Article: Facing SRM and CRM Page 1 of 8

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1 Article: Facing SRM and CRM Page 1 of 8 Cover Story Facing SRM and CRM By Roberta J. Duffy and Mike Gorsage Roberta J. Duffy is editor of Inside Supply Management. Mike Gorsage is a vice president and global practice leader for A.T. Kearney, Atlanta. August 2002, Inside Supply Management, page 30. Points of Interest At a glance, here are the main points covered in this article. By reading it, you will learn: How SRM and CRM are defined How SRM and CRM are relevant to supply management What the initial steps are to an SRM or CRM initiative What technology tools promise in terms of SRM and CRM Think about the last time you found the perfect birthday gift for a friend or family member. Remember the feeling of "Yes!" that accompanied the purchase. Most likely, you were happy to pay for the gift, happy to reward that store with your business, and happy to return for more if needed all because you felt that in return for your time and money, you were receiving a great value. Now, imagine this experience from the store owner's point of view. He was happy to have originally invested in the item, happy to be open for business during hours that are convenient for you, and happy to learn that the product met your needs, knowing that other related products might be of interest again, all because it was a good value to him to exchange his time and resources for your business. In this scenario, neither party thinks of the other as "the opposition." They both understand that each is necessary to make this transaction work and that they can both benefit further if they work together. "If I can pay with my credit card, I'll go ahead and take two." "If you wait an extra day, I can have this monogrammed for you." "Would you be able to call me when more arrive?" This feeling of dual satisfaction exemplifies a customer-supplier relationship at its best. While the scenario may seem a bit simplistic to apply to a business-to-business situation, the concept that both parties realize value is applicable. And while this scenario deals with a single transaction and relationship management in the supply chain goes far beyond individual transactions, the essence is very much the same. Adopting an environment where customer and supplier relationships thrive means that both parties invest, look to accommodate the other, and gain long-term value.

2 Article: Facing SRM and CRM Page 2 of 8 In the last few years, two new acronyms have emerged on the scene SRM and CRM, to describe supplier relationship management and customer relationship management, respectively. While the best practices involved with SRM and CRM have existed, and even flourished, in leading organizations for quite some time, putting a distinctive label on the concept is one way to demonstrate a firm's priority for overall supply chain value. It provides some common terminology for industry peers and sets some parameters for the supply chain partners who will be working toward SRM and CRM goals. SRM and CRM fall under the umbrella of the relational supply chain, just one of four supply chains that have been identified by ISM to exist within any supply chain. (See "Value X 4 Equals Excellence" on page 38 for more information on the four supply chains.) The relational supply chain is defined by ISM as "the appropriate linkage between a supplier, the organization, and its customers for maximum benefit; it includes internal supply matter relationships throughout the organization." It focuses on relationships in many senses, from the personal one-on-one relationships that are established between individuals to the broad, general relationships that are between companies or organizations. On an individual level, it represents the level of communication, the nature of communication, and the efforts that are put forth by professionals. On the larger scale, it represents the goals that firms have with regard to their agreements, the vision they share, the level of risk and comfort they have with each other, and the culture their supply chain has created. Communications, sharing, culture these elements sound like those that have been in place for quite some time when it comes to managing suppliers. What makes "SRM" different than traditional "supplier management"? What's the purpose of this formal categorization? Doesn't CRM just mean providing customers with what they ask for? The distinguishing features of SRM and CRM include striving for a balanced relationship and being proactive. A Balanced Relationship Though it may sound like a cliché and the term is often inappropriately used, a formal SRM or CRM initiative is one in which the organizations strive for a true "win-win." Maybe it's the quality of the product, the extent of the service, or the availability of either. That's beneficial for the customer. On the supplier side, it might be the ease of doing business with the customer, prompt payment, or a certain amount of guaranteed business. These characteristics can occur in any number of transactions or relationships, but at the point where the supplier and the customer become for lack of a better word intertwined to the extent they're making decisions based on the value to both parties, then SRM and CRM are emerging. Of course, it's always a balancing act, because there is still "give" and "take" involved, but there is the realization that the activities that benefit the relationship will most likely be the most beneficial for either party. Formally acknowledging supplier and customer management requires a definite shift in thinking. In these instances, there is not the sense of "we" versus "them," but rather "us making progress by working together." In an ideal situation, the customer is pleased and glad to be acquiring goods or services from the supplier because the customer knows he or she will be getting what is needed at a good value. The supplier is eager to provide its products and services because it is also getting what it requires at a solid value. Both firms understand that being a good customer or supplier means being a firm with which it's easy to do business. Both are open to new ideas and ways to improve the relationship, putting programs in place that produce bi-directional positives. But again, it's not adversarial. For example, a customer doesn't go to a supplier looking for a lower purchase price. Instead, the customer works with

