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SRM: does it have value?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management | Mar 20, 2018 6:26:53 AM

“Sourcing without SRM is like selling without Account Management”.

That statement from Future Purchasing was the subject of a tweet last week. But is it true? The answer, I suggest is both yes and no.

First we have to deal with the problem that SRM, unlike Account Management, seems to be a rather confused discipline, unclear about its scope and its purpose. That is not to say that consultancies – and professional associations like IACCM – have not tried to give it definition; it is just that organizations implementing SRM have taken very different approaches. For some, it is a method of segmentation and leads to a planned approach to the way it handles its supply base. For others, it focuses only on a select group of strategic suppliers and ignores the rest. And in many cases, it is a term used to enable Procurement to continue its pressure on supplier pricing.

The reasons behind this confusion help us to understand the core difference between SRM and Account Management.

Corporations have implemented account management in order to maximize sales. They do this through better understanding of customer segments and ensuring the right forms of interface. Account management takes many forms – for example, it may be physical, in the sense of dedicated teams, or it may be through telesales, or it could be entirely virtual through targeted email promotions or apps. Whichever approach it follows, its aim is to delight customers and have them remain loyal and spend more money.

SRM programs also undertake segmentation. But after that, their purpose becomes rather murky. Are they trying to maximize the amount of business placed with a particular supplier? Are they trying to drive improved performance by that supplier? Are they in some way the supplier’s advocate within their business? And ultimately – most importantly – who is ‘the customer’ when it comes to SRM? In account management, the objectives are clear – a happy customer is a loyal customer who will likely spend more money. But SRM rarely seeks to make suppliers ‘happy’, even if it should. The logical customer for SRM is the business unit or function  that will benefit from improved supplier performance – and this is where we reach the heart of the dilemma, because unlike account management, the views of what makes SRM ‘good’ will vary. Some want supplier loyalty and commitment; some want innovation or continuous improvement; some want lower prices ….

None of this invalidates the fact that supplier segmentation is worthwhile, but it does show that attempts to make a direct comparison with CRM or with account management are misleading. SRM is different and it is complicated. It will do much better when it addresses those complexities and clarifies its purpose.

Topics: contract /commercial management, procurement, contracting excellence

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