People often distinguish procurement (or sourcing) and supplier relationship management (SRM) as two completely distinct functions. Nevertheless, these two functions interact and co-relate in very real and important ways. In fact, oftentimes procurement and SRM are two sides of the same coin – you can’t have one without the other. In this article, we are going to discuss the various ways that procurement and SRM combine for a complete supplier approach.
Let’s first offer a primer on what procurement (or sourcing) actually is. Procurement is when companies acquire goods needed for the functioning of their businesses. There is direct procurement, where companies are purchasing goods, components and parts that are required for the parts of their business that meet the end customer, hence which directly go into production. Then, there is indirect procurement, when companies purchase products that are important to the functioning of the business, but does not directly relate to the company’s revenues. In other words, a printer or office paper or a computer screen would be part of a company’s indirect spend. For more on the differences between direct and indirect procurement, you can read our article on the subject linked to above.
Now let’s evaluate supplier relationship management. SRM is typically seen as the management of the ongoing relationships a company has with its suppliers. We recommend a cloud solution to supplier relationship management, so as to aggregate all necessary information about suppliers in one easy-to-access interface that can be tapped from any corner of the globe with just an internet connection. For more information on what to do to select a supplier relationship management (SRM) solution, you can click the link above.
Taking these definitions for procurement and supplier relationship management, let’s have a closer look now on the connection between the two concepts. Yet, the relationship is very real. A good place to begin is with contracts. A large part of establishing procurement and sourcing is to come to a spending agreement between company and supplier. There are often significant negotiations regarding the establishment of a contract, and these fine-tuned differences often are the determining factors for how much profit a company can make for its stakeholders. From a contract perspective, procurement and SRM have a very serious relationship. Procurement and sourcing establishes the contract, while SRM is responsible for maintaining compliance with the contract. Here, we can see that contracts are the glue holding procurement and SRM together.
The selection of a supplier is not a cut-and-dry process. Managing the savings to a company over time of a certain supplier is often the work of a procurement professional, but organizations often turn to supplier relationship management in order to maximize savings by establishing long-term relationships with their key suppliers. Here we can see that from the perspective of evaluating company savings, procurement and savings play a very similar role in the ongoing development of supplier relationships.
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