Mind the Gap - Strategic Supplier Management 

As buyers and suppliers alike come to terms with the realities of the dour economic climate, the 2009 Faculty Roundtable Research Project examined how Supplier Relationship Management programs have fared through the boom and bust. Building on the 2006 Roundtable SRM research, the Faculty compared approaches to managing SRM programs through the downturn and identify key success factors for continuing to extract sustainable value. Challenges through the economic recovery were anticipated for Supplier Management in forming governance structures for managing the relationship, development of trust based relationships, having open and honest communication channels and aligning with business objectives. 

The Faculty Roundtable identified five key theme areas that could drive better results for members– Commercial Foundation, Value Additions, Relationships and Communication, Business Factors and Governance Structure. A total of 15 buyer-seller relationships were included in the research covering Mining and Resources, Banking and Financial Services, Transport and Logistics, Fast Moving Consumer Goods (FMCG) and Telecommunication Industries. By surveying and interviewing multiple people from each organisation, the research was able to capture cross-functional perspectives on every relationship.

How to get started?

  • Be realistic about your own company's culture and ways of working and clear roadblocks by choosing the right partner and customizing the governance structure
  • Establish a multi-tiered and cross functional governance structure
  • Build ‘Trust’ with your supplier and ensuring that everyone in the organisation is aware of the relationship
  • Dedicate resources towards CI/Innovation projects and establish KPIs for success
  • Ensure value is the primary driver for strategic supplier relationships
  • Develop a comprehensive and well written contract.

Key Insights

The potential benefits for managing strategic suppliers identified were real bottom line benefits such as price decreases, performance improvement and/or a more flexible supply arrangement. Interviewees found that having a stronger buyer- supplier relationship delivers long term incremental benefits to both organisations. Conversely, when trust and a strong buyer-supplier relationship is lacking, there was typically a short term focus which reduces the ability to drive optimum value. Suppliers are challenged by buying organisations’ structure, factors and processes which is benefited by clear communication.

Price cannot be the primary driver for a strategic supplier relationship. Reward mechanisms and/or penalties for achieving KPIs will motivate better performance in suppliers.  Dedicated resourcing and KPIs for continuous improvement and success are key to driving value beyond the short term for buyers.

Interestingly, the use of surveys/scorecards to rate and provide feedback to the supplier and B2B integration did not have an impact on the level of mutual relationship satisfaction. Factors such as ‘Length of contract’, ‘Frequency of performance reviews’ and ‘Type of organisation’ (manufacturing/service) did not have an impact on the level of mutual relationship satisfaction.

Instead, relationships with a more comprehensive approach to strategic supplier management demonstrated higher levels of mutual relationship satisfaction. Whilst open and honest communication is critical, trust between the parties is mandatory for strategic supplier management. A multi-tiered and cross functional governance structure facilitates communication and helps raise and resolve issues smoothly. 

The full Strategic Supplier Management report contains detailed analysis of the contributing factors, benchmarking and explanation of the cross-functional model. To request for a full version of the report, please email The Faculty