Supplier Relationship Management: How to Maximize Vendor Value and Opportunity (2014)
Chapter 9. The Role of IT in TrueSRM
In our experience, companies often overfocus on elaborate IT tools that are not needed and consume considerable investment resources and management time to implement. It is crucial to consider the basic objectives of an IT implementation before going down that path. The IT tools are there to support the business needs and supplier relationship management. They are not an end in themselves and should not be seen as a substitute for face-to-face and other personal dialogue both with the supplier and internally.
In our experience, there are three key requirements that IT tools need to enable for TrueSRM:
· Tracking supplier performance/compliance
· Enabling internal collaboration
· Enabling external collaboration
These tools need to be deployed in a usable format, with the key elements integrated so that data does not need to be entered multiple times and to enable users to have a common view of the true situation. The organization also needs the discipline to use the tools properly. This is the adoption challenge. It tends to be the most significant issue to overcome.
We will now address each of these elements in turn.
Tracking Supplier Performance/Compliance
Many organizations have basic supplier score cards in place that are used to report performance against key metrics such as contract/Service Level Agreement (SLA) compliance, delivery performance, value-added performance beyond the contract, and so forth. Much of this data is necessarily collected manually, and some via feeds from operational systems where available. These score cards are often created at the category-/business-function level, and then ongoing “production” is delegated to a back-office function that fills in the paperwork. Off-the-shelf spreadsheet or database packages are often used as the enabling tool. To a point, this is an effective reporting solution.
These score card solutions are often combined, or augmented with additional solutions that enable organizations to record and ensure supplier agreement to key policies. The precise need for these varies by industry and geography, but they are increasingly necessary to manage risk.
Recording suppliers’ performance and compliance is really a “given.” Most organizations have an approach in place. A more valuable SRM solution goes beyond point reporting and provides a more integrated capability across the organization. This feeds relevant performance/compliance information such as supplier segment, supplier overall performance, relevant Key Performance Indicators (KPIs), and corresponding trend information into other business applications, where users deal with suppliers. For example, supplier performance data is highly valuable for users of e-procurement systems. Here, a user should see not only the source, price, availability, and lead time for a catalog item but also performance-related information for the supplier. In particular, the user should be able to see whether there are alternatives. In e-Sourcing, a category manager/buyer needs to have ready access to performance and compliance information, too, as part of the initial prescreening and also for award analysis. If a category-management solution is in place, performance details and trends concerning segmentation and performance of all suppliers in a category should also be visible.
On the customer side, the idea has been around for a long time that a lot of value can be generated if the sales agent talking to a particular customer has a comprehensive “customer history” at hand. When a customer dials into the call center of his insurance company, the agent typically sees information about all of his contracts, his value, his accuracy in on-time payment, his risk score, his recent support calls, e-mails, and letters. Such information helps the agent adjust the communication according to the customer’s status. This has spawned the many forms of customer relationship management software.
The functionality to do the same thing in the same way is available on the supplier side, but most organizations have been much slower to put it in place. Given the benefits of ensuring a joined-up approach from dealing with suppliers, the value of doing so is immense. Why not introduce something like this on the supplier side more systematically?
In fact, the information that is immediately available for managing suppliers is often limited to spending, order fulfillment, and score card data. There are often significant challenges in going beyond this. For example:
· Procurement often lacks permission to see sales data if the supplier is also an important customer.
· It sometimes takes weeks of research and dozens of phone calls to stakeholders across multiple sites and business units to get a glimpse of who is talking with a particular supplier about what.
· People are reluctant to log “buy-side” interactions in the same way that is usually a given on the “sell” side.
In our view, the internal-collaboration portion of an SRM solution needs to encompass the following elements:
· Spending: “What are we spending with this supplier? What for? Who is buying? What important trends or changes are we seeing?”
· Contracts: “What contracts do we have in place with this supplier? When do they expire?”
· Contract compliance: “How many issues have been reported where the supplier did not comply with the agreed-upon contract? How severe were these incidents?”
