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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 info@ivalua.com