Eskom Procurement Book 2015

SUPPLIER RELATIONSHIP MANAGEMENT

5.3.4.1 Misconceptions about SRM

Many organisations have a misconception about SRM, for instance, some see it as an apparatus for monitoring and improving the performance of suppliers. This view conflicts with the broader definition of SRM as ‘a discipline of working collaboratively with those suppliers that are critical to the success of your organisation, with the intention of maximising the potential value of those relationships.’ When the former perspective is adopted, SRM becomes a narrow, one-way process that benefits the buying organisation only, i.e., there is no win-win situation. The latter, broader view tends to create enhanced value for both parties, leading to shared benefits in such areas as lowered costs, reduced risk, increased supply efficiency, enhanced quality, faster time to market and access to innovation. In some organisations, procurement is regarded as a price-focused function. This perception can cause functional managers to protect their key supplier relationships jealously and to keep procurement’s involvement to a minimum. This may be problematic, as procurement should take a central role in co- ordinating supplier relationships. The reason is that it is procurement that best understands aspects such as access to supplier information. It also has a sound understanding of an organisation’s operations. Many leading organisations already have potent SRM programmes in place and are reaping the benefits. But SRM tends to be restricted to ‘pockets of excellence’ in particular business units or functions, rather than being spread across the entire enterprise. The challenge for those in procurement is to develop the skills and capabilities that will enable them to spread the good practices more widely. When the organisation is overly dependent on its suppliers for many activities that were previously performed in-house, the organisation’s exposure to supplier risk also increases. For instance, when an organisation is over-reliant on a particular supplier for key raw materials, and that supplier is declared bankrupt, the buying organisation is likely to have a shortage of the key raw materials until it can find a new supplier. Losses are likely to be incurred during that period. In all cases where market dynamics force an organisation to become over-dependent on its suppliers, mechanisms to manage supplier risk should be put in place.

5.3.4.2 Central Role

5.3.4.3 Consolidating the Benefits

5.3.4.4 Over-Reliance on Suppliers

5.3.4.5 Suppliers are not Held Responsible for Their Actions

Organisations frequently enter into poorly drafted contractual agreements that do not hold suppliers accountable for their performance; do not motivate suppliers

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