• Latest
  • Trending
  • All
5 Essential Design Principles for Building Strategic Supplier Relationships

5 Essential Design Principles for Building Strategic Supplier Relationships

November 22, 2019
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

April 15, 2020
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

April 14, 2020
Mzee Moi’s Ksh10B Gift to Gideon

Mzee Moi’s Ksh10B Gift to Gideon

April 14, 2020
Covid Knights: Corporate social purpose in the time of COVID-19

Covid Knights: Corporate social purpose in the time of COVID-19

April 14, 2020
How Tesla And BMW Are Leading A Supply Chain Renaissance With Blockchain

How Tesla And BMW Are Leading A Supply Chain Renaissance With Blockchain

April 14, 2020
Last Mile Delivery Market Worth Observing Growth | UPS, FedEx, SF Express

Last Mile Delivery Market Worth Observing Growth | UPS, FedEx, SF Express

April 14, 2020
LATAM Cargo strengthens European cargo links

LATAM Cargo strengthens European cargo links

April 14, 2020
Ford making reusable hospital gowns from airbag materials as efforts against coronavirus expand

Ford making reusable hospital gowns from airbag materials as efforts against coronavirus expand

April 14, 2020
Don’t Sweat NBC’s Decision to Cut Back on Television Ad Inventory

Don’t Sweat NBC’s Decision to Cut Back on Television Ad Inventory

April 14, 2020
Software firms sharpen focus on AI, big data as IT spending drops

Software firms sharpen focus on AI, big data as IT spending drops

April 14, 2020
Navigating turbulent times in your supply chain (TL:DR version)

Navigating turbulent times in your supply chain (TL:DR version)

April 14, 2020
  • Supply Chain
  • Logistics
  • Warehousing
  • Procurement
  • Shipping
  • More
    • Strategic Sourcing
    • Spend Analysis
    • Inventory
    • Contact Us
No Result
View All Result
United States International Supply Chain Commission
United States International Supply Chain Commission
Home Strategic Sourcing

5 Essential Design Principles for Building Strategic Supplier Relationships

by usiscc
November 22, 2019
in Strategic Sourcing
0
5 Essential Design Principles for Building Strategic Supplier Relationships
492
SHARES
1.4k
VIEWS
Share on FacebookShare on Twitter

The business battles of this century will be won by harnessing the power of suppliers. Leading organizations recognize that the playing field of procurement is no longer one of lowest cost or best value but one of highly collaborative relationships with suppliers that can help drive transformation and innovation. This shift is being driven by changes in the business environment including: 

  • globalization, which is accelerating market interconnectedness and creating a network of highly integrated organizations; 
  • increasing volatility and risk, including international terrorism, natural disasters, port congestion, and inadequate transportation infrastructure; 
  • an increasingly fast, consumer-driven society that demands more agile and flexible supply chains; and 
  • the continued evolution of a service economy that is shifting to strategic, not just tactical, outsourcing. 

Against this backdrop of change and connectedness, supplier relationship management (SRM) has been consistently gaining momentum across a broad range of organizations: APQC’s Current State Quick Poll on Supplier Relationship Management found that about 80 percent of organizations have implemented or are at least moderately likely to implement SRM in the next two years (Figure 1).  

Unfortunately, APQC’s quick poll also shows that many organizations are focusing SRM in the wrong areas and failing to drive value as a result. For example, APQC found that 72 percent of organizations leverage SRM because they expect it to help monitor contract compliance and service levels. This is not where SRM has the most impact on the bottom line—In fact, this focus on micromanaging contract terms is counterproductive. Only a minority of organizations (38 percent) are using SRM to drive innovation or provide a competitive advantage (45 percent).  

One of the most common pitfalls in traditional SRM approaches is that they often focus on teaching buying organizations that there is one and only one supplier relationship “best practice.” What companies fail to realize is that this rigid thinking does not work because every business partnership is unique. Supplier relationships exist on a continuum, with purely transactional relationships at one end and investment-worthy equity partnerships at the other. Understanding the purpose of the business relationship along that continuum helps to determine the appropriate scope of work, the performance management approach, pricing approach, and governance structure.  

