
Operating Expenses
Improve
Capital Costs
& Allocation
Reduces Purchased & WIP Inventory
Working
Capital
Supplier Contract Management2)
Capital
Deployment
Improves Asset Utilization
Fixed
Capital
1Source Spend Matters_SRM 2Linked capability with impact upon SRM

5. Supplier Relationship Management Supplier Segmentation
Supplier segmentation is a process of differentiating the supply base to determine the appropriate level of engagement with specific suppliers
Identifies Key Supplier Relationships – Determines which are the most important supplier relationships within each category of spend across the business
Determines Approach and Rigour – Splits suppliers into different ‘segments’ which determine the activities and rigour level from a supplier management perspective to be applied to the supplier based on the Business Impact and Business Risk associated with that supplier – the higher the risk and impact, the more rigorous the approach
Assigns Proper Resource Utilization – Helps to appropriately allocate the limited resources we have to the suppliers that bring the most strategic value to the company and have the highest business risk and impact
Links to Category Strategies & Strategic Sourcing – Incorporates the work completed in the Category Strategy and Strategic Sourcing processes to ensure that there is alignment between these processes and the way that supplier management is executed

6. Supplier Relationship Management Supplier Segmentation
A key aspect of Supplier Segmentation is the link between Segmentation, Category Strategies and Strategic Sourcing – only suppliers outlined in the preferred supplier list for a category are included in the Segmentation model
Kraljic-based Segmentation Model
Supplier Segmentation Model
Includes ALL suppliers and is based on a download of data from a spend database
Includes ONLY suppliers that have been identified as preferred based on the Category Strategy and Strategic Sourcing processes

7. Supplier Relationship Management Supplier Segmentation
The segmentation and the determined approach further translates into strategies to leverage the supplier base to maximize value
Segmented strategies to the suppliers
Strong buyer
Quality of Supply Focus
Lowest Cost Option
Essential for daily operations
Potential high value relationship
Opportunity for innovation /
sustainability etc.
Development / alliance strategies
Relationship long term
Competitive bidding
Greatest opportunity to reduce, eliminate
or simply the product/service
Relationships short term
Supply-Demand balance
Change the Game
Outsourcing
Get out!
Supplier development to build competition
JV/Alliance/VI relationship driven long term integration to remove reliance on the market
Extensively remove product constraints
Focus on cost vs. risk mitigation
Focus on delivery and availability
Indirect relationship
Aggregate across company boundaries
Relationship mid term
Weak buyer
Constrained
Freedom of action
Customer/Product Constraints

8. Supplier Relationship Management Supplier Performance Management
Supplier Performance Management is a detailed framework through which companies and their Suppliers can agree and track against performance targets to improve the value delivered for both parties over the lifecycle of a relationship
Reduce Operational Risks & Issues – Utilise cross-functional teams to define key risk areas, measure supplier performance against key objectives in these areas and define improvement plans to address risks and issues
Make Better Informed Sourcing Decisions – Provide a centralised view of supplier performance and access to key stakeholders responsible for supplier relationships to ensure that contract awards through sourcing take performance into account
Achieve Savings Targets – Ensure that savings identified through sourcing are realised in the long-term
Access Innovation & Best Practice – Access supplier best practice, market and technical innovation and expertise to maximise value and gain competitive advantage
Secure Supply of Scarce Commodities – Leverage strategic relationships to ensure priority access to scarce commodities in increasingly competitive markets

9. Supplier Relationship Management Supplier Performance Management
For effective Supplier Performance Management, we need to review the existing Contract, Category & Sourcing Strategies and input from stakeholder and supplier audits to understand the Value Objectives that should be defined for the relationship
Contract KPIs, SLAs, Category & Sourcing Strategies
SPM Value Objectives
Value Objective Area
Value Objectives
Quality & Efficiency
Meets quality requirements against specifications
Responsive in handling quality complaints
Drives to increase efficiency of service and reduce administrative and process costs
Cost
Provides sustainable cost advantage
Demonstrates Total Cost reductions (Purchase Price, Usage, Service Delivery, Disposal)
Delivery
Delivery schedule performance
Responsiveness / Flexibility to cater to demand fluctuation
Ability to meet increased demand
Innovation
Sharing of Innovative Technology approaches and applications
Sharing of Innovative Service Delivery capabilities
Health and Safety
Compliance with Corporate/Industry Health and Safety requirements
Prevention of Health and Safety Incidents
Management of Health and Safety Incidents
Contract KPIs & SLAs
% On-Time Service Delivery
# of Safety Incidents
# of Quality Issues
Category Strategy
Maintenance suppliers should meet minimum Health and Safety requirements
Suppliers must handle quality complaints in a timely manner
All suppliers must meet defined performance and schedule targets
Sourcing Strategy
Target to reduce Total Cost for Maintenance Suppliers by 3% by 2012
Suppliers will meet minimum Health and Safety requirements
Suppliers will delivery innovative solutions
Stakeholder Input & Audit Reviews

10. Supplier Relationship Management Supplier Development & Collaboration
The purpose of the Supplier Development & Collaboration methodology is to provide a detailed framework through which procurement professionals can drive enhanced collaboration and development with the suppliers that are most strategically important to the Client
To provide a detailed framework for Supplier Development & Collaboration with defined inputs, outputs and supporting tools & templates
To apply rigor and consistency to the way in which SD&C is executed across different business areas and provide a way to share good practice across the business
To ensure that long-term relationship strategies are defined for the suppliers that are/have the potential to be the most strategically important
To provide a broad range of different types of initiatives that can be applied to enhance the value delivered from a supplier relationship, increase collaboration with our suppliers and drive strategic development of suppliers and their capabilities

11. Supplier Relationship Management Governance and Organization
To garner the complete benefits of Supplier Relationship Management, an organization needs to graduate procurement focus to SRM focus

12. SRM Process Map

13. SRM Roles

14. Process purchase requisitions in SAP ERP.
SAP SRM Steps
Process purchase requisitions in SAP ERP.
Search for sources of supply.
Process purchase orders in SAP SRM.
Confirm receipt without warehouse management.
Confirm at receipt with warehouse management.
Process invoices in SAP SRM.
Verify logistics invoices in SAP ERP.
Process evaluated receipt settlements (ERS) in SAP ERP.
Analyze plan-driven procurement.

15. SRM – Service Entry