What does it take to stay ahead of the curve nowadays? Exploring why successful Supplier Relationship Management (SRM) can help procurement adapt to the circular economy.
As a company it is important to adapt to the circular economy. The limitations and growing problems of the linear economic model, which has served us well for many decades, demands that business ‘as usual’ is unlikely to be a winning strategy in the future. The winning strategy lies within the circular economy.
The Ellen McArthur Foundation defines a circular economy as an industrial system that is restorative or regenerative by design. It replaces the end of life concept with restoration, shifting business towards the use of renewable energy and elimination of the use of toxic chemicals, which impair re-use.
Ultimately, it aims for the elimination of waste through intelligent design of materials, products, systems, technologies and business models. We could call it circular innovation.
Collaboration Is Key
Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of the circular economy is that complexity will increase, and collaboration with partners across and outside the supply chain will be crucial in order to stay ahead of the curve.
Procurement plays a key role in the transition. There is, for sure, more to procurement than savings. The world’s leading global companies are looking to the sourcing and procurement function to do a lot more than cut the price of supplies. Procurement needs to broaden its role in the organisation, well beyond the traditional job of negotiating with suppliers.
Suppliers, along with procurement professionals, should be involved in the innovation life cycle, from initial idea, all the way to manufacturing and continuous improvement. Innovation is happening with or without the involvement of procurement. The key question is how procurement can build competences to enable the transition?
Supplier Relationship Management – An Effective Tool
One of the ways that procurement could build competences is through supplier relationship management. Companies that have demonstrated this ability typically generate higher profits, innovate more effectively and are better able to manage risk.
Research done by State of Flux shows that the role of the suppliers will only become more important in the future. Companies are becoming both flatter and this makes them rely more on third parties. As in many other areas of life, you are only as good as the weakest part of the chain. In this case business can only be as good as its worst supplier.
The research also shows a direct correlation between companies that are leading the way in this area and strong senior backing of SRM, with 46 per cent of leading companies saying that SRM has the support of their top executives.
Customer Of Choice = Access To Innovation
Organisations that want to make a real difference with Supplier Relationship Management, or put in other words, any organisation that wants to stay ahead of the curve – need to be led by people who understand its importance. That means recognising that changing business dynamics are giving suppliers more power and choice about who they partner with, and how.
It means in turn recognising that becoming a key supplier’s customer of choice will bring access to a range of benefits, from price advantages to innovation – and that failing to do so will mean such benefits accruing to competitors instead. This understanding must be paired with a board-level commitment to investing in the technology and training that underpin successful SRM and to creating an organisational culture.