Why SRM drives supplier collaboration and innovation

People will matter more today and in the future than ever before, even though digitalization will replace up to 50 to 60 percent of work normally done manually. Automation cannot provide insights into the business. Digitization alone cannot provide more analytical, strategy and relationship-focused work to the organization. This articles takes a very positive focus on how we humans can maximize this emerging change in our landscape.

The pace of change - standing in the gap, where is our focus?

We all know today’s business environment is changing at an unprecedented level and enabling our suppliers to deliver game changing innovation equates to the effort we put into supplier relationship management (SRM). Simultaneously occurring with this change are transactions between buyers and suppliers that face much uncertainty. We can therefore predict instability that demands even more dynamic adaptability to this change.

What then is our focus? We must first shift from managing issues associated with contract performance to enabling proactive change management where change enhances value. Supplier relationships, relational contracting, supplier collaboration, etc. -- all drive this emerging change that is focusing on how to best optimize commercial and contract management.

That said, this article surrounds how to maximize this emerging focus on four areas:

• commercial management,
• supplier relationships,
• collaboration and
• innovation

Our inflection point demands higher focus as we change direction

In many respects we are at an inflection point with our suppliers and how we manage them. Digitalization capabilities -- like robotic process automation (RPA), blockchain, machine-to-machine learning, artificial intelligence (AI) - are rules-based processing operations. They create opportunities to focus on higher levels of performance. Purchasing and supply chain functions are emerging as primary candidates to apply these business process digitalization capabilities.

For example:

• We deploy RPA initiatives to perform tasks like providing purchase orders, managing master data and performing service level analysis.
• We use machine-to-machine learning involving automated maintenance routines.
• We use AI based tools like “Scoutbee” to optimize supplier selection in the Scout to Source process.  

This shift from a focus on task performing to relationship building gives us profound value. As cost efficiency rises, the resulting value increases the effectiveness of our operations. Within that, our focus changes from basic commercial management to supplier collaboration and innovation.

Supplier collaboration and innovation lead to competitive advantage.

In today’s business environment, product and service differentiation is critical in terms of competitive advantage. Our suppliers are a primary source of innovation to enable this differentiation of our products and services in the marketplace. As commercial professionals in charge of purchasing and supply chain functions for our companies, we are perfectly positioned to drive supplier collaboration and innovation. If we focus on the five key enablers, we can make this happen:

Supplier account management goes deeper than a single supplier “win.”

Think about your suppliers as strategic partners, not just one-off providers of a disparate collection of goods and services at the lowest price. Using a wider view, you can instead manage their efforts and align them with your business objectives. As your business objectives evolve over time to meet the demands of the marketplace so too should you manage your suppliers efforts. The reason why is your company’s business objectives should anticipate market shifts, not simply chase the competition. And this in turn also applies to how you manage your suppliers. The key is deep, meaningful collaboration with your supply base.

Innovation management takes active engagement on your part.

You should constantly be collaborating with your suppliers to ensure they are focused on innovation. In working closely with your suppliers, set up a pipeline of identified innovations and provide a rapid path for meeting the needs of your prioritized list of business objectives. High on that list are speed and growth, both fueled by innovation enabled by your suppliers.

Innovation sourcing focuses on outcomes.

The traditional strategy of input-based sourcing and contracting alone are no longer enough. We must focus on outcomes. This includes sourcing initiatives that deliver innovation from your suppliers. Not just innovation for the sake of innovation or transactional actions but innovation aligned closely with your company’s strategies and objectives and overall innovation agenda -- including both short and long term. A good example is the automotive industry where innovations are emerging from suppliers that enable autonomous vehicle-driving capabilities, including crash detection sensors, and hands-free driver integration and speed detection. You want to be out in front of this with your strategic suppliers to ensure their investment dollars are aligned with your vision, strategies, and tactical execution plans.  

Supplier capability management means matching your long-term supplier growth with your company growth.

Your suppliers’ capabilities must keep pace with the requirements of your company and the industry that you operate in. This has never been more important than it is today as business becomes more and more digitalized. Robotics, AI, Cloud computing, cognitive, machine-to-machine learning, Internet of Things (IoT) -- the list goes on. All of these require your suppliers to continuously ensure their capabilities are current (up to date) with today’s marketplace or perhaps even a step ahead.

Multi supplier environment means you practice collaborative, joint problem solving.

