Successful supplier relationship management (page 1 of 2)
- Thursday, February 26 - 2004 at 20:51
Supplier relationships are critical to any organisation. Suppliers can directly impact the financial performance and profitability of a buying enterprise, as they influence product development costs, inventory levels, manufacturing schedules and the timeliness of delivery of goods and services.
In recent years, companies have invested in supply chain management (SCM) software to automate procurement processes, improve delivery times and reduce the cost of doing business. Now, market trends, such as increased global competition, shorter product lifecycles and a move to outsource business processes, require organisations to improve collaboration with their supplier base and to examine methods of further reducing the costs associated with supplier relationships.
What is SRM?
Supplier relationship management, according to Oracle, refers to any supplier-facing business practices which are enabled by collaborative software and which allow companies to work with their supplier base for mutual success. Primarily, SRM tools have been developed to reduce the total cost of ownership (TCO) for procured goods, while creating competitive advantage for an organisation through deeper relationships with its suppliers.
A straightforward example of where supplier relationships are critical to the buying organisation is in the product development process. If materials, parts or services cannot be supplied to meet the design requirements, production deadlines or at an acceptable cost, then the product development team must go back to the drawing board.
Another trend that highlights the need for effective supplier relationship management is the move by enterprises to outsource key functions, from design to product assembly to after-sales service, in order to improve competitiveness and financial performance. Gartner describes this use of contract manufacturing and other unconventional supplier relationships as 'virtualisation'.
The same Gartner report estimates that an enterprise's expenditure on goods and services can often exceed 45 percent of revenue, stating that as spend with suppliers increases, so does the ability of supplier's performance to affect a company's bottom line. These important supplier partnerships must therefore be closely managed and co-ordinated, often across time zones, languages and currencies.
Four steps to SRM success
Oracle believes that there are four critical factors to consider for a successful implementation of an SRM solution.
The first step is integration. An enterprise cannot offer SRM to its suppliers until it has automated and integrated its own internal processes. As SRM draws on information generated throughout the enterprise, including, but not limited to, product life cycle management, supply chain planning, enterprise resource planning and customer relationship management, this information should flow from a single data source.
Pella Corporation, a US manufacturer of windows and doors, wanted to lower its overall costs by adopting a central web-based approach to procurement and improving the management of vendor terms and agreements. By integrating Oracle Financials and Oracle Procurement, Pella streamlined its procure-to-pay processes and achieved significant time and cost savings, while gaining valuable insight and business intelligence.
Oracle Procurement enabled Pella's corporate purchasing division to cut transaction times for purchase orders from thirty minutes to five, a reduction of eighty-six percent. Pella's manufacturing division has cut clerical costs and time per purchase order by fifty percent. Tracey Buck, co-ordinator of facilities management for Pella said: "Oracle Procurement has helped reduce the number of calls from Pella's corporate purchasing department and from vendors by as much as ninety-five percent."
Secondly, suppliers need to be connected to the enterprise.
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