In their book Strategic Sourcing in the New Economy, APQC research advisors and SRM experts Bonnie Keith and Kate Vitasek (along with their co-authors) argue that when organizations treat every business relationship the same, they miss the vital concept of using design principles to create an interconnected system or sourcing business model. Next-generation SRM accounts for the entire spectrum of possible buyer-supplier relationships and follows these five essential design principles to ensure that an organization gets the most value from its supplier relationships.  

Five Essential Design Principles of Next-Generation SRM for the Most Strategic Relationships  

  1. For the most strategic relationships, shift to an outcomes-based business model—Rather than contracting for specific transactions, organizations should spell out their desired outcomes. This requires the right sourcing business model to ensure a best-fit approach (for relevance), a shared vision statement (for perspective), and a statement of intent (for behaviors). These efforts align the buyer and supplier on the underlying constructs and ground rules for the contract.   

  2. Focus on objectives, not how the work is conducted in strategic relationships—Suppliers are empowered by a mutually developed statement of objectives to determine how to reach the desired results. The supplier may make significant changes to improve processes, but the statement clarifies who does what and helps to build a formal taxonomy and workflows that drive clarity and alignment. With this effort, the buyer and supplier understand the end-to-end process, the delineation of responsibilities, and shared objectives for collaboration. 

  3. Clearly define and measure desired outcomes for strategic relationships—Performance metrics should be developed collaboratively with a plan that precisely gauges the attainment of desired outcomes, identifying which party is responsible for which process elements. Both partners should agree how performance results will be reported and acted upon. Each partner can then conduct and internally scrutinize any activity-level measures. 

  4. Optimize pricing model incentives for strategic relationships— Procurement functions will eventually hit a wall by flexing muscle for the lowest cost from suppliers, often ending up with lower service levels and decreasing quality from suppliers that are seeking to protect their margins and profits. Rather than focusing on the lowest possible transaction price, organizations are best served by creating a pricing model with incentives for the supplier to innovate and improve efficiencies in reaching the desired result. The incentive-based pricing model should be collaborative, transparent, and flexible so that both parties are empowered to invest in target processes and are rewarded for partnership success.  

  5. Establish an insightful governance structure for strategic relationships— Governance should move beyond oversight to generate insight. A sound structure should provide cohesive policies, processes, and decision rights that enable a symbiotic relationship. This requires relationship management (which involves establishing joint policies and mechanisms), transformation management (which provides a framework for changing processes in a controlled manner and adjusting to market conditions as needed), and exit management (which outlines a credible, transparent plan for unwinding the relationship). 

Next-generation SRM embodies these design principles and leverages an appropriate sourcing business model for each key supplier relationship. Doing so empowers suppliers as well as buyers to drive innovation and provide competitive advantage through a shared sense of risk and reward. Fewer than half of organizations currently leverage SRM with these benefits in mind, and these organizations will find themselves moving ahead of the pack in an increasingly interconnected and rapidly changing business environment.   

APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a differentiator in the marketplace. APQC partners with more than 500 member organizations worldwide in all industries. With more than 40 years of experience, APQC remains the world’s leader in transforming organizations. 

Share197Tweet123Share49
usiscc

usiscc

  • Trending
  • Comments
  • Latest
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

April 15, 2020
‘Significant opportunity’ in Asia as supply chain integrates, consolidates

‘Significant opportunity’ in Asia as supply chain integrates, consolidates

January 3, 2020
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

0
Global Industry Analysis, Size, Share, Growth, Trends, and Forecasts 2016–2024 – ZMR News Reports

Global Industry Analysis, Size, Share, Growth, Trends, and Forecasts 2016–2024 – ZMR News Reports

0
PHOTOS: Ottawa firefighters respond to warehouse fire

PHOTOS: Ottawa firefighters respond to warehouse fire

0
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

April 15, 2020
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

April 14, 2020
  • Privacy Policy
  • Terms of Use
  • Disclaimer
  • DMCA
  • Contact Us

Copyright © 2021 United States International Supply Chain Commission (usiscc.org)

No Result
View All Result
  • Supply Chain
  • Logistics
  • Warehousing
  • Procurement
  • Shipping
  • More
    • Strategic Sourcing
    • Spend Analysis
    • Inventory
    • Contact Us

Copyright © 2021 United States International Supply Chain Commission (usiscc.org)

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

SAVE & ACCEPT