What Is Supplier Relationship Management?
Software tools provide capabilities to streamline sourcing, procurement, and settlement.
I first encountered the acronym SRM (supplier relationship management) about three years ago, while speaking with a purveyor of Product Lifecycle Management (PLM) software. Since then, I've noticed that the term has become firmly established in the lexicons of ERP vendors and other supply chain execution software providers.
Last month, I spoke with Perfect Commerce, Inc. (Kansas City, MO), which I would describe as a pure-play provider of SRM point solutions, and PeopleSoft (Pleasanton, CA), which had just announced out-of-the-box connectivity from PeopleSoft eProcurement to Perfect Commerce's Open Supplier Network (OSN). The following definition of SRM, the business processes it can enhance, and the value proposition it offers is based on these conversations.
SRM focuses on sourcing, procurement, and settlement (i.e. shopping, buying, and paying). SRM software tools enable these activities to be done online (using the Web) and in a more collaborative manner. Therefore, the value proposition is to eliminate paper-based, time-consuming manual processes and render the entire source-to-settle process more effective and efficient.
Purchasing, receiving, and accounts payable modules have always been a staple of any good ERP software suite. Electronic data interchange (EDI), which uses the computerized data in ERP systems to automate the procurement, billing, and payment transactions between trading partners, has also been around for a long time. So what is SRM adding to the formula?
Perfect Commerce SRM Suite Provides Event Management And Supplier Network
On the sourcing end, Perfect Commerce adds two primary capabilities: an RFx (request for quote) tool called Event Manager and the Open Supplier Network. Event Manager manages "events" (reverse auctions that are conducted online). Purchasing defines what is up for bid and invites the appropriate "qualified" suppliers to the auction. As the event unfolds, the competing suppliers can see the current best offer (or price to beat) on their computer screens. Unlike an auction, where competing buyers bid the price of an item (like a piece of art) up, during a reverse auction, competing suppliers bid the price of a product or service down.
The OSN network of 8,000 suppliers provides 21 million SKUs (stock keeping units) of catalogue content. This content, combined with catalogue management and search facilities, aids product selection and comparison activities. By integrating with ERP procurement modules and providing ready-made connections to its participating suppliers (for exchanging EDI, XML [extensible markup language], and flat files), it also simplifies the automation of purchase-to-pay transactions.
In its July announcement, PeopleSoft describes Perfect Commerce OSN Connect for PeopleSoft as a step towards simplifying "supplier enablement." What this means is that by connecting to the OSN, PeopleSoft users can now enable EDI-like transactions with OSN's 8,000 participating suppliers. Most companies that have set up EDI capabilities with trading partners generally focus on their customers first. They are doing well if they have enabled half of their top suppliers (the 20% with whom they transact 80% of their business). The other 80% of their supplier base just isn't worth the effort. A trading exchange like OSN addresses this issue by providing an outsourced solution for connecting to those suppliers who otherwise don't have the ability to set up EDI transactions on their own.
By Kurt Menges, chief editor, Supply Chain Market and Logistics Online