· Sourcing activities: “In what sourcing initiatives was the supplier involved? With what success? In case of losing in an initiative, what were the reasons?”
· Risk, safety, and sustainability compliance: “Has the supplier confirmed compliance with all policies? Have there been any breaches? Does the organization meet all regulatory requirements?
· Supplier contact register: “Who do we know on the supplier side? What do we know about these people? What are their perspectives/agendas?”
· Internal contact register: “Who knows this supplier? What kind of relationship is this person having with the supplier? When should one involve her?”
· Meeting calendar with meeting minutes repository: “Who has met/is meeting whom from the supplier? What have they been talking about? What has been the outcome?”
· Documents: “What are the latest documents we received from this supplier (e.g., company presentations, catalogs, specifications, rate cards)?
· Wiki: “What other bits and pieces of information about the supplier has someone from our company picked up that he would like to share with others in the most pragmatic and easy way?”
· Projects and tasks: “What projects and tasks are currently underway with this supplier? Who from our side and who from the supplier’s side is involved? What is the status? Where are the issues others should know about? What corresponding documents are of potential relevance for others?”
The software functionality to process all this information exists and is available in most organizations. The will, drive, and discipline to make it happen exist less frequently.
Note There is no reason you can’t have the kind of information about suppliers that you no doubt compile about customers. Having a system to collect useful data can be immensely valuable, yet not many organizations have one. This is therefore an easy way to gain a competitive advantage.
Many organizations today have some form of supplier portal. This opens some functionality of internal collaboration to suppliers. Often, the portal is simply set up to allow suppliers to maintain registration, contact, and payment data. Allowing them to contribute actively and update additional information, as well as jointly execute projects and tasks, is a key extra step. In our view, the supplier portal portion of an SRM solution needs to encompass the following elements as a minimum:
· Performance visibility: In areas where a company wants to establish a truly collaborative relationship, it could share all ratings and conclusions with suppliers. Buyers often hesitate to share positive performance feedback in order not to strengthen the negotiation position of a supplier. We believe that the benefits of positive feedback usually far outweigh the risks.
· Issue visibility, commenting, and resolution: Even if a buyer does not want to share all performance information with a certain supplier, everyone benefits from giving a supplier immediate feedback on specific issues through e-mail notifications and alerts in the supplier portal. Even better solutions allow a supplier to comment on such issues. Sometimes, an issue (like late delivery) might have been caused by forces outside of the supplier’s control and should therefore not overly damage its performance rating. If the collaboration solution supports task management, corresponding tasks for issue resolution can be set up with responsibilities and deadlines for improved resolution monitoring. This, then, supports the traditional approaches of direct contact and conversation to resolve issues. It should not be a substitute for these things.
· Reverse feedback: In the interest of collaborative improvement in a relationship, it is a good idea to allow your suppliers to provide feedback about your performance. Technically, this requires the setup of corresponding surveys, permissions, and linking to the supplier portal. Giving the supplier the ability to provide this information via a portal is a useful supplement to the typical one-off, anonymous 360-degree surveys that organizations often put in place. Of course, the propensity of suppliers to give open and honest feedback without anonymity is an interesting test of relationship strength.
It is also possible to extend the scope of the portal beyond these minimum elements to include facilities for joint innovation. These would allow the supplier to submit innovative ideas that could be discussed/approved. You’d then follow a stage-gate process for tracking implementation. Such an approach can be a useful addition. However, we cannot stress enough that IT tools do not produce innovation. True innovation typically requires effective dialogue with the supplier, a commitment to cocreation, and the ability to make decisions. In the absence of such a process, way-too-many potential innovations just get ignored.
