Public procurement knows cost is just what you pay, value is what you receive and SRM (Supplier Relationship Management) brings value to procurement.
In 1983, McKinsey consultant Peter Kraljic became the first to propose to the world that purchasers get more strategic and proactive in the supply chains in a Harvard Business Review article. From this article grew the professionalization of SRM into the world of public procurement that we see across state offices today.
What is SRM?
Forbes put it simply: SRM is the process for organizations determining the supply categories that are important and creating the strategies that manage these items in an intelligent fashion.
SRM can be broken down into 3 easy steps:
Academics from the Eli Broad Graduate School at Michigan State University highlight two main approaches to SRM: reactive and strategic.
The reactive approach to SRM means the relationship between supplier and purchaser begins when an unfortunate event happens:
When these events occur, procurement staff work to identify how they will improve the unsatisfactory supplier and when first communication happens with them—that is the framework for discussion.
On the other hand, in the strategic approach, the relationship between supplier and procurement starts even before that first contract is signed. When relationships start in the early stages of engagement, the purchaser is able to ensure a competitive advantage in the long run.
5 advantages of a well-managed supplier relationship:
Consolidated Supply Chain
Ongoing Improved Operations