SRM to Increase Supplier Value - Less Clobbering, More Collaboration

By Sam Sliman
President, Optimal Solutions Integration

Improving profitability by increasing revenue will always be a standing business objective, but in today’s tough market, it is not always easy to accomplish. Profitability also can be improved by reducing spend, which for many companies represents a sizable chunk of total revenue--sometimes as much as 60%.

Given the enormous strategic importance and potential cost savings a company’s supply base represents, it is no wonder that the market for Supplier Relationship Management (SRM) solutions is growing at a blistering pace. Boston-based research firm ARC predicts that the SRM market will experience a compound annual growth rate of 8.2% over the next several years, reaching $2.3 billion in 2011.

To be sure, organizations that take a close strategic view of supplier relations reap substantial benefits. According to a recent study by The Hackett Group, top performing procurement organizations spend 25% less on procurement operations than typical companies, while demonstrating improved effectiveness that enables them to generate twice the annualized reductions in direct and indirect spending.

Traditionally, reducing spend has amounted to pressuring suppliers to lower costs. But squeeze tactics are not always the answer. While they may yield short-term savings, over the long run they can damage supplier relationships and ultimately expose a company to greater risk and expense. Buying organizations need to use technology not simply to beat suppliers up on price, but to get more flexibility, increase collaboration, and build sustainable, productive relationships with suppliers.

Increasing supplier value necessitates re-thinking the fundamental SRM question. Specifically, ‘How can buyers get suppliers to lower their prices?’ must be replaced with ‘How can buyers and suppliers unleash their respective powers to create a better relationship for both companies?

Enter mySAP Supplier Relationship Management (mySAP SRM). Built on the SAP NetWeaverTM Platform, this powerful solution enables buyers to identify their most important, well-performing suppliers, and build productive, mutually beneficial relationships.

For example, mySAP SRM helps buyers and sellers mutually save time and money by enabling both to focus on continuous improvement of joint processes, and to jointly identify new and better ways to operate or compete in the marketplace. With mySAP SRM, both buyer and supplier can save significant time and money by automating time-consuming, manual processes such as purchase order creation, invoice processing, good receipts issuance, etc.

In addition, mySAP SRM helps track performance measurement and compliance to contracts, enabling buyers to better leverage preferred supplier relationships and suppliers to prove their worth and grow business.

Less clobbering and more collaboration results in the elevation of value creation over cost cutting. The end result is a win-win. Buyers benefit from lower cost, improved risk management, shorter cycle times and supply continuity. For their part, suppliers gain new business, additional growth opportunities and an enhanced image as an innovator.

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