Tag Archives: srm

9 Ideas To Reduce Costs Using Supplier Relationship Management

At a time when costs need reduction but healthy Supplier Relationships are paramount, here are 9 ways to reduce costs using Supplier Relationship Management.


There isn’t a procurement pro on the planet right now who isn’t looking at ways to reduce costs.  But this comes at the end of a year where we’ve all been sorely reminded that strong supplier relationships are paramount … especially during a crisis.

Common practice is to look at procurement categories with large amounts of spend and start searching for ways to reduce that spend. One of the more routine approaches is to run an RFP, inviting incumbent suppliers along with potential new partners to help drive competition for your business, with the end-goal to ultimately reduce cost.

But what if your cost base has already bottomed out? What if you are buying a good or service that is difficult to come by, thereby putting the power in the suppliers’ hands? How are you able to reduce your spend in a category where all the signs are pointing to a cost increase?

In order to answer these questions, we must start at the beginning by looking at Supplier Relationship Management.

What is Supplier Relationship Management (SRM)?

Supplier relationship management is the discipline of strategically planning for, and managing, all interactions with third party organisations that supply goods and/or services to an organisation in order to maximize the value of those interactions. In practice, SRM entails creating closer, more collaborative relationships with key suppliers to uncover and realise new value and reduce the risk of failure.

Getting back to the initial goal of cost savings, the question becomes ‘when cost savings is a critical driver in supplier selection, how do you balance the collaborative relationship with low cost?’

The key is internal alignment between procurement and the business units. Supply Chain leaders must be able to explain why vendors who may not be the low-cost option for reasons like customer service, on-time deliveries, payment terms, reporting, etc. are actually the best overall value option for the business.

Category leaders must be able to explain how new suppliers versus incumbent suppliers will impact the company. There are too many cases where the grass appears to be greener on the other side. Sometimes, by selecting a low cost, new supplier, operational differences get lost in the shuffle and the transition becomes a disaster.

Why is Supplier Management Important?

In plain simple terms, it creates a competitive advantage. Whether you are the procurement or the supply chain leader for your organization, having a strong supplier management system will maximise cost-reduction opportunities, value driven services and overall systematic efficiencies, which otherwise would not be achieved. 

Supplier Relationships

As stated previously, a critical component to any company’s success is their ability to maintain strong working relationships with their suppliers and vendors. Supplier relationship managers should always look to avoid complacency. You should never be satisfied with the idea of “if it’s not broke, don’t fix it” and be always be looking for opportunities to improve the relationship, streamline processes or procedures, or change costing models. Relationship Managers should always be looking to challenge the status quo.

Another key to strong supplier relationships is to open the lines of communication and not be afraid to ask the question, “what we can be doing better?” Here are some quick ideas how you, as a customer to your key suppliers, can help enhance your relationship and make those suppliers want to compete for your business.

·   Trust and Loyalty (treat them as more than just vendors)

·   Improve technology and automation

·   Adhere to payment terms

·   Develop communication plans

·   Differentiate between price versus value

·   Have a dedicated Supplier Relationship Manager (SRM)

·   Internal alignment between Procurement and Supply Chain Category leaders

Putting Supplier Relationship Management to Practice

Now let’s look at a specific category – supply chain and logistics – and see how we can apply some of this thinking.

How to Become a ‘Shipper of Choice’ within your Supply Chain and Logistics Network

Logistics spend often plays a role in a company’s effort to reduce costs. Logistics spend can be a substantial percentage of accounts payable, at both the direct and indirect categories. When looking to reduce spend in shipping, taking the low-cost approach can potentially cause more headaches than the savings are worth.

What are some key goals of the shipper?

·   Avoid Disruption

·   On-Time Delivery

·   Low Cost

·   Damage Free

What are some key goals of a carrier?

·   Finding the right shipper

A carrier has a valuable commodity and finding the best shipper to partner with to utilize that commodity is very important for maintaining a good operating ratio. There is a finite amount of space within the global logistics network. What would make a carrier want to move your products versus someone else? Prior to any cost negotiations, a shipper should be looking for ways to make their freight something a carrier wants in their network. They will fight for your business because they value you as a partner, and vice versa.

