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Hot topics, Perspectives, and Debates - Trending in Procurement brings you
the trends and analysis for your Procurement needs.
SRM: THE BACKBONE OF PROCUREMENT PROCESS
EFFICIENCY
“Trending in Procurement survey shows that efficient management of supplier information
enhances Purchasing Department performance in a number of ways. At the operational level,
it decreases the workload for purchasers, while it improves decision-making and risk control
at the strategic level.”
Gérard Dahan, EMEA Managing Director, Ivalua
Supplier Relationship Management (SRM) is the basis of an efficient procurement
information system. Relying on comprehensive, reliable and up-to-date
information makes it possible not only to improve communication with the company’s
suppliers, but also to optimize the procurement process and manage risk. Administrative
and legal data, contacts, turnover figures, contracts, supplier assessment… the sheer number
and diversity of internal and external sources used by the company make it necessary to set
up a bona fide strategic Procurement database to centralize all sources of existing data and
provide a complete, clear and up-to-date view of each supplier, from relationship history to
the risks involved.
Projects focused on Supplier Relationship Management all share the same objective: to set
up a single supplier reference database within a harmonized architecture.
Trending in Procurement surveyed the international procurement community so as to
understand the ins and outs of an SRM project:
What benefits are to be derived from setting up an SRM in a company?
What are the advantages of e-Procurement solutions?
What challenges are involved in deploying an SRM solution?
Who is responsible for SRM in major international groups: Accounts? Procurement?
Panel
Trending in Procurement questionnaire no.5, “SRM, the basis of an efficient Procurement
IS”, was sent by email to a selection of European and North American procurement
professionals and handed out in paper format during the recent Procurement events
organized by Ivalua.
Geographical distribution of the participants
283 responses were collected and analyzed: 40% of the respondents (112 responses)
are based in North America (Canada & USA) and 60% (171 responses) in Europe.
Participants job titles
Participants annual spend budget:
The objectives of deploying a Supplier Relationship
Management tool
The two main benefits of setting up a Supplier Relationship Management tool are:
Supplier risk management: 75% of respondents consider this challenge to be one of
the main reasons for deploying an SRM tool
Process standardization: 72% of respondents consider this challenge to be one of the
main reasons for deploying an SRM tool
Q1 * In your opinion, what are the main objectives related to the implementation of a Supplier
Relationship Management tool?
Minimizing supplier risk: the number 1 priority
As the results of the Trending in Procurement survey demonstrate, the current economic
uncertainty caused by the financial crisis and the rising number of failing companies have
made supplier risk management a priority challenge for major international groups, one that
often leads them to make use of specific tools to minimize these risks. A Supplier
Relationship Management (SRM) system provides Procurement departments with
information that is reliable, standardized and updated in real time, thus enabling them to
manage and minimize supplier risk.
Administrative data and financial health indicators that are incorporated in real time in
conjunction with major content suppliers, spending analysis and supplier dashboards,
summaries of the business done with individual suppliers and determination of the current
validity of legal documents are just some of the functions offered by an SRM tool. These
features significantly reduce a company’s exposure to supplier risk.
Process standardization
The second key advantage of an SRM tool is that it enables the procurement process to be
standardized. Indeed, in major international companies, supplier information is often
disseminated via various different tools and information systems, which are put in place
gradually over time and as different strategic choices are made (internationalization,
takeovers, mergers, etc.). This results in excessive complexity and restricts the potential of
Procurement Departments.
Setting up an SRM tool is a key step in dealing with the problem of supplier data that is
dispersed and heterogeneous, because it allows the various supplier inclusion, selection,
tendering and assessment processes to be standardized across an entire group.
Supplier Relationship Management within the company
Supplier relationship management is an essential process that ensures the reliability of the
data provided. It involves a wide range of maintenance tasks: checking, cleaning and
formatting data, keeping it up to date, supporting suppliers and buyers in their use of the
supplier portal, verifying the compliance of mandatory legal documents, monitoring the
database’s compliance, setting up a monthly reporting system, etc.