Clearly, all external collaboration via systems has technical challenges. As soon as a company opens certain doors in the firewall, substantial IT security implications require expert attention. Permission management in internal collaboration is in many companies already challenging enough, as the more strategic a relationship with a supplier gets, the more sensitive it becomes. The biggest challenge comes from an inability of most systems to deal with a multidimensional permission matrix. Most systems are still very transaction oriented. A user either has permission to access a transaction or not. The more comprehensively we do SRM, the more it becomes necessary to define and administer permissions holistically. With external participants, the permission management becomes even more challenging. One way to sidestep these issues is to manage collaboration in a separately hosted “clean room” environment that is outside the firewalls of both the customer and the supplier. Data is kept safe within the clean room and the issues of allowing third parties direct system access are avoided.
Tip Use a virtual “clean room” to manage collaboration with suppliers. You can supply the relevant data there without offering full access to your IT systems.
Usability and Adoption
If you build a system with all the components just outlined, you will have built a great repository of information, easily accessible to everyone (with corresponding permissions, of course). An ideal SRM solution not only collects information from various other systems but also provides outbound interfaces, making essential SRM-related information available to other systems. In times where most business applications have become browser enabled, it just takes a little imagination to envision a workplace where a user, whenever she sees supplier-related information on her screen, can hover over the supplier name and see a display of the essentials about this supplier (e.g., segment, alerts, and so forth) along with a link to a more detailed dashboard if needed.
The Adoption Challenge
Now, we need to get users to actually use the SRM solution. Far too many IT solutions suffer from poor adoption. This is often for a simple reason: the users do not see the benefits. In our view, a useful SRM solution should encompass the following usability elements to support adoption:
· Maximum user configurability: All our attempts to collect and display as much information about a supplier as possible can easily lead to a situation where we show way-too-much information to a user, which might overwhelm and cause confusion. An ideal solution comes in a very lightweight form in the beginning but then allows the user to select the elements of interest that he wants to pop up next time automatically. Similar to the earlier-mentioned difficulties with multidimensional permission management that most systems today still have, the same applies with the requirements for ideal information configurability. It is more than likely that a category manager would like to see much more detail about one or two key suppliers instantly, a little less for some others and just some lightweight information about the rest. This triage approach is essential to get user buy in.
· Proactive alerting: How many reports do you have access to? And how many do you actually look at daily, weekly, or at least monthly? It is too common an occurrence that having great information in a system does not necessarily mean it finds its way to the user who should be aware of it. An ideal SRM solution allows the admin as well as the user to define flexibly configurable alerts that shoot an e-mail to selected user(s) under certain conditions (e.g., “Supplier XYZ’s performance trend is negative”). The configurability again needs to be multidimensional.
· Visual analytics: Not only do long lists of data easily create an information overload, they also often make it difficult to see the forest for the trees. Advanced visual analytics is not about creating nice-looking graphics but all about transforming data in a way that makes it easier to recognize the meaning or identify areas that should get closer attention.
· Personal information integration: Let’s face it: if you are a supplier manager, you probably have tons of information on your hard disk/network drive and in your e-mail. Getting additional information from others? Great! Sharing your own information? Extra effort! Even with sophisticated incentives and penalties, it is hard to overcome this natural reluctance to spend time on something that only benefits you personally in a limited way. Sure, the organization benefits, but the individual person is not getting rewarded. This is why we believe a lot of success is dependent on how easy we make it for people to share information. Studies show that average office workers spend 80 percent of their daily IT time working with their own personal information (e-mail, address book, calendar, chat). If you want the user to share, for example, an attachment just received from a strategic supplier, you should not expect her to download it, then open a browser, then find the right site for this supplier, and then upload the file and provide contextual information. Instead, you’d enable smart integration with the user’s personal information by allowing her to “drag and drop” this attachment right into the repository.
· Active adoption management: Many systems, if they are not essential for daily operations, die a slow but certain death. We just explained a couple of reasons for this, but there is one more, which has nothing to do with the system itself but with the way it gets rolled out into the organization, how its usage is monitored, whether and how frequently news and success stories get communicated, and to what extent users get the right level of support they need.
Note You have to work to get a new IT solution adopted. It won’t happen on its own. Worse, if it’s the kind of thing people rarely go into, it will die an early death.
