CPO Confidential

Levelling the playing field between KAM/SAM and SRM practitioners

This week I've been hosting a number of workshops in London for procurement and supplier relationship management (SRM) practitioners. The purpose is to share some of the preliminary findings of our 2010 SRM survey and to get their thoughts on the state of play in this emerging business discipline.

Overall, the results show that there has been some progress on the SRM front during the past 12 months - particularly in the areas of executive sponsorship, internal stakeholder buy-in and process development -but that more than three-quarters of organisations are still at the early stages of relationship building initiatives with their most strategic suppliers. Most are still focused on largely one-way contract and performance management, rather than truly collaborative initiatives that deliver value for both parties.

One of the most striking contrasts is between the relatively well-trained and equipped key or strategic account managers (KAMs/SAMs) on the sales side and the generally understaffed and poorly equipped (both in terms of training and tools/systems) folk on the buy side. Only about half of respondents had invested in any sort of SRM-specific training for those staff managing strategic supplier relationships - and most of those only to a modest extent. Not surprisingly, it's "soft" skills such as communication, change management, influencing, facilitation and leadership that are lacking most - and these are also viewed the most critical competencies for successful SRM.

In an effort to redress this imbalance, the International Association for Contract and Commercial Management (IACCM) and State of Flux, the consultancy I now work for, recently announced that we will launch an accredited SRM training programme this autumn. The shape, content and pricing of this programme are being finalised at the moment, but the feedback we've had from a number of major international companies so far has been extremely positive. There is clearly a need in the market for training that gives SRM practitioners - whether at the programme management, category or individual supplier relationship level - the knowledge, skills and tools they need to do a professional and effective job.

More information will be released soon, but in the meantime if you are interested in knowing more about this pioneering initiative, feel free to get in touch.

Shining a spotlight on SRM practices and maturity levels

Supplier relationship management (SRM) may have taken a back seat in many organisations during the depths of the recession, as short-term cost cutting took precedence, but interest in its potential remains strong among forward-thinking procurement professionals.

In talking to a variety of CPOs and companies in recent months, however, three things have struck me. First, that interpretations of SRM - in terms of its definition, scope and business drivers - vary considerably. Second, that many procurement functions still haven't really got out of the starting blocks when it comes to developing SRM initiatives. And third, that, differences aside, there is a lack of solid information about what good SRM looks like in practice.

In an effort to shed some light on this, I've just launched an online benchmarking survey aimed at procurement and other practitioners (see http://bit.ly/bJp3qY). It is designed to capture data from several hundred organisations around the globe and give a "state of the nation" view of SRM maturity and practice. As well as general questions about progress during the past 12 months and the challenges encountered, the survey digs deeper into areas such as stakeholder engagement, governance & processes, skills & resources, tools and metrics.

In just a few days, more than 150 people have taken part, which just shows the level of interest there is in SRM. Over the next few weeks I hope that many others will participate, allowing us to present a representative picture of current trends.

Once the data has been collected, we'll be organising a series of practitioner workshops to discuss the findings in more detail. I will then use the output of both exercises to write a comprehensive report, which will be made available to all participants.

I see SRM - which at heart is about forging more trusting and collaborative relationships with strategic suppliers - as a huge opportunity for procurement functions that want to deliver greater value to their businesses. It positions them firmly on the competitive advantage, rather than simply tactical, agenda. But it also requires a change in mindset, approach and skills compared with the traditional procurement leverage model.

If you share this perspective, then I encourage you to take part in this exciting project.

Taking the case for SRM into the mainstream

It's always pleasing (if still somewhat rare) to see mainstream newspapers carrying articles about procurement and supply chain issues. So congratulations must go to my friend Alan Day, owner of the consultancy State of Flux, for getting a bylined piece in Australian paper The Melbourne Age. The article, subheaded "Don't force your suppliers into extinction in the downturn", argues that procurement functions cannot afford to focus only on cost and cash in the current climate. They also need to boost their supplier relationship management (SRM) capabilities in order to make sure their companies are well positioned for the economic recovery and the supply shortages that are likely to accompany it.

The article draws on a recent survey of over 220 procurement executives conducted by State of Flux. This found a certain amount of confusion as to what SRM is - not least, the belief that it is primarily about monitoring and enforcing supplier performance. In Alan's view, this is too narrow a definition since it suggests a rather one-way relationship and eschews the greater value that can be generated from a more collaborative engagement with your most strategic suppliers.

This is certainly a view I endorse. But while I see evidence of a growing number of practitioners in the procurement community buying into a broader strategic agenda, my sense is that a large proportion still really don't "get it". This is partly a question of mindset - many are simply more familiar, or feel more comfortable, with the more one-dimensional approach, it's what they've always done - and partly a question of competencies: managing relationships requires a different skillset than aggressively negotiating on price.