Dedicated resources
In major international groups, which tend to have thousands of suppliers and product
references, not to mention dozens of source databases (ERP, etc.), SRM system maintenance
requires dedicated resources in charge of performing these tasks and monitoring the
evolution and quality of supplier data each day.
45% of Procurement departments declare that they have a “dedicated team” to maintain
and manage their SRM system. According to them, this team can include between one and
ten members (three on average), who are responsible solely for ensuring the integrity and
continuity of the SRM system.
Accounting or Procurement?
Depending on the company, responsibility for maintaining the SRM system may lie with
either Accounting or Procurement, or sometimes with both conjointly.
Q 2 * Who’s in charge of managing your company’s supplier repository?
SRM Management – European Companies SRM Management – North American Companies
A significant difference can be noted between the methods applied by European and North
American firms in managing their SRM systems.
In Europe, 50% of respondents declared that Procurement (alone) is in charge of maintaining
and managing the SRM system, compared with 80% of North American respondents.
42% of European participants declared that they manage their SRM system in conjunction
with Accounts, compared with 9% in North America.
This difference can partially be explained by the greater maturity of American Procurement
departments (1). Having launched projects to structure their Procurement process much
earlier than their European counterparts, they have now ceased almost entirely to rely on
the databases (be they accounting, finance or logistics oriented) supplied by their
Accounting departments, whereas the SRM systems of European firms are still in the
construction and deployment phase.
1 Baromètre Achats 2011, CSC, Challenges, TNS Sofres
The challenges of deploying an SRM solution
Q 3 * What are the challenges associated with deploying an SRM tool?
From a process perspective, the two main challenges involved in deploying an SRM solution
are “rationalizing the procurement categories” (important or very important to 100% of
respondents) and “aligning company and Procurement strategies” (important or very
important to 92% of respondents).
Creating standardized and universal procurement categories
Setting up an SRM tool at group level requires procurement categories to be rationalized and
standardized across the organization, so as to bring each entity’s local specificities under a
single nomenclature. This preliminary stage is one of the keys to the success of an SRM
project. What must invariably follow is a full clean-up of the supplier database so as to
establish supplier affiliation (e.g., group > subsidiaries), eliminate duplication, remove
suppliers with whom no orders have been placed (no invoices) or with whom the
relationship has been terminated. Once this common nomenclature has been established,
the SRM tool can be deployed and will help the company ensure the long-term continuity of
the supplier database by structuring the process required to create, validate, deduplicate
and update supplier data.
Aligning company and Procurement strategies
Setting up an SRM solution can be the opportunity for Procurement departments to assess
whether their strategy is aligned with their company’s. International development, new
product launches, innovation and cost-cutting policy are just some of the strategic areas that
must have a direct impact on procurement strategy (make or buy, sourcing from low-cost
countries, local procurement, etc.) and supplier management. Taking these strategic areas
into account in managing the SRM system plays a crucial part in supporting the alignment of
procurement with the wider company.
From a supplier perspective, the challenge most often cited by the panel as being very
important when deploying an SRM tool is to “incorporate multiple internal information
sources“ (very important according to 40% of the panel). Thanks to SRM, Procurement
departments no longer need to rely on accounting and finance-oriented ERP systems,
although they must still be capable of obtaining relevant information from these databases.
ERP systems, accounting information systems, finance information systems… various local or
global sources may be used to populate each entity’s database in a different data format.
The challenge is to create a consistent architecture between the SRM system and other
internal information sources, to ensure that the supplier data shared at group level is
reliable, up to date and confidential.
ERP vs. SRM: which is the master?
One of the objectives of architectures that link SRM and ERP systems is to determine which
of the two will serve as a “reference database” (or master) for the others. Two solutions are
possible:
The ERP system is the master: in most cases, the ERP system is the reference
database and supplier data created in the ERP tool is cleaned up and imported into
the SRM system.
The SRM system is the master: the SRM system serves as the reference database and
prior validation by Procurement is required for a new supplier to be created by the
ERP system (accounts).
The benefits of e-Procurement solutions
The main benefits of setting up an e-Procurement SRM tool are: the ability to maintain a
single supplier file (59%), to analyze spending / create supplier dashboards (53%), to manage
legal documents (45%) and to automate the capture of supplier data from external sources
(40%).