3 Article: Facing SRM and CRM Page 3 of 8 the supplier to reduce the supplier's costs. Those savings can be shared between the customer and the supplier. Industry-specific consortiums are a good example of supplier management opportunities at work. In this sharing environment, the whole is greater than the sum of the parts and the benefits are realized by all. Another example: A large organization, "A," buys its maintenance, repair, and operating (MRO) supplies from Supplier "B." A smaller-organization customer of "A" is allowed to purchase MRO from "B" on "A's" account or contract terms. When "A" makes operating easier for the smaller organization, those reduced costs might mean that the smaller organization is more profitable, enabling it to increase business to "A." Being Proactive The other distinguishing feature of SRM and CRM is the proactive behaviors that they require. Supply managers can aggressively probe and constantly assess the opportunities to create the win-win value described above. It might mean that there are people dedicated to managing the relationship. Titles such as "relationship manager" have emerged as further evidence that the relational supply chain is critical. Oftentimes, technology can play a large role in SRM and CRM activities, because the improvements that might manifest will involve information sharing ("Can you share with me your sales forecasts?"), new processes ("We'd like to be able to transfer funds directly to your account"), or collaboration ("Let's run some simulations on these projects"). Technology can generate the information and enable the new process. See the box "SRM and CRM Technology to the Rescue" on page 32 for more on technology's role. Getting It Done Like most major business initiatives, in order for SRM and CRM to realize full potential, full executive management support is required. It's necessary on two levels. First, because resources are needed. In some firms, positions (and salaries) are dedicated to relationship management. More in-depth contact with suppliers and customers could be expensive. Other times, technology investments are needed to produce the information-sharing structure or to analyze customer behaviors. Second, SRM and CRM require a change in culture that promotes the "win-win" mentality over the adversarial relationship. This type of culture is not realized through mandates, but through the subtle ways that executives talk, act, and relate to suppliers and customers. Including suppliers in key meetings and talking in terms of customer satisfaction are examples of how a culture can be established that supports SRM and CRM. Though the typical supply manager may not be in a position to spread this culture as extensively as the CEO will, the good news is that the supply manager can be a champion for these initiatives and can justify their value by highlighting the long-term objectives. Oftentimes, increased sales can be tied directly to CRM concepts. In a noncommercial arena, increased service or customer satisfaction can be the selling point for executives. The supply manager can make the case that focusing on the entire relational supply chain (including SRM initiatives) ultimately impacts the final customer, meeting the firm's or CEO's goals. On a micro level, the activities that supply managers can undertake as part of SRM and CRM