State of Flux's research report, which draws on both the survey findings and a series of practitioner workshops to discuss them, confirms my impression that many procurement professionals take an opportunistic and tactical view of SRM. This was brought home to me at the beginning of 2008 when I took part in an SRM conference in Geneva. Talking to some of the attendees, it became apparent that the main reason they were there was because the power balance in the commodity markets they bought in had shifted significantly in favour of the suppliers and they were struggling to know how to respond.

Suffice to say that once prices began to slide, their interest in SRM waned. The same event for 2009 was first moved back to later in the year and then shelved by its organisers. That's what a buyer's market does for you!

However, as I've argued in previous posts, there's a pretty good chance that commodity and other prices will begin to climb again during the next 12-18 months as demand tightens and companies begin to experience the consequences of reduced investment and capacity decisions made during this recession. Indeed, key commodities like oil have already seen price rises in recent weeks. I wouldn't be a bit surprised to see a sudden revival of interest in SRM among some sections of the procurement community next year!

But as the State of Flux report makes clear, smart CPOs see SRM as far more than a reaction to changing market dynamics and are continuing to invest in improving their teams' skills and capabilities - and in making (the sometimes difficult) business case to senior management for a more sophisticated approach to strategic supplier relationships.

The softer, gentler side of Bo Andersson

Quite a bit has been written about CPO Bo Andersson's departure from General Motors in recent days, his possible appointment as CEO of Russian car maker GAZ and his replacement as group vice-president of global purchasing and supply chain by Bob Socia. Whatever the truth behind Bo's resignation (and I haven't spoken to him, so I can't say for sure), it's entirely understandable following Rick Wagoner's exit and the auto maker's entrance into Chapter 11 bankruptcy.

Although I never got to meet Bo in the flesh, in our conversations and e-mail exchanges over the past couple of years he impressed me as a real professional and a nice guy to boot. When I called to interview him for CPO Agenda back in the autumn/fall of 2007, he immediately wanted to get my opinion about how his Swedish compatriot Sven-Goran Eriksson was doing as the newly installed manager of Manchester City Football Club (answer: quite well at the time, although it went downhill from then on!). During our interview, he was at pains to stress that although GM's reputation for supplier relations had been terrible, he was determined to improve this and was trying to push through major cultural change, not only within a 4,000-person purchasing function but also within the company at large.

In this, he seemed to be making progress. The latest annual Working Relations Index study among US automotive suppliers published by my friend and contributor John Henke shows that GM's stock continues to rise. Its overall index score in 2009 was 183, up from a low of 114 in 2005. This is still well below the industry mean of 255, and almost half of leader Honda's rating (349), but to improve by 20 points between 2008 and 2009 at a time when GM was in meltdown must say something.

I was impressed enough by Bo to invite him to join CPO Agenda's editorial advisory board - an invitation he immediately accepted. From then on, although he didn't respond to all of my updates and requests to board members, when he did it was always personal (never via a PA or PR person), always polite and always with a hint of modesty. Back in February when I asked if he would take part in a webcast with some other CPOs, he replied: "Unfortunately, right now all my attention and focus needs to remain on GM and our business needs here. Therefore, I need to decline your kind invitation. I hope you understand..." Then, in our last communication, on 9 April, he sent a quick note from his trusty BlackBerry to say "I hope you are doing well. Things are busy here. We're trying to get the job done during these challenging times. Regards, Bo".

It sounds easy, doesn't it? But sadly there are quite a few (less impressive) CPOs out there who never take the time and trouble to be civil and communicate personally with journalists like me - even though they never know when they might need our help, our contacts or space in our publications! Despite his reputation among suppliers and the automotive media as a fearsome operator, I experienced the softer, gentler side that he said he was trying to inject at least some of into GM's stodgy culture. So, I wish Bo well in his new role and hope that while he plays his part in revitalising the global auto industry he continues to be an advocate for more collaborative and trusting buyer-supplier relations. 

Who make the best relationship managers?

What are the qualities of a successful supplier relationship manager? And what type of people tend to have these qualities? These were two of the discussion points at the Conference Board's Supplier Relationship Management (SRM) 2009 event held in Atlanta earlier this month. Naturally, procurement careerists tend to believe that they are perfectly capable of taking on such responsibilities, often alongside their buying and/or category management functions. But at this conference, two speakers with sales backgrounds begged to differ.

Gregg Parsley, a former IBM salesman with 26 years' sales experience who now leads the supplier management workstream at Royal Dutch Shell, argued that "the best SRM managers are ex-salespeople". This, he said, was because "SRM is reverse account management" and the skill lay in engaging and influencing CEOs and other executives on the supplier side and business stakeholders on the internal side - something salespeople were well used to. "As a general rule", traditional procurement people didn't have the mindsets and skills required to manage relations with a company's most strategic suppliers, he suggested.

Parsley was followed onstage by another ex-IBMer, David Macaulay, until last year a senior vice-president at Siemens, who started his presentation by asking whether procurement people in the audience talked to their strategic account management colleagues? In his experience, few did, despite the fact that "strategic accounts were designed to beat purchasing", and hence knowing how strategic account managers (SAMs) thought and operated ought to be essential.

