13.03.2016  |  Supply chain

Indspark: Stay ahead of the curve with Supplier Relationship Management

Future resource scarcity is a risk. How can Supplier Relationship Management support your company in mitigating risk?

What does it take to stay ahead of the curve nowadays? As a company it is important to adapt to the circular economy. No business can escape the fact, that the global economic conditions, the status and future availability of affordable resources, energy supplies and a growing global population, are creating an ever more complex business environment.

The limitations and growing problems of the linear economic model, that 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 one, which is defined as an industrial system that is restorative or regenerative by design. It replaces the end of life concept with restoration. It shifts business towards the use of renewable energy, eliminates the use of toxic chemicals, which impair re-use and aims for the elimination of waste through intelligent design of materials, products, systems, technologies and business models. We could call it circular innovation.

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 (thinking) 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 organization, 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?

One of the ways that procurement could build competences, would be 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 show, 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% of leading companies saying that SRM has the support of their top executives.

Organisations that want to make a real difference with SRM, 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.

Link to State of Flux: http://www.stateofflux.co.uk/2015-global-srm-research-report

This article was first published on the Procurious website. Check it out here.

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