As companies outsource more and more of their work and leverage their expertise, strategic investments, and economies of their suppliers, it becomes increasingly important to ensure your suppliers work together to deliver the business outcomes, service levels, delivery quality and financial impact that you envisioned when you outsourced the work to begin with. This multi-supplier engagement is more important today than ever before, because as time passes, the lines of demarcation blur between suppliers -- and between business and IT -- due to technology advances.

A shift in priorities will occur, because the future of procurement and sourcing is changing dramatically.

As our manual tasks are automating, the work we have historically done as commercial professionals is changing. Our focus shifts from transactional execution to analysis data interrogation so we can gain insights, and draw out inferences from the data so as to drive the bottom-line improvements for our businesses. Strategic sourcing and SRM now also become a priority. The picture below diagrams this shift.

The future of procurement should be focused more and more on delivering supplier collaboration and innovation. So it is time to shift your focus now from transacting and procure-to-pay (P2P) activities (including compliance and savings measurement) to strategic sourcing and supplier collaboration and innovation. The chart above shows where you should concentrate your procurement function in the future. If you do this, you will drive the value of innovation at a significantly higher level than it is today.

Purchasing and sourcing automation impacts all major commercial, procurement and supply chain processes.

The types of work that are candidates for business process digitalization and automation that impact us the most throughout commercial management are procurement, sourcing and supply chain activities. Within that framework, three processes comprise procurement automation as the following figure shows:

• source-to-contract,
• procure-to-invoice, and
• invoice-to-pay.

The big picture?

Concentrate on automating your core, legacy purchasing work activities. Your objective is to drive efficiency and effectiveness that, in turn, will free up capacity and resources so that you can refocus on the really important strategic work - in particular strategic sourcing and supplier relationship management (SRM) including driving increased levels of supplier innovation.

Robotic process automation (RPA), intelligent automation and hyper automation profoundly enable digitalized business process transformation. To be clear, this is all transforming your business processes not simply deploying a technology tool. Transformation involves three forms: “what” work is done; “how” that work is done; and “how” that work is consumed. The following figure shows the big categories of work where we see this automation impacting the most.

• Category management - automate requirements to spend categories and buyers
• Contract management - automate upload of contract data to repository
• Tactical sourcing - automate e-RFP, eAuctions processing
• Supplier relationship management (SRM) - automate supplier portal updates,
• Supplier master data - automate processing of additions, deletes, changes
• Item master data - automate processing of additions, deletes, changes
• RTP processing - Request to Pay, simplified requirement, creation, purchase order provisioning
• Demand and supply management - automate demand and supply forecasting
• Supplier claims management - automate tracking of claims, part walks and association with supplier and contract
• Warranty claims management - automate tracking part, contract, supplier, dealer
• SLA management. - automate reporting, automate calculation of credits
• Scorecard, dashboard, spend analysis - maverick spend monitoring, data collection, scorecard population

Human capital means relationship and people skills matter!

Lastly, do not forget the people side of the equation. As the traditional work scope changes due to digitalization of our business processes, so too must the skill sets of our resources. Automation will take over a large portion of traditional manual processes. This means up to 50 to 60 percent of legacy work will disappear and be replaced by digitalization capabilities.

As this happens, we will look to our team members to provide more analytical, strategy and relationship-focused work to the organization. Strategic sourcing, category management, supplier relationship management, innovation management, and interrogating data will provide insights into the business that will become the more dominant part of our workday. This will require our skill sets to shift.

One final point here to keep in mind. Do not forget to stay aligned with the IT organization. Much of the automation we are discussing are citizen or user led initiatives. To ensure long term sustained success, these initiatives must stay in alignment with IT.

ABOUT THE AUTHOR

Daniel Mahlebashian is a retired Senior Executive at General Motors where he most recently served as Executive Director of Global Business Services (Procurement, Supply Chain, Manufacturing, Request to Pay, Finance, HR, Enterprise ERP SAP, etc.). Prior to that Dan was Chief Sourcing and Contracting Officer for Information Technology and Business Process Outsourcing at GM. Dan sits on the Board of Directors of the International Association of Contract and Commercial Management (now World Commerce & Contracting) and was prior Chairman of the Board. Dan also sits on the Board of Ashling Partners, an emerging services firm specializing in Robotic Process Automation and Intelligent Automation.

To reach out to Dan directly please contact him at daniel.mahlebashian@gmail.com, or on his mobile at +1-248-946-2078. You may also connect with Dan via LinkedIn.

 {{cta('45f2b255-9d0e-48c8-951f-a500ca28969f')}}