Procurement and Materials

Management - SRM
Arvind Tiwari
Guest Faculty IIFT

Overview

Supplier Relations
Interface
Interaction
Supplier Satisfaction

Supplier Relations
Importance of the Relationship between
Supplier and Customer should not be
underestimated
Apart from the commercial interface there is a
human interface which spans the seniormost
to juniormost levels on both sides
Handled well this can be a source of great
strength
Handled poorly this causes a lot of stress
across the supply chain

Supplier Relations
Evolved companies therefore treat SRM at par
with CRM
Poor SRM has an adverse impact on CRM
Customers can make or break a supplier. The
inverse is also true
The relationship still spans from the
adversarial of yesteryears to the partner
approach of today
Slowly but surely moving in the right direction

Interface
The supplier customer interface is at various
levels
Supplier middle to seniormost management /
owners deal with procurement teams junior to
senior management

The most usual is between the Procurement

team juniors and supplier middle to senior
levels
Big suppliers allocate Account Managers in
case of Key Customers

Interface
The supplier customer interface is through
various modes
Written
Emails
Letters

Telephonic
Video call
Voice call

Personal meeting

Interface
Not only what is communicated , how it is
done is equally important
Both sides need to be very careful about the
Content , Tone and the Body Language (in
personal meetings) of the communication
Things are handled poorly usually from the
Procurement team side but suppliers sides
also makes mistakes

Interface
The problems usually germinate in the last
mile day to day interface at the junior level
between customer and supplier
If not handled properly and in time they can
lead to misunderstanding and escalation on
both sides
With battle lines drawn it requires maturity
and tact to sort out issues
Left unattended for long there can be long
term repurcussions

Interface
Usual causes
Communication content
Inadequate
Inaccurate
Changed frequently

Reason for above

Poor
Forecasting
Planning
Communication
Within the customers supply chain

Poor Procurement team discipline, adherence to

systems or taking the supplier for granted

Interface
Usual causes
Communication tone
Arrogant
Insensitive

Reasons for above

Procurement teams
Lack of or inadequate training on supplier management
Attempt to hold supplier responsible for own fault

Interaction for what ?

Interaction on
Performance
Delivery could be because

Supplier issues
Frequent changes
Late information
Unreasonable demands

Quality

Requirement not communicated properly

Difference in measurement
Design issue included in supplier fault
Mating part quality

Interaction for what?

Interaction on
Price finalisation / negotiation

Supplier padding up cost information

Supplier trying to pass on inefficiency to customer
Procurement not fully understanding costs involved
Procurement not ready to accept all costs involved

Interaction for what?

Interaction on
Part development
Time over run
Many iterations

Supplier development
Poor implementation
Supplier management not committing promised
resources

Specific projects
Not sufficient initiative from supplier
Supplier suggestions not being evaluated timely /
properly

Interaction
Can be managed properly by handling the
interaction as seriously as with a customer
Has to be driven personally by the
Procurement Head
Needs to be monitored regularly to ensure
that the relationship remains strong
Procurement personnel training and refresher
essential

Maximum Interaction - Forecasting

The maximum interaction between
procurement and supplier personnel is related
to delivery
More often than not the reason is Forecasting
information shared by Procurement
This information comes to Procurement from
sales directly or through manufacturing
Due to poor internal communication by the
time this finally reaches the supplier there is
already change underway

Maximum Interaction - Forecasting

Poor forecasting results in either
More demand than the supplier has capacity or
material for
Less demand than what supplier has geared up for

In the first case the supplier is stressed as he

buys extra material ( sometimes at higher cost)
pays premium freight
pays overtime or runs extra shifts

all this is extra cost for the supplier not usually

compensated

Maximum Interaction - Forecasting

In the second case it leads to
higher inventory of RM and FG
idle capacity
idle manpower

These costs are also not usually compensated

These cost impacts can have serious financial
impact on suppliers
Leads to unwanted discomfort between
Procurement and Supplier

Forecasting
Procurement finds itself helpless as it has no
control over the process
It needs to play a proactive role in this to
avoid delivery and supplier issues
Close and frequent interaction between
Procurement , Manufacturing and Sales is
required
Sales should be made to understand the cost
of poor forecasting
Keeping an eye on the market is also essential

Supplier Satisfaction
Like customer , supplier satisfaction can and
should be assessed regularly annually
Only a handful of companies do this
A structured survey of regular suppliers
Can be handled inhouse or a third party can
be asked to handle it
To build confidence and get candid response it
is preferable to mask suppliers identity

Supplier Satisfaction
The survey is likely to highlight issues related
to various functions dealing with suppliers
Customer should be prepared to take
corrective measures to solve the issues
Next survey should be able to capture the
effect of improvements by the customer
If there is no customer effort then suppliers
will lose interest in the process