Analyst Insight: In almost every industry, supplier relationships can either make or break an organization's ability to service customers responsibly and reliably while maintaining cost effectiveness and managing assets effectively. Organizations can establish strategic goals to minimize inventory investment and lower transaction costs while still increasing differential/competitive advantage and expanding globally. Supplier relationship management (SRM) programs that drive effective collaboration and supply chain synchronization with suppliers are critical success factors in serving customers and meeting strategic goals.

-Marisa Brown, director, APQC Knowledge Center, and Rob Spiegel, knowledge specialist

APQC's research on SRM finds that successful programs have four major components: methodology, collaboration and supply chain synchronization, technology processes, and measurement and rewards. Each of these best practices also has its own components that total 10 overall. Below is an outline of the elements of a successful SRM program that APQC identified by focusing on five organizations: Cessna Aircraft Company, H.J. Heinz Company, Anheuser-Busch, Stryker Instruments, and Vectren Corporation.

Supplier Relationship Methodology

1. Partnering with suppliers and integrating supplier relationship methodology into strategic sourcing initiatives improves supply chain effectiveness and customer service.

2. Effective SRM aligns with corporate goals through cross-functional strategic initiatives involving cross-functional teams in supplier relationships.

3. A supplier relationship initiative must be recognized and supported by the entire organization.

Collaboration and Synchronization of the Supply Chain

4. Strategic relationships require time, trust, mutual understanding, regular and consistent communications, and mutual commitment to establish a long-term relationship.

5. Building an effective supplier relationship framework involves identifying and categorizing spend characteristics and then implementing initiatives across a rationalized supplier base.

6. Working with suppliers to develop mutual capability and integrated strengths serves to continuously improve supply chain effectiveness and, ultimately, customer service.

Technology and Processes as Enablers

7. Strategic supplier relationship initiatives require standardized processes, an organizational structure that supports the processes, and accountability for key objectives.

8. Joint identification and implementation of tools/technology with supply chain partners lays the foundation for a collaborative environment.

Measurement, Results, and Continuous Improvement

9. Effective metrics are those developed and set in collaboration with suppliers and stakeholders.

10. Enforcing SRM internally through measurement and rewards ensures program success and drives results.

The Outlook

The keys findings of APQC's research into SRM found that best-practice organizations must incorporate their supplier relationship methodologies in both their business strategies and cultures by embracing it from the senior management team to the individual process performers, implement the concepts cross-functionally, and drive them home in the reward and recognition systems.