Supplier relationship management (SRM) and the more recently devised method of supplier engagement are both equally important to the modern procurement professional. They each have their advantages and disadvantages, and determining which one is more applicable to the situation, if not both, is dependent on understanding the key similarities and, more importantly, the differences of them both.
On the surface, there are key similarities in the purpose and approach of SRM and supplier engagement; they are both strategic and interaction orientated in their approach, with a main purpose of maximising value.
However, there are some very important differences when you dig a little deeper that set the two apart:
How They Are Applied
One main differentiation between supplier relationship management and supplier engagement is in how the methods are applied.
SRM is very performance focused. It is based around procurement and sourcing, namely the processes and often systems used in these functions. It uses performance related KPIs to measure the value and effectiveness of these systems and processes, to deliver the best overall value for all involved. Strategic methods are applied in order to achieve these performance related KPIs.
Supplier engagement, however, uses customer and staff engagement theories (hence the name ‘supplier engagement’) to enhance the relationships between the organisation and its suppliers. Rather than focusing on the processes and systems, the non-human elements of negotiation, it focuses on the people. It works on the human forces; understanding and empathy, and how these feelings impact motivation to do something.
Segmentation of Suppliers
Supplier relationship management often uses supplier segmentation to categorise suppliers based on their potential/real value. So the suppliers that receive larger/more frequent orders from the company will typically be the ones that get more ‘relationship management’ treatment. The thought behind this being that if the company nurtures relationships with their biggest suppliers, there is more likely to opportunities for more collaboration in future.
Supplier engagement bases the segmentation of suppliers on short-term needs. So it doesn’t matter if one supplier supplies 10 times the amount of another supplier; if the company needs them both to meet current standards then they both gain the same supplier engagement treatment.
Is One Method Superior?
Neither method is better than the other; as mentioned in the beginning of this article, it is about understanding which one is the best for the situation at hand.
When it comes to gaining an improved understanding of the best strategic partnerships to create and nurture within your network of suppliers, then supplier relationship management is the best method.
In order to reduce the strain of supplier support, particularly with a large supplier network, then supplier engagement will ease this burden through driving supplier engagement and motivation.
Which method, if any, do you prefer or find most effective? Tweet us @Procure_Supply or share your thoughts in the comments!