4 Article: Facing SRM and CRM Page 4 of 8 initiatives may seem small, but can lead to great things. The first step is proactive communication. Sit down with suppliers and let them know that as a customer, you want to increase the efficiencies in the supply chain and improve the overall value of the relationship for both parties. Ask what would make their role as a supplier easier. Include suppliers in your thoughts for the future, inviting ideas and feedback. Share information (future plans, forecasts, process bottlenecks) to open the door to communication. As information sharing becomes more natural, the positives and the negatives will emerge, but because a dialogue has been established, corrective action can be suggested and embraced, if the end goal is a better working relationship for both parties. One key element to remember is that this transformation to SRM and CRM is not an overnight activity. A firm cannot proclaim to begin these initiatives and expect drastic change that day, that week, or that month. It's a method of conducting business that will be adopted over time, as all sides begin to learn and trust the concept. For example, it's easy to instruct supply managers to ask suppliers for ideas. However, when first approached for ideas, the supplier may not have any. But a constant reassurance that ideas are welcome can lay the foundation for ideas to generate and when a supplier does have an idea for an improvement, it knows that there is an avenue to communicate it and that it will be welcomed. Be aggressive about setting this vision at the strategic level, but be patient for the transformation to infiltrate all levels. The Customer Angle? Granted, purchasers and supply managers are often focused on the supply side of the business, so understanding the role and importance of CRM may not come easily. Shouldn't customer concerns be an activity for sales or marketing? Perhaps, for those who are still operating in a silo mode. But, for the broad-thinking supply manager who understands that the entire supply chain must function smoothly for the most success, the connection is easy. Supply managers need customer input if they're going to work with suppliers on new product development. Feedback from existing customers can alter design specifications. Take the carpet manufacturer who, through a customer support initiative, found that shortening the carpet adhesive's drying time was a priority. The manufacturer was able to then work in conjunction with a supplier to achieve this goal. It was the solid relationship with both the supplier and the customer that yielded this success story. The bottomline is that both supply- and customer-side management initiatives are necessary. The best CRM program won't be valuable if a supplier can't deliver the goods or services. Conversely, the strongest alliance with a supplier won't be optimized if there are no customers to satisfy. Therefore, it's in a supply manager's best interest to optimize the customer side of the business. This will most likely be accomplished in a team environment, but being a proponent and champion for this team is a first step. At a recent ISM educational workshop, a senior executive in supply management from a major hotel chain was presenting a session about the hotel's operations and supply management practices. One attendee commented that the small, complimentary bottle of shampoo that is customary in all guest rooms was in fact a premium brand-name shampoo. He asked the executive to comment on the hotel chain's decision to procure that product. The executive's answer was, "The mere fact that you asked that question proves to me that we made the right decision." He said that it was the company's goal to provide guests with a quality experience, and aligning with this shampoo supplier provided a win-win receiving a quality product and providing exposure for the shampoo supplier.

5 Article: Facing SRM and CRM Page 5 of 8 This anecdote is a perfect example of how a supply management organization can incorporate customer relationship initiatives into supply management operations. It also demonstrates how seamlessly the total business thinker integrates supply- and customer-side issues into his or her philosophies. For the business executive who thinks in terms of enterprisewide issues, it would be difficult to imagine SRM philosophies and activities without the same for CRM. Because every organization is both a supplier and a customer in some regard, the supply manager (who is understandably more involved with supplier activities) can appreciate the value of being on the receiving end of customer relationship initiatives. Therefore, the supply management organization can see the value of applying CRM to its own customers. The nature of SRM and CRM is bi-directional, so if a firm is truly implementing SRM activities, CRM activities are also taking place from the supplier. It's difficult to have one without the other for a given relationship and it makes sense to have both within a single organization, for both supplier and customer linkages. Perhaps the most important reason that supply management must be concerned with CRM is that in today's volatile economy, there is always the chance that a supplier will also become a customer, due to a merger or acquisition. Similarly, a customer could easily become a supplier. Establishing SRM and CRM as business initiatives, as opposed to strictly supply management initiatives, means that the firm has imposed solid relationship management principles across the board and established itself as a solid proactive partner. The Big Picture Obviously, managing suppliers and managing customers will continue as long as there are supply chains that have both of these components. Will these formalized initiatives of SRM and CRM continue to receive attention? Some executives think that key points about the initiatives will remain, but perhaps with subtle changes in the terminology that signify the total business picture. For example, a term such as "partner relationship management" might be more apropos as it applies to the relationships upstream and downstream from the supply management organization. As merger and acquisition activity continues, one never knows when a supplier will also be a customer or vice versa. The idea of working with others, internal and external to the organization, is not new. However, the way "collaboration" has infiltrated today's business concepts on a formal level is definitely an emerging trend. Professionals are offered collaboration software, collaborative logistics, and collaborative initiatives, just to name a few. One recent study stated that, of executives whose biggest challenges are cost containment and business growth, 69 percent see collaborative work with customers, suppliers, and employees as the means to accomplish their goals. SRM and CRM fall into this category, as both are trying to create an experience or relationship that, through working together, yields benefits trying to create that "Yes!" experience. A universal commitment to managing the relationships throughout the business network means that an organization can capitalize and optimize at all points. SRM and CRM Technology to the Rescue It was just a few years ago that supplier relationship management (SRM) and customer