What can a shipper do to ensure carriers will want their freight?

·   Effectively label freight

·   Safely and adequately package freight

·   Provide accurate descriptions of the freight

·   Use standardized dimensions when possible

·   Use quality pallets

·   Provide ample lead-time when possible

·   Be flexible on your end while remaining consistent in your process

·   Provide a clean, safe and overall attractive driver facility

Achieve Supply Chain Savings: Cost Reduction Negotiations

Once the proper groundwork has been laid and a solid foundation is in place, the relationship developed between a procurement and supply chain organization and its suppliers is now, finally, ready to discuss cost optimisation. By going through the Supplier Relationship Management process, you are now well equipped to conduct cost negotiations. Here’s 9 talking points to reduce costs and build the relationship with your suppliers:

·   Contract length

·   Reduced future cost increases with caps

·   Better discounts or incentive tiers

·   Rebates

·   Volume Thresholds

·   Delivery Costs

·   Payment Terms

·   Ancillary Charges

·   Everything Else (Better reporting, more transparency, communication plan)

One of the keys to entering these negotiations is to come to the table prepared to discuss these types of cost savings opportunities. If your main goal is to just hammer down the unit price, then there is a good chance your supplier will not be overly receptive to that approach. Listen, collaborate, compromise and develop a partnership that will ultimately be a win-win for all those involved.

In conclusion

Top suppliers are always looking to do business with companies who value the partnership and are willing to make improvements in order to make the relationship smooth and efficient.

This type of partnership will lead to your suppliers offering the best possible discounts and pricing and give you the peace of mind that you are getting the most out of your supplier.

Supplier Relationship Management is key to developing a long-term PARTNERSHIP with your key vendors!

What key insights and strategies have you taken from 2020? Share your experiences and hear from the most innovative thinkers on the planet at the Global Big Ideas Summit on November 18.

Is It Fair Game, Or Not OK, To Send Your Supplier A Letter Demanding Cost Cuts?

Is it acceptable – or not – to send your supplier a letter asking for a discount? You would be surprised…


Here at Procurious, we’re always trying to be progressive, challenge the status quo and push for our profession to be more innovative and value-adding. And in good news, we’re starting to see that many in our community feel the same. How do we know? 

In a now-viral post on LinkedIn, our Founder, Tania Seary, posited the question: Is it fair, or not okay, to send your supplier a letter asking for cost cuts? 50,000 views and 60 comments later, we now know this is a hot topic for our community!

It’s something we’ve debated before, but not to this degree. So in times where businesses all over the world are struggling, and there’s more pressure on procurement than ever before to secure discounts and keep organisations moving (or afloat?), is it fair game to demand cost cuts from your suppliers? Here’s a snapshot of what everyone thought … see if you agree. 

‘A stuck in the nineties’ approach

The vast majority of people who commented on our post did agree that this year has been a particularly challenging one for businesses and by association, for procurement. One Senior Procurement Director summed it up when he said: 

‘Procurement leaders need to be looking for cost reductions to support the strained financial positions of their organisations.’ 

Yet should those cost reductions come from a demand letter sent to your supplier? Many people did not think it was okay to send your supplier a letter demanding cost cuts, regardless of the organisation’s circumstances. In the main, procurement professionals thought this approach was akin to a ‘power play’ and was a little arrogant, giving off the attitude that a big organisation is simply ‘a big brand, doing it because they can.’ 

Many procurement professionals recognised that while this tactic may have been appropriate at some other time, it no longer was. In fact, many people made reference to the nineties as a time where this may have been acceptable … but realised that those days were far gone. One person noted: 

‘This practice [the practice of demanding reductions] was used at Volkswagen in the 90s under its famous CPO. Though it showed a lot of success at the time, I believe such a practice belongs to the 90s – a lot has changed since then.’ 

Why doesn’t this approach work? 