Q 4 * What are the benefits of e-procurement solutions in terms of SRM features?
A single supplier data file
By setting up an e-Procurement SRM tool, all supplier data, regardless of its source (business
tools, ERP system, Excel files, manual entry by the buyer, updates by the supplier, external
data, info from the web, etc.), is made available in a single supplier file. By centralizing and
organizing supplier information in this way, it becomes a veritable decision-making tool and
enables the Procurement Department to manage risk more effectively. Compared to
previous generations of management system, this single supplier file offers numerous
advantages for buyers and management alike:
A single port of call for all information about suppliers
A comprehensive view of each supplier that is shared across the Procurement
community
The collection of more detailed and more reliable supplier information
A significant reduction in the amount of data entry performed by buyers
Spending analysis
Coupling an SRM system with the spending analysis functions offered by the e-Procurement
tool makes it possible to obtain a precise view of the data linked to thousands of supplier
accounts at individual supplier level (e.g., turnover achieved with a supplier at group level,
with the ability to zoom in on each of its subsidiaries / entities, the number of RFx/Rfi
processes in which it took part and the rate of dependency), at procurement category level
(e.g., Procurement risks) or at supplier community level.
It provides Procurement departments with consolidated data that is reliable, gathered from
different information systems and instantly viewable, as well as allowing numerous supplier
negotiation levers to be identified and explored.
Managing legal documents and external sources
In addition to internal data sources (ERP), the e-Procurement SRM tool enables information
from sources external to the company to be centralized in a single supplier file. This
information is added in real time to the data available to the procurement community,
which includes: the legal documents of suppliers, either submitted by the suppliers
themselves or transferred automatically via interfaces with specialist regulatory and
administrative compliance solutions, as well as integrated financial and non-financial health
indicators (e.g.: Coface, Altares, BVD, e-Attestations, etc.).
Thus, the SRM tool becomes a bona fide system for the management of external sources of
supplier information (automation, digitization and monitoring). It also offers the following
advantages:
Centralization and circulation of legal documents and financial health indicators
within a single supplier database
Automatic identification of documents and information that are either missing,
invalid, noncompliant or soon to expire
Automatic reminders regarding documents (legal / administrative) that are missing
and/or approaching expiry
To conclude…
An automated and efficient SRM system brings benefits to the entire Procurement value
chain, from initial contact with suppliers to sales negotiation.
The tool is able to automatically gather data from sources both external and internal to
Procurement, while also enabling buyers to enter supplier information manually. It allows
major international groups to create a single centralized file for each supplier, populated
with information that is reliable, up to date and available to the entire Procurement
community across the world.
Because of its ability to link up with every possible e-Procurement function and module, SRM
provides a strong platform for an efficient Procurement IS, hence the high degree of care
that must be taken in its design and maintenance.
Trending in Procurement reveals the prerequisites for a successful SRM project:
To rationalize Procurement categories globally
To dedicate a team to the creation and the daily maintenance of the suppliers
repository
To identify all internal and external sources that feed into the repository
SRM projects can sometimes be erroneously considered as a “one shot operation”, when in
reality they are the starting point for an overhaul of procurement processes and methods
thus contributing to the professionalization of the procurement departments, to a greater
alignment with corporate strategic objectives and their emancipation from the Accounting /
ERP purchasing vision.
About Ivalua
Established in January 2000, Ivalua is one of the leading global vendors in Spend
Management Software today. The company’s software suite Ivalua Buyer covers the whole
Spend Management spectrum, from supplier relationship management to spend analysis,
with e-Sourcing, e-Procurement and invoice management in between.
Based in the US and Europe, Ivalua has successfully implemented more than 150 projects
within large international companies in all sectors, enabling Ivalua to demonstrate strong
growth while remaining profitable since its creation. Ivalua solutions have been widely
tested and adopted by several tens of thousands of users worldwide.
Thanks to its ecosystem of partners, Ivalua supports its clients with a wide range of services
and content integrated within its solutions.
For more information, visit www.ivalua.com or contact us by email on [email protected]