6 Article: Facing SRM and CRM Page 6 of 8 relationship management (CRM) technology products came on the scene. How do these hightech solutions fit into initiatives designed to bring people and organizations closer together? The following list is just a sampling of the features many SRM and CRM technology solutions claim to provide: Conduct spend analysis Streamline transactions Track inventories and material flow Evaluate supplier capabilities Manage customer database information Establish contract agreements Scrutinize business at the business process level Interface with other applications These features cover a wide spectrum and demonstrate how SRM and CRM products fill needs on three levels: information, process, and collaboration. Information. On this level, software can help by making information available and transmitting it in the most efficient manner. Examples include , document management, inventory information, tracking shipments, etc. Process. At this level, after evaluating business process, technology can be used to alter process, such as invoicing methods, making transactions easier for customers, and possibly eliminating administrative steps. Collaboration. At this level, technology can aid with design, engineering, and other collaborative efforts. One example of this is a make-to-order product. As customer preferences are identified, various organizations in the supply chain can collaborate to supply, create, and transport the materials or services necessary. As with many technology initiatives, it's important to remember that implementing the technology does not constitute a panacea. It is still the thought processes behind the software that yields results. Studying the Numbers With supplier relationship management (SRM) and customer relationship management (CRM) becoming formalized concepts, many consulting and research firms have begun to observe, dissect, and predict how these initiatives will impact organizations. Here are some key findings. From a May 2002 Accenture survey of over 100 Fortune 1000 executives: More than half (56 percent) of respondents said that CRM shortfalls could be attributed in part to inadequate support from top management. Executives felt that better data and customer insight obtained through CRM could increase sales by as much as 20 percent. From Gartner Group:

7 Article: Facing SRM and CRM Page 7 of 8 Only 5 percent of the Global 2000 had employed SRM technology tools, but that number will grow to 15 percent by From Braun Consulting: In 2002, forward-thinking firms will begin to focus on partner relationship management (PRM), a strategy to better serve end customers by leveraging a company's business partner network. In 2002, companies will return to the large application suites to provide a holistic CRM platform for their organizations, as well as integrate best-of-breed applications for specific functions that give them competitive advantage. YoUR Links Check out the Web sites below. These URLs provide additional information related to topics covered in this article. Institute for Supply Management Search "SRM" and "CRM" for articles and conference presentations on these topics. Braun Consulting Provides information technology consulting and research. Line56 Media Provides global news and analysis on e-business technology and strategy. A.T. Kearney This Web site provides books, thought leadership, and research on various business topics, including all aspects of supply management. To contact the author or sources mentioned in this article, please send an to author@ism.ws. Return to Top of Page ISM - P.O.Box Tempe, AZ / Fax: Comments/Questions? Copyright Institute for Supply Management; All Rights Reserved. Privacy Statement.

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