CRM starts from Supplier Relationship Management

CRM STARTS FROM SUPPLIER RELATIONSHIP MANAGEMENT

Nowadays CRM (Client Relationship Management) is de facto in competitive marketing. The CRM objectives, concepts and techniques are well defined and understood.

Unlike CRM, the Supplier Relationship Management (SRM) contribution to the business success is not given enough thought.
The classic example of SRM in action is the Apple's decision to ditch one of its suppliers - Imagination Technologies. It has prompted the company stock drop by more than 70%. Imagination's market capitalization, which sat at roughly $1 billion before this decision, shrunk to around $360 million in a number of days.

All reviewers of this news missed on the main message of the event. Apple did not ditch a supplier, instead, it created a cheaper and less risky alternative. Creation, not destruction, is what SRM is masterminded for.

In my past twice I was challenged with the single supplier problem.

In 2010 I succeeded in breaking the monopoly of Sulzer pump manufacturer. (Vasilikos desalination plant, Cyprus) Then it was the only supplier of the high-efficiency large-capacity pump for reverse osmosis desalination of seawater (over 2000 m3/h, 70 Bar). Its successor - ClydeUnion was very doubtful about its chances to win the order as engineering of a new pump always adds sensible overcharges. In this respect, my task was to persuade ClydeUnion of accepting high risk of losing money for the sake of promising future. Indeed, its next order for Ashdod desalination plant (2011, Israel) was much bigger and more rewarding.

Second time it was in Carlsbad SWRO desalination plant – the biggest in the western hemisphere (2013, USA). This market requires the 60 Hz pumps. None of the previously mentioned suppliers had such a pump. So I had ZERO suppliers!

For me it was a tremendous opportunity to add a new player to this segment of the pumps market. My choice fell on Ebara. My previous relationship with this company was a bit rough – at the beginning Ebara did not accept the SRM prequalification procedure for a new product supplier. It was the main reason of it nearly missing the Sorek desalination plant (Israel, 2009) - the biggest in the world. It turned out that Ebara learns fast and it was ready to fight for Carlsbad project. This time Ebara showed its superiority by building a prototype matching my requirements and requested performance. No competitor did this step nor offered attractive commercial conditions.

I cannot help mentioning purchasing of scrapers for Cape Preston SWRO plant (Australia, 2008). It is another classic SRM-in-action example. That time no supplier had off-the-shelf product matching my specification. As the time pressed, I started with the fastest communicator – the SISMAT company. By working in collaboration we improved the product construction and substantially slashed down the price by more than 20%!

In my opinion SRM is more important than CRM by four obvious reasons.

  1. CRM is focused on expanding business, while SRM identifies the business vulnerabilities. What is more important: life or better life?
  2. SRM tasks are lengthy. For example, the new supplier prequalification (to assess its culture, responsiveness and alacrity) takes up from 6 to 18 months; it cannot be started during the project execution.
  3. The project warranty terms are signed with the client long before negotiation of the warranties with suppliers. Difference between “budget” offer and “best & final” one may be big enough to sink the project. In other words, wrong perception of the supplier may ruin the business.
  4. To succeed in customization, the supplier needs much more information about the plant than the client to operate it. For example, transparency of O&M to the suppliers is a condition for much better warranty terms and better product selection.

How to disrupt SRM?

In my opinion the first step should be to offer the previous project bids archive, the bidding results and criteria for the public scrutiny.

The second step is the supplier global experience tracking. In eCommerce (AliExpress, eBay, Amazon.com) it is normal to ask the buyer rate the transaction - communication with seller, accuracy of the product description and shipping time. This feedback is important in helping other buyers assess products and suppliers. To which degree?
Statistics on Forbes say that for a typical Fortune 1000 company, just a 10% increase in data accessibility will result in more than $65 million additional net income.

Why this cannot be done for industrial projects?

And finally, some proponents of SRM focus on fostering strategic partnership with the suppliers. I observed many and none lasted long. Such partnership requires higher level of culture: both parties shall exercise transparency and trust, develop fare communication protocol (to avoid inadvertent leak of sensitive business information) and work twice as hard to create a bigger pie. But two-way, mutually beneficial relationships are not unattainable goal. It is a routine milestone on the way to digital disruption.