We have now discussed the key IT requirements for TrueSRM to enable performance and compliance tracking as well as to support both internal and external collaboration. The challenges are not technical ones. They are more to do with having the will to put the systems in place and then to use them rigorously. Much of the necessary functionality and disciplines mirror what your company already probably does on the “sell” side with its customers through active customer relationship management (CRM) systems. It is often beneficial to make the case for following the necessary disciplines in these terms by stressing the symmetry between the disciplines needed for good CRM and good supplier management.
It is now time to return to the story at Heartland. You will recall that the group has just been interviewed by a well-known journalist who is trying to identify the reasons for their great success. The attentive reader will have noticed that IT systems were not on the list of key success factors that the journalist captured. Let’s now catch up with Laura and Thomas to see what role, if any, IT has played in the story.
Heartland Contemplates IT’s Contribution to SRM
A short time after the magazine interview, Thomas was in his office late one afternoon. Laura walked in to debrief him quickly on a meeting that had taken place that day with Product Maniacs, the company’s new supplier. It had suggested a way to put one of the core Heartland brands up in lights legally and simultaneously on the Empire State Building, the Shard in London, the Eiffel Tower, and the Burj Khalifa in Dubai.
However, Thomas was preoccupied. He asked, “Laura, are you aware of this discussion to overhaul our entire Enterprise Resource Planning (ERP) infrastructure? There is a suggestion that we need to spend tens of millions of dollars that I am sure will become hundreds of millions. There seems to be no real business case for doing this, though, other than a claim that we will get better management information on external spending and make our back-office processes more efficient. Oh, and there is also a claim that it will better enable our activities with suppliers.” He flipped to the back page of the document that was on his desk and then said, “They are claiming a business case. It will all be justified by suppliers giving us savings as a result of all this IT!”
“I had heard some discussion,” said Laura, “but I have not seen that document. I’m surprised I never got it or had a chance to comment.”
“It’s labelled preliminary,” Thomas told her, as he handed it over. “It came from IT. I probably shouldn’t have it yet,” he commented with a smile. “Let’s just say that someone handed it to me. I like to know what is being discussed before it goes anywhere. Do you agree with this approach? Will it help us to continue to deliver SRM?”
“We don’t need it,” Laura answered. “There might be other reasons to overhaul the ERP, although I am not sure I know what they are, but I am not pushing for it. Most of the things we need to do, we are fine with.”
“Yes, we have never really discussed IT as a big part of SRM,” suggested Thomas.
“Well,” said Laura, “if I think purely about our IT needs for supplier management rather than for category management, compliance, and transactions processing, then what we really require are tools that enable three things: performance measurement, internal collaboration, and external collaboration. We then just need to be able to use them and make sure that people are disciplined to do so.”
Thomas turned his chair more fully toward her but said nothing.
Laura continued. “For performance measurement, we have put in place simple score cards for each significant supplier. The score cards are maintained by the relevant supplier lead within Procurement. They are then filed on a simple wiki site. It’s basic IT technology, but they are fit for our purpose. We have some feeds to capture online data such as missed deliveries for direct suppliers, but most of the information is maintained by people in the business. It’s not captured in the systems anyway so there is little alternative available. In any event, we use the process of populating the scorecards to trigger conversations about performance, which are used as input for our rankings. It’s not fully automated, nor could it ever be. It works and is fit for purpose. We also encourage an approach based on the 80–20 rule, which simplifies things too.”
“The 80–20 rule always worries some of our colleagues,” said Thomas. “They think it means we are ignoring critical incidents.”
“You know we don’t do that, Thomas. What I mean is that we do not try to split hairs over relative supplier performance. It’s a bit like employee performance in so many ways. I am not interested if a supplier’s performance is 53rd percentile vs. 54th percentile. I am interested if a supplier is consistently in the top 20 percent, the middle 60 percent, or the bottom 20 percent. Our approach to measurement enables us to make that level of differentiation. Investing in doing more is not going to be helpful and will just be a waste of money.”
“So, our current approach is good enough, then?” Thomas inquired.
