Relationships Do Affect Sourcing Decisions

Regardless of who is involved in the process of selecting a supplier, an impartial and fair process is what matters most.

The creation of robust relationships is an intrinsic element of conducting business in the supplier management field. To build strong alliances there must be a foundation of trust and respect. Preservation of supplier confidence and trust is strengthened through a sound sourcing process.

All potential suppliers must believe that they have a bona fide opportunity to win the bid, even if the incumbent has already established relationships inside the company. Complications can occur when procurement personnel have existing friendships with the suppliers involved in the sourcing event.

One of procurement’s primary roles is to establish decision criteria that achieve an equitable supplier selection process. A balanced decision process should determine which supplier relationship will have the best impact on the business.

Most companies have established conduct policies involving the ethical standards of supplier interaction that clearly delineate conflicts of interest. ISM’s first principle of supply management states that one must “avoid the intent and appearance of unethical or compromising practice in relationships, activities, and communications.” Even if you are the only person who knows of the potential for conflict, but you must take precautionary actions to avoid it.

Situations may arise in which a close friend of an employee works for a supplier participating in the bid. Several specific steps can help you remain impartial if your friend works for a supplier.

If you are a part of the sourcing event, it is essential to recuse yourself from the selection process. Additionally, the person leading the event needs to know about the relationship with your friend. Finally, if your friend asks you specifics about the bid, you need to state clearly how important it is to remain outside of the process entirely.

If your friend’s job is at stake, remaining unbiased can be extremely complicated. You may feel pressured to sustain your relationship by providing information about pricing or a chance for your friend’s company to re-bid. By trying to help your friend, you may actually jeopardize your own credibility, compromise your company’s ethical standards, and put your own position at risk. No matter how strong the temptation, the requirements of the business take precedence.

Because most companies run sourcing events regularly, managing an impartial process is essential to maintaining credibility with all of the prospective suppliers. Sourcing events involve several companies and individuals. The supplier selection process must transcend any single individual’s role. As Mr. Spock told Captain Kirk in Star Trek 2, “The needs of the many outweigh the needs of the few.”


Michael A Massetti is a high technology supply chain executive who has managed procurement, quality, supply chain planning, customer operations, distribution/logistics, operations engineering, and more.

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Show Me The Money! Get What You Deserve – Contract or Not

Supplier Remuneration – Sometimes You Just Have to Ask: Recouping Losses Due to Supplier Error Without Strong Contractual Protection

Warranty Handshake

This is a true story about a supplier issue that led to a massive field return issue – but actually improved the relationship. “Why is this an issue?” you might ask. Well, not all supplier relationships are governed by strong, broad-based agreements. Sometimes, without appropriate coverage or protection, especially in a sole-sourced situation, you just have to ask for a remedy and hope for the best.

How did we get to this point? 

The relationship between the supplier and us was solid. The companies worked together long before I arrived. For the most part, things were going well. However, the contract was not up to date and we were not properly protected from mishaps of the supplier.

We bought a specialized system from them to run part of our software. We installed these systems worldwide for our customers as a critical element of our overall solution. As with any purchasing environment, we tracked cost, quality, delivery, technology capability, and response to issues to judge performance. They performed very well.

Then, we discovered the issue.


The impact

It was not the type of problem that surfaced during the normal testing and evaluation. In fact, it was serendipitous that we found the issue at all. Once we discovered it, there was no turning back. Due to the nature of the problem, it was inevitable that at some point our customers would experience an unacceptable problem.

The cause of the problem was not the usual bad device or faulty manufacturing process or the rest of the list of hardware hiccups. The supplier had made a change in their manufacturing control system (MRP). During the translation from the old to the new system, the bill-of-material (BOM) got truncated and a number of components in the design never made it into the hardware. Despite that, all of the functional tests passed their processes and ours.

By the time we realized it, we were hundreds of systems, and a few million dollars, into shipments and field installations. Houston, we’ve got a problem.