Beyond the fact that the practice of sending a letter asking for a discount seemed ‘old-school,’ many professionals noted that for at least a few reasons, this tactic doesn’t actually work. 

The first reason why people thought this wouldn’t work was because essentially, demanding a discount goes against all the good work that procurement usually does in developing meaningful and strategic supplier relationships. Procurement professionals always need to remember that suppliers exist within a delicate business ecosystem, and it’s best to manage this responsibly: 

‘Customers depend on suppliers and vice versa. It’s a big ecosystem, and [we all need to remember that] if you squeeze out small suppliers and competition lessens, costs will inevitably increase.’ 

Beyond this, though, when making demands of suppliers, procurement professionals need to remember their negotiation training, insomuch as: 

‘Blind one-size-fits-all letters are a forced outcome, not a negotiated win-win discussion.’ 

What’s the alternative? 

It seems that within the procurement community, sending letters requesting discounts is absolutely a no-go. But in a time where discounts might, for some companies, be needed more than ever, what is the alternative? 

Being the savvy community that it is, procurement professionals had plenty of better options when it came to negotiating a better price. 

The most popular suggestion was to employ a process to assess cost saving opportunities in partnership with your supplier. This would lead, according to a few different people, to the supplier further negotiating, and then a potential automatic reduction in expenses for both. 

The other option available is to negotiate better terms, a tactic used often, but which should be done through a strategic lens. One person recommended that we all should: 

‘Engage with our suppliers and explain what we need in terms of realistic cost savings and the end goal.’ 

‘You’ve got many tools at your disposal, including SRM and category management, so much so that you need never revert to the dreadful “give me money off or else” letters.’ 

Do you agree? Or would you still send a letter requesting a discount if you needed it? Let us know in the comments below.

Three Technical Terms Procurement Pros Should Stop Using Now

Do these technical procurement terms have a place in today’s organisation?


By pathdoc/ Shutterstock

Technical procurement terms. Whether you love ’em or loathe ’em you’ll probably have experienced definition disagreements and C-suite confusions. And that begs the question, do they have a place in today’s organisation?

For Nick Dobney, Former Global Head of Procurement – Puma Energy, procurement terms is the one thing that really gets under is skin. “There are terms that my C-suite won’t understand, my stakeholders won’t understand and, frankly, in procurement we spend a lot of time debating them as well.”

Nick believes that all the time and effort spent defining and redefining technical procurement terms is distracting procurement professionals away from delivering on behalf of the business. At Big Ideas Zurich last year, he outlined three of the terms causing him the most grief.

1. Tender

“My team know full well to never come to me and talk about tenders,” Nick jokes. He argues that “tender” is such a broad word, open to so much interpretation, that it has actually become meaningless.

“What do you want to do?” he asks. “Are you selecting a supplier? Are you exploring the market? Are you benchmarking your costs? If those are the things you’re doing, let’s say them. Let’s not wrap them up or hide it into the word “tender.”

2. Direct/Indirect

In procurement we constantly talk about direct and indirect spend.

“I’ve been in procurement for 25 years and I’ve never worked in a manufacturing company.” In a manufacturing company it might make total sense to use these terms and easy to understand the difference between direct and indirect spend. But the same can not be said for service companies.

Nick worked for an airline, where the distinction is unclear. “We bought aircraft, we bought fuel, we bought engineering services, we bought food and drink, we bought ticketing systems, we bought call centre operations. What’s direct and indirect?”

“In my world when I talk to the C-suite I need to talk about impacting operating expenditure, capital expenditure or the cost of goods sold.” Whilst it might be ok to reference indirect and direct spend amongst procurement professionals Nick advises not to waste energies trying to explain the terms to the wider business.

3. SRM

Some call it Strategic Relationship Management. Others say Supplier Relationship Management. “I don’t think [a room full of procurement professionals] could come together with a single definition,” says Nick.

“I know I’ve never used the words SRM in conversations with the CEO. The fundament of SRM means getting the best performance I can out of the suppliers I choose. So let’s talk about it as performance. Let’s talk about it as a means by which I get the performance I require in my business from my supply base and from my suppliers.”