Macaulay, who ran the SAM organisation for Siemens, said he "never had just a sales guy in a SAM role". This was because it demanded people who could "make sound judgments" and see new ways to work through problems and create value, "and that isn't a 'regular' salesperson". A successful SAM needed to be a financial entrepreneur and have a mix of operational and strategic qualities, he said. The former included portfolio expertise and project management, while the latter included internal and customer network development. 

SAM and SRM processes should be "symbiotic", he argued. "I'd invite you to sit down with your own sales organisation and understand how they do it." As well as improving procurement's knowledge, this could have the added benefit of identifying new talent for the function, he said.

Macaulay also challenged the notion that one person each on the SAM and SRM sides could manage the relationship between two big and complex companies. "Multi-point relationships" were needed, he said, not least because otherwise the quality of the relationship was vulnerable to a simple change of manager. At Siemens, a "top executive relationship process" (Terp) was used as a formal, documented way of enabling the company's business leaders to interact with their counterparts at key customers during the course of a year.

SRM during the recession

This morning I read a newly publicised research report on customer-supplier relations in the automotive industry published by the executive search firm Russell Reynolds Associates and consultants Booz & Co. Although it was researched and written last year before recession really took hold in the sector, it makes interesting reading nonetheless.

Based on interviews with nine big auto makers – including General Motors, Ford, BMW and Nissan – and 18 suppliers, such as Bosch, Johnson Controls and Valeo, the report argues forcefully that "the traditional adversarial approach no longer works". Cost control, quality and innovation all demand the creation of more collaborative and less aggressively price-orientated relationships, say the authors.

Although most of the companies surveyed said they preferred a more relationship-based approach, in practice they found it difficult to implement. The recession hasn't made that any easier. With car sales and production volumes down by as much as 50 per cent, the pressure on OEMs is intense. Some are simply in survival mode – an environment that is hardly conducive to collaboration, as the report notes, even if that is precisely what is needed.

At the same time, a growing number of auto suppliers are failing, and hundreds more are expected to become insolvent during the course of 2009. There are certainly some commendable efforts taking place in the procurement community around this issue. I've heard stories of purchasing staff lobbying administrators to keep suppliers in business or even bringing potential buyers to the table. But others are resorting to the age-old – and increasingly risky – tactic of simply demanding price cuts. The CPO of a global tier-one supplier told me last week that BMW had written to his company demanding an immediate 5 per cent reduction on its invoices. It wasn't the percentage amount that surprised him (this being a fairly typical year-on-year requirement in the sector), more the fact that BMW has in the past had a reputation for working collaboratively with suppliers to take costs out.

Without pointing the finger at individual OEMs, the Russell Reynolds-Booz report acknowledges that shifts in purchasing strategy of this kind are occurring. But it argues that European auto makers still tend to be more collaborative in practice than their US-based competitors. Usefully, and as you might expect from a headhunting firm, the report goes on to outline 11 leadership competencies that CPOs and others need to manage long-term relationships more successfully, as well as specific issues and barriers that need to be addressed.  

Coincidentally, the state of working relations in the auto industry featured prominently at a breakfast briefing I attended yesterday morning in London (you can read my story here). And a new article by John Henke, a leading US consultant, academic and working relations specialist, in the spring 2009 print edition of CPO Agenda, published this week, argues that despite the heat, now is not the time to put supplier relationship management efforts on the back burner.

In 10 days' time I'll be attending a Conference Board event in Atlanta on how SRM can operate effectively and deliver results in the recession. As part of the programme I'll be moderating a panel discussion between the CPO of eBay and the CEO of the Strategic Account Management Association, among others. It will be very interesting to get their (non-automotive) perspectives on the pressure points and tensions that currently exist. Watch this space for more details.

Tough times for Toyota and its suppliers

Just read an interesting story in today's Financial Times, quoting the head of Toyota's US operations, Jim Lentz, saying: "The biggest challenge we face is really on the supplier side of the business."

He has "real concerns" about the survival of up to 30 suppliers, according to the FT. And from what I can gather it's a similar picture here in Europe.  

One problem for Toyota, as a company executive explained to me several months ago, is that whereas in Japan it has a very tight-knit supply base, with lots of cross-shareholdings, in the US and Europe it is far more dependent on Western suppliers outside of its control. 

At the same time, these overseas operations still have a lot of single-source arrangements, which means that the failure of even a minor component maker can shut down production lines. To compound the problem, it's not in the company's "DNA" to hold safety stocks – Toyota being the inventor and chief proponent of lean/just-in-time production.

From what I know, Toyota's purchasing guys have been working their socks off trying to manage this situation. And let's face it, the company still puts most others to shame when it comes to supplier development and long-term relationship building. But it will be very interesting to see whether the painful experience of this recession causes it to rethink any of its much heralded supply chain philosophy and practices.