“Yes. We then make sure that the score card information is available to key people internally, of course. You already have access to it on your executive dashboard.”
“I sure do. I even look at it before meetings,” he grinned.
“To enable that internal collaboration and data access, we have just deployed the CRM tool that our sales force uses to keep tabs on customer contacts, relationships, and meetings. The key issue is not the system functionality. The ability to log contacts with suppliers and so forth is fairly straightforward. Sharing the data is also easy. The challenge is getting people (especially executives) to populate the information.”
“I know,” said Thomas. He laughed. “By the way, who is making sure the notes from that Product Maniacs meeting today get on there?”
“I have found that the best way to get people to do it is to ask what’s the best thing to do after a customer meeting. Of course, they all agree that updating CRM and circulating notes is crucial. They all agree, too, that meeting a customer without being briefed is not smart. So, why is it any different if we are meeting a key supplier?”
“People get that logic. I know,” agreed Thomas.
“Exactly,” said Laura. “We then have the supplier portal, of course. That provides the basic functionality for suppliers to update core data with us and confirm policy compliance. It also provides a means to have structured dialogue on issues. I am going to extend it to include conversations on supplier-driven innovations. I am a little wary, though, of it just becoming an easy mechanical tool. You know what can happen. The supplier can dream up numerous things, and then just stick them on the portal. Suppliers may feel that they have to give us large numbers of ideas with no obvious reference to their quality and practicality. We for our part may just get swamped with all these ideas. That would not be very helpful. We are still working through how to make sure that any additions here support the way we drive supplier innovation rather than becoming a pure self-serving ‘numbers’ process.”
“The key thing is the innovations we actually implement and the benefit we get,” suggested Thomas, “not what gets logged on the system.”
“Absolutely,” agreed Laura. “We are seeing major innovations already, of course, which surface through collaboration with the right suppliers.”
“So, there is very little we need to do with the SRM systems?” asked Thomas.
“I think so,” said Laura. “A bit of evolutionary enhancement will be good. But you don’t need to overhaul the whole ERP system. I certainly will not be prepared to sign up for more supplier savings from doing that in any case!”
You Can Build It
As the Heartland story showed, a useful SRM solution:
1. Is based on a state-of-the-art IT architecture for scalability and ease of administration
2. Collects and provides all relevant data and comes with appropriate measures to correct, complete, and enrich otherwise-insufficient data
3. Provides information to all users in the easiest possible way (ideally without the need for users to access multiple keys on the keyboard and without multiple system clicks)
4. Leverages advanced statistics to allow users to derive business intelligence beyond the obvious
5. Automates low-value-add tasks for improved adoption
6. Stipulates collaboration (document sharing, wiki, chat, and so on) and best-practice sharing in the form of templates across the organization and for use with suppliers
7. Avoids information overload, leveraging advanced visual analytics, and push reporting
Does such an SRM solution already exist? Not that we are aware of. At least, not in a way that is integrated across different applications with shared data and end-to-end functionality. SRM system implementations have often not advanced much beyond stand-alone point implementations of a contract database, performance score card, or portal for suppliers to register their details. There is a major opportunity for organizations to move beyond this basic state of play.
Is it possible to build it? Yes. Nothing described in this chapter is rocket science. The IT functionality is often available, and in fact many organizations are already deploying much of it for managing customer relationships! The challenge has less to do with the basic functionality and more to do with the wherewithal to integrate the different point solutions that are often already in place, and then to drive usability and adoption.
Large IT Investments Are Unnecessary
In this chapter, we discussed how IT can support TrueSRM most effectively major investment in systems is usually not necessary. Using existing functionalities in a disciplined way, while keeping sight of the overall objective, is the most effective approach.
In the next chapter, we turn back to that overall objective. We will look at what is “different” for a business that has implemented TrueSRM. For, the whole point of doing this is to be more successful as a business. We will take a look at how this is so. We will also catch up for a final time with the story at Heartland—and see how different its business becomes as a result of fully implementing TrueSRM.