Speaking in these accessible terms makes the procurement function accessible to business leaders and that’s what procurement professionals should be striving for. “We want to break those doors down. There’s lots of talk about getting procurement a seat at the top table and the first thing we have to do is make sure these terms we’re talking about – we only use amongst ourselves!”

Impacting the business

“The terms we use with our business leaders has got to be the terms that they understand,” Nick explains. “Can you explain simply and straightforwardly the impact you are having on the business?”

Leaders in your business want to know:

  • Are you taking assets of our balance sheet so we can free up resources to invest in product development?
  • Are you improving our margins?
  • Are you getting a better return on our investments?
  • Are you reducing our net debt?

And as Nick says, “the language we use is fundamental to how we can move away from being seen as a very technical function into being a function that really does contribute to the business.”

Nick Dobney speaking at Big Ideas Zurich 2018


As You Sip Your Delicious Morning Cup Of Suppliers’ Blood…

Is supply management really full of psychopaths? Why do members of Gen Next want to change jobs so frequently? How can managers retain top procurement talent? We put all these questions and more to ISM CEO Tom Derry.

Psychopaths in the profession?

A few years back, a researcher approached ISM CEO Tom Derry and wanted to survey the ISM membership to build a psychological profile of people who go into supply management. A few months later, Tom opened the newspaper and was appalled to find a headline stating “The majority of procurement professionals are psychopaths!”

“That was then,” says Tom. “In those days, there was an expectation that your job was to sit across the negotiating table from your supplier, have zero empathy with that person, demand cost reductions, and extract the pound of flesh. Sure, I can see how those could be seen as psychopathic tendencies. But you’re never going to succeed in supply management [these days] with that kind of approach. The emphasis on supplier relationship management in particular is so critical. That [old] profile is never going to be successful in the profession today.”

The days of the blood-sucking, empathy lacking hardball negotiator are over, but we still have work to do to reinvent the profession’s image – and that’s where fresh, new talent is going to help.

Time to Jump?

Last year, Procurious’ “Gen Next” survey revealed that just under 50% of supply management professionals intend to change roles within the next two years, and 34% intend to leave their current organisation entirely within the next 2 – 5 years. We asked Tom if it’s unrealistic these days for employers to expect their employees to stay anywhere for more than five years.

“Not at all. I think it’s realistic for them to expect longer tenure, but there are a few key things that matter”, says Tom. These include:

  • Training on the job – people really value skill acquisition.
  • Challenging and new assignments giving people a chance to grow.
  • Giving them exposure to other functions in the business via a rotation program.

Retaining Top Talent

But how can a head of supply management retain their top talent? In Tom’s view, we need to be realistic. “Don’t be too defensive about talent”, he says. “It’s a wonderful thing for a leader to be known as a discoverer and developer of great talent, which inevitably means that some people are going to move on, but that’s attractive. If I’m looking for a place to work and I know someone who has a reputation for identifying and developing people who want great new opportunities, I’m going to want to work there. Develop a reputation that will work to your advantage.”

Tom also stresses the importance of making people feel valued. “You can’t overvalue how important it is for a manager to just walk around and talk to people. Take an active interest in what they’re doing. They’ll be happy to know that you know what they’re working on, and that you find it exciting and interesting, and that means a hell of a lot to anybody when a leader comes around and shows interest. It drives results for the company.”

“As a leader, you have to be aware of the profile and external reputation of your team, within the company and externally in the industry. You need to be forward-looking as a leader in creating an environment that’s always compelling and interesting. The best CPOs that I know are focused on where the business is headed in the next 3-5 years, and what kind of team they need to build to optimise the business that we’re going to become. If you’re looking backwards and focused on efficiency, you’re missing the point. You need to be thinking about where you need to take the procurement team to deliver on the future vision – and that is what will make you an attractive leader to any talent.”

In our 10-part “Tuesdays With Tom” podcast series, Tom Derry discusses a broad range of critically important topics that every supply management professional should be across.

Listen to the full podcast here.