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The Future of Supplier Relationship Management

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The future of SRM demands new approaches for how we engage with, and manage, our supply base if we are to survive and thrive.

But recent global developments have gone way beyond anything we could ever have anticipated. First, Covid-19 happened; then Brexit; and, most recently, we have started to take climate change seriously. Right now, it feels as if everything has changed.

Initially considered a short interruption, the global pandemic was, in fact, a sea change into a new world and one permanently altered in terms of economies, suppliers, supply chains, behavior and how we live our lives, work, interact and shop. The changes it has driven redefine how procurement needs to organize itself to be effective and, in particular, how it manages its most important supply chains and relationships. 2020 provided a unique opportunity for procurement professionals to lead a dramatic change in the way organizations engage with their supply base in order to drive future competitive advantage.

Opportunities abound and the imperative for change in how we regard and manage our supply base has never been stronger. Organizations are having to fundamentally rethink their consumption of resources. With this comes accountability, not just for what they do but, crucially, for everything that happens in their supply and value chain networks. Of course, the most forward-thinking organizations already include sustainability clauses in their contracts. While these typically extend just to immediate suppliers, contractual terms are starting to include an element of responsibility for what happens throughout the wider supply network.

Legislation is also emerging. The first piece to drive sustainability action in corporates, representing a paradigm shift, was Germany’s Lieferkettengesetz law. Adopted in 2021 to apply from 2023 onwards, this obliges large German organizations to identify risks and take action to prevent human rights violations and environmental destruction in their supply chains or face significant fines (Business & Human Rights Resource Centre, 2021).  Organizations must also plan for a future carbon tax or risk being caught out. This will apply not only to the emissions an organization produces, but also those produced by its immediate suppliers, every player and all logistics back to raw material, original supplier or plantation. Those companies that prepare in advance will already be working out the source of their future competitive advantage.

In order to realize all of this, new kinds of supplier relationships will need to be built with, perhaps, new suppliers and, certainly, incorporating supply base innovation. It will not be possible to simply take raw materials from the earth and dump the waste. The price to pay may be too high.

What is clear is that innovation will be central to securing an organization’s place in the future and most of this will be found in the supply base. Here, again, SRM will be key.

As the changing global landscape impacts suppliers, rather than being ‘housed’ in an entity or physical location, they are becoming more network-based. This new operating model, using technology to access the best global talent, creates global networks, made up of agile groups and individuals working from home, together with key hubs where goods get produced or services get delivered. As a result, we will need new ways to get close to, understand and manage our network suppliers, with a keen eye on issues such as data transfer, treatment of people, protection of IP and business continuity.

Meanwhile, a new generation of super-size corporates in terms of wealth, size and power has emerged, delivering essential products and services, access to data and routes to market. These include the likes of Amazon, Alphabet (who own Google), Microsoft, Facebook and Alibaba. While our ability to influence relationships with such players will be limited, SRM will involve optimizing our position and use of their services.

Despite the plethora of SRM systems, today there is little integration. CPOs and procurement professionals don’t yet have a single point of truth about everything happening with the supply base. Whilst things are improving, the future depends heavily upon digital and data and demands much more integration. The biggest future change will be the way we use data in managing our supply chains. The retail sector leads the way here. For example, imagine the perfect BBQ weekend. Combining historical spend data with weather predictions ensures farmers pack and ship enough food to stock supermarket shelves. The future will take this to a whole new level, enabled with AI and algorithms, where big data models demand dynamically. This effectively creates fully agile and predictive supply chains that not only meet consumer demand but also minimize waste.

In the past, we have not needed to know what had happened in the supply chain prior to us. As this changes, companies will require precise information about everything that went before goods arrived or service was delivered. For example, we will be expected to know who picked our cabbage, or which animal provided our lamb. Such traceability will be made possible, and even common place, by data and digital. Meanwhile, blockchain technology will be adopted to prevent foul play. SRM practitioners will need to develop their digital skills, or at least recruit these to the team, to meet the new levels of capability that the future will demand. In fact, much of this is possible now with firms hiring talented individuals including mathematicians and data scientists.

As global developments continue to transform the supply base, SRM is the key to building the next generation of relationships with important and strategic suppliers. An effective SRM strategy will create the right conditions for intense collaboration that finds new competitive advantage, builds brand value, innovates or creates new social value.

Whatever our companies face in the future, we can be sure that progressive SRM is the key to ensuring success.