Although the term Supplier Engagement has been thrown around for some years now, many still aren’t clear on the methodology and discipline that sits behind it.
When introducing the supplier engagement methodology, one question I’m often asked is how it differs from Supplier Relationship Management (SRM).
Disclaimer for those Supplier Relationship Management professionals curious to see my take on SRM, please note: I don’t practise SRM as part of my day job and therefore I’m by no means an expert. I will have missed subtleties, I’m sure. But please do let me know your thoughts – I’d love to learn more.
First of all, let's start by asking: What is Supplier Relationship Management?
Let’s take these key points. Supplier Relationship Management is:
- Focused on maximising value
Certainly at this level, Supplier Relationship Management and supplier engagement remain aligned in their approach and purpose. However, as is often the case, the devil is in the detail.
Origins of Supplier Relationship Management and its applications
One key explanation for the differences between the two methodologies and where they are applied are their origins.
Supplier Relationship Management was born from, and remains heavily centred on procurement and sourcing. And certainly in my experience, the interactions focused on in SRM relate to the performance of processes and systems within the procurement and sourcing functions.
Now supplier engagement on the other hand, at a very simplistic level, is the application of employee and customer engagement principles to the relationship with suppliers. It’s ultimately about what makes humans understand and care enough to do something; it is about their motivation and understanding. Supplier engagement is about collaboration and using this as a significant driver of performance.
This allows a much broader application of the supplier engagement methodology to any supplier related process as the principles are applicable to any human interaction regardless of the process or purpose between an organisation and its suppliers.
Supply base segmentation
Another common feature of Supplier Relationship Management is the segmentation of the supply base according to their potential and actual strategic value to your organisation; it is about those key strategic relationships. For example: “We buy a lot from Fura Fine Foods so I bet if we collaborate on more efficient ways of working, we can save us both an awful lot of money.”
Supplier engagement supply base segmentation is determined by more immediate needs. It doesn’t matter if Fura Fine Foods supply ten times as much as Butchers Meats, we still need both of them to complete right-first-time product specifications or confirm if their labels are compliant with new legislation.
Furthermore, Butchers Meats might take up ten times as much of your time getting there. After all, disruptiveness isn’t determined by strategic value. Think of the 80/20 time rule – 80% of your time is often spent looking after the 20% of suppliers who require the most support. Therefore, Supplier Engagement enables all suppliers to help themselves through supplier self-help.
So, Supplier Relationship Management or Supplier Engagement?
It is not a case of which methodology is better. Beyond the shared goal of maximising and unlocking value, they simply address different problems. And thus they can, and do, live happily side by side.
Looking to better understand the right strategic partnerships to form within your supply base? Supplier Relationship Management is for you.
On the other hand, if you want any supplier-related projects or processes to take less time and consume less of your valuable resource and reduce the wider support burden that comes with a large supply base through engaged and motivated suppliers, then it’s supplier engagement that you’re after.
If you’re interested in learning more, read our blog on how to build Your First Supplier Engagement Initiative.