38 THOUGHT LEADERS

COMMUNITY & CONNECT

Next level relationship management

KEY TAKEAWAYS
Q The continued progression of procurement as a strategic function will be characterised by its effectiveness of creating value through a broader scope of external relationship management practices. Q The leading edge procurement rms will evolve their SRM practices to include the more complex spectrum of xRM, in which the x represents an expansive management capability of competitors, customers and business partners. Q Procurement leaders need to develop talent to identify, seek, manage and foster these multi-dimensional relationships, while collaborating with stakeholders to maximise value delivery through these diverse roles.

GLOBALISATION, E-TECHNOLOGY and the impact of newly emerging economies have re-shaped customer demands, created new supply possibilities and inevitably altered external relationship management practices. Businesses and their supply chains are more interconnected than ever before. As we steer the development of our procurement functions in this new age, we can no longer afford to be myopic in our approach towards external relationship management. There is little debate that SRM, despite the difculty to excel at it, is likely to remain a central foundation for capability and value delivery for most competitive procurement organisations for the foreseeable future. However, the leading-edge procurement units will evolve their practices to include the more complex spectrum of xRM, in which the x represents an expansive strategic analysis and management capability of competitors, customers and business partners.

Our tunnel vision towards suppliers has been hammered home to us for years. It essentially has been preached by industry, stakeholders and, to some extent, our own leaders that an exclusive focus on supplier management is what the function was meant (read: limited) to do.

Breaking out of supplier tunnel vision

In his 2010 Businessweek article, Your Competitor is Your Customer is Your Partner, Charles H. Green describes the morphing nature of external relationship identities in the modern business environment and the organisational response to adapt. Our beliefs drive our actions. Too often, our beliefs harden and persist long after theyre no longer in sync with the world, driving behaviours that are no longer appropriate, he wrote. Greens assertions resonate loudly in the world of procurement today. Upon reection, it is not surprising why many procurement experts are so rigidly conditioned to only see purchasing-related benets in prospective relationships, regardless of the potential to deliver value through alternative relationship dimensions. For procurement professionals who came of age since the dawn of SRM, our central belief system has been rooted in a mastery of relationship management with suppliers as the be-all and end-all means to value contribution. The behaviours that have resulted are a tendency to focus solely on buying relationships and the vertical value chain for example, a type of tunnel vision towards external relationships. May/June 2013

Missed opportunities
The organisational habits that arise within this supplier-only mindset can be costly. Consider a case whereby procurement is handling the buying relationships with the very same companies that are selling goods into the rm through a separately managed sales channel. Take also a converse example whereby an operational team is selling off assets to an existing supplier without the procurement inuence to drive the best value for the business. In both instances, there may be synergistic benets that can be achieved through unied relationship management practices, fully integrated business needs and a comprehensive view of the value chain. In the past, these scenarios may have been regarded as a natural and highly efcient division of functional responsibilities. After all, sales people should sell, purchasing people should buy, and operational people need to manage their own assets, right? Wrong. In the new age, it should be recognised as missed opportunity and value erosion. As with the convergence of relationship identities, the lines that have traditionally demarcated roles across the key business functions are now blurred. www.procurementleaders.com

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Illustration: Jonathan Croft

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While it is still true that the biggest responsibility for procurement lies within the realm of fostering breakthrough supplier relationships, we must gain credibility with stakeholders, broaden our perspective and apply our commercial rigour for value delivery across all potential relationships. relationships with a second dimension be treated with a holistic SRM-like approach. To begin paving the road ahead towards fully leveraging and embracing xRM capabilities, procurement executives should encourage their teams to implement these ve key steps: Q Identify multi-dimensional relationships An important rst step is to create visibility of current and potential multidimensional relationships that exist in the supply chain. Where are there overlaps between the supplier, competitor and customer dimensions? Where are the functional touch points across the business? Q Review strategic importance, risk and opportunities Once a complete list of companies with xRM potential is generated, the team should review how the supplier dimensions of those relationships have been segmented and how the relationships are managed today. Does the current supplier interface take into account the potential value and risk that is inherent in the other dimensions if managed independently? Q Assess internal capabilities and deploy resources Through this assessment, procurement leaders may nd that reallocation of talent is needed to pursue value through the alternative dimensions. Do we have the right capability set deployed against these relationships? What value can be gained by providing procurement oversight and relationship governance to these activities? Q Review value metrics and performance criteria To earn that coveted seat at the table, we need to clearly articulate the value that we can deliver with more involvement in a broader range of relationship scenarios. As we expand our inuence to the other relationship dimensions, are we still measuring our value contribution strictly on cost reduction? If yes, how can we motivate and reward our people to deliver value across the broader external relationship spectrum? Within their own teams, procurement leaders need to create a culture that recognises value delivery through these alternate channels. Q Build stakeholder engagement plan An important nal step is for executive procurement leaders to lay the groundwork with their c-suite level peers. The message is that procurement will be looking broadly for value potential across all external relationships not just suppliers. Gaining traction with stakeholders can be challenging in large global organisations that have several touch points into the business across geographies, product lines and business units and where there are traditional relationship owners outside of the procurement realm. Organisational complexities notwithstanding, with a collaborative approach and a thoughtful demonstration of the potential for value, the business case for procurement involvement often can convincingly be made. Q

Entering into dimensions previously unknown

For many organisations, the way forward is to begin to embed xRM thinking in the three key relationship dimensions beyond suppliers. With each dimension, there is a new frontier of expertise to be gained by procurement professionals. Q The customer relationship dimension Increasingly, procurement is interfacing with a set of trading partners that are part of the supply chain, which may result in selling opportunities. In the role of dealing with customers, procurement professionals can tap into their breadth of contract and negotiation expertise to deliver non-traditional value. For example, consider a category manager who is responsible for third-party manufacturing suppliers. Through their category experience and market analysis, they have garnered a deep understanding of cost drivers and the market price of excess capacity. Q The competitor relationship dimension In many markets, doing business with competitors may generate an uncomfortable yet compelling set of strategic possibilities. Examples include selectively entering into a buying or selling arrangement to offset raw material supply imbalances or excess manufacturing capacity. Acquisitions and rapid advancements in technology can also force unplanned supplier-competitor relationships. The procurement interaction with members of a rival organisation requires a cautious approach. It is essential to have an understanding of how your rm competes with the potential partner and what the organisational sentiment is towards doing business with them. In many instances, senior level relationship management is critical to govern activities and dialogue. Entering into dialogue with a competitor requires a steadfast commitment to condentiality and an acute awareness of compliance. Acting irresponsibly creates risk of competitive intelligence leak and, worse yet, legal consequences. Q The business partner relationship dimension Business partners are those organisations that are not directly a supplier, competitor or customer but offer up a form of unique potential to deliver mutually benecial outcomes. In some cases, these outcomes may include market intelligence or exchange of ideas. Consider a benchmarking exercise with a non-compete regarding common cost inputs or product design methodologies that inuence both organisations strategic spend. There is a wealth of benets for both parties to be gained on this type of cooperative exchange. These relationships do not tend to fall into our laps. Building them is the product of proactive networking, a curiosity of what synergistic possibilities may exist across other supply chains and a passion to explore how new forms of collaboration can create value.

Paving the road ahead

It is important to acknowledge that the widely debated discipline of SRM has signicant implications to resources and governance and usually is applied selectively to very few key suppliers in an organisation. It is not practical that all www.procurementleaders.com Ryan Nied is a procurement director for Diageo, based in Napa, California.

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