- by A S Kumar, VP – Purchase, Fortum India
Transparency and agility are the key to sustaining long term business relationships. For companies in the energy space it is more important to develop and maintain these connections to ensure operational efficiency. In today’s VUCA (volatile, uncertain, complex and ambiguous) world, companies must make the optimal use of resources and relationships to have a competitive advantage in the market. Strategic sourcing has reached a saturation point where it is now evident that the returns are ‘diminishing’. Nearly, all ‘low-hanging fruits’ have been picked and so, extracting value through aggregation and bidding is now becoming increasingly difficult.
Now more than ever, procurement has taken center stage and companies have identified the importance of Supplier Relationship Management (SRM).
Most organisations though still focus primarily on cost-cutting initiatives when it comes to SRM. SRM should, in fact, be driven by the ‘value’ that both the companies bring on the table by their partnership. A proper value mapping can enable the organisations to focus on reduction of risk and development of market ready products, thereby becoming more competitive in the marketplace.
Today, though technology has played a worthy catalyst in evolving SRM, there are a few challenges to overcome.
Challenges in building relationship with suppliers
Though there is an increased awareness on having an effective SRM for the betterment of the business, many companies struggle to keep up as it requires a change in mindset. To begin with, a lack of executive sponsorship is what hampers the relationship building with suppliers. When the top executives take responsibility, it helps align SRM strategy with corporate objectives and at the same time ensures resource allocation along with focus-driven and solution-oriented operations. The second hurdle is that of business case which, in a manner of speaking, helps build a temperament for the procurement. This in turn enables the buyer to track and trace progress, which is important from the point of view of maintaining a healthy balance sheet for the company. A structured and strong supplier relationship management strategy extracts the best value for everyone.
Managing risks through SRM
Every business is riddled with risks at any given point in time. Risk management across operational areas, therefore, becomes an important function in an organisation. Since disruptions in the supply chain domain can massively impact a company’s growth and affect profits, managing risks becomes vital for an effective SRM.
In such a scenario, following a risk analysis involving both the buyer and their preferred suppliers would help overcome the challenge. An open dialogue between the two will help build a comprehensive approach, which is essential to douse fires and solve issues that hamper effective functioning of supply chain. Furthermore, deploying advanced capabilities will reduce vulnerability and exposure to high-impact supply disruptions.
According to a PriceWaterhouseCoopers (PwC) report from Netherlands, 90% of organisations have indicated that their key suppliers show a willingness and have the ability to collaborate. A company’s procurement target should enable it to build a strong business performance, sustainable purchasing processes and to secure the availability of right materials and services considering the needs and requirements of the businesses. While overcoming challenges, organisations must aim for open and effective collaboration, establishing a minimum amount of trust and respect with suppliers to create value for both parties.
While more businesses have become aware of risks that can harm their organisation, only a few are able to implement adequate measures that allow their processes to cope with these risks. Those with mature supply and risk management practices are more resilient and less vulnerable to disruptions and recover faster. Companies that invest in building robust supplier relationships are better able to endure disruptions than those that fail to do so.