We had to recall, replace, and repair the systems immediately – it was an “epidemic” situation. The challenge was that replacement had to occur first. We worked through those logistics to ship, replace, return, repair, and then re-ship. Fortunately, the systems were all very new and we could send repaired systems back out as new.


We began the dance to get the supplier to cover the recall and replacement costs. Back and forth between the procurement manager and the account executive at the supplier.

Of course, our CFO was breathing down my neck. “We never get compensated for anything from suppliers. How come we always bear the burden?” Mind you, the contractual situation was inherited.

Regardless, time to negotiate more intensely. I went back and forth with the account executive.

“Look, we did not cause this. In fact, we did nothing wrong. You shipped us bad stuff.”

“Yes, I know. But why should we pay for the overall recovery? We are not obligated. There’s no way our financial executives will allow me to commit anything. We will fix our mistake, but that is it.”

Time to escalate.

Money Handoff

In the end we got our compensation

The escalation call was scheduled. The account exec told me not to expect a miracle or anything different from the financial executive.

The Cliffs Notes version went as follows.

“We have a major recall and repair problem. We are thankful that you are fixing the problems quickly and expediting new material to accelerate the entire process. However, we are spending a couple hundred thousand dollars to execute the entire process. Our customers cannot wait, so we must move fast. The personnel and shipment costs are not cheap.

“Please accommodate us by paying at least half. Thank you.”

Within 15 minutes of the call, the account executive called me back.

“You won’t believe this! Your request was so compelling, honest, and candid that the financial person agreed to compensate you. Congratulations. I never thought this was possible.”

It was even more fun walking down the hall to tell our CFO that we got half of the money back. He was equally ecstatic.

The negotiations and escalation could have gotten heated and hurt the relationship. We could have threatened legal action or changing suppliers. Both of these courses would incur a lot of opportunity cost and wasted effort.

Instead, we just asked and they said “yes.”



Michael A Massetti is a supply chain executive who has managed procurement, quality, supply chain planning, operations engineering, and more. He’s also “gotten the money” when suppliers go awry.

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Don’t Be Afraid to Say “No!” to a Bad Contract

The Grass is NOT Always Greener on the Other Side of the Fence!


With the new operations and procurement organization in place, it was time to focus on improving the performance of the supply chain. Since we were a relatively small manufacturer, we maintained our contract manufacturing with one partner. The performance of this segment of the supply chain was not meeting expectations. At the surface, the answer appeared straight-forward – change suppliers. The new CEO and new Sr. VP of Operations were experienced with a larger partner from their past. For the procurement team, it was time to evaluate the options – supplier improvement and/or a new supplier.

We began the new supplier evaluation process. Candidate companies were researched, visits to their facilities were completed, and we reviewed initial RFI (Request for Information) responses to prepare for the next step. We selected two companies to execute a formal bid with in addition to our current partner. With the courting process now in full motion, a few months later we made the choice to select a new supplier and begin the negotiations dance. So far, all of the amazing attributes and features of their business models were in full bloom, just like the male peacock’s glorious tail.


Meanwhile, there was business to run, market share to attack, and profit to be achieved. Procurement was under-staffed, especially the resources dedicated to the largest and most critical supplier. After adding a very experienced out-sourced manufacturing ace to the team, it was time to drive measurable performance improvements. The four areas requiring focus were cost, inventory visibility, cost of poor quality (CoPQ), and delivery performance. The team set out to establish systematic improvement plans in each area – that’s what procurement does. With all of the warts and blemishes in full purview, we had to assess if we could dress our current dance partner up to the hilt.

With the prospective partner identified, we prepared to negotiate the contract. We had already negotiated myriad contracts during our professional life. We understood the ins and outs of negotiating, outlining critical goals for each partner, giving and taking on the hot clauses, and sending countless red-lined versions back and forth. It always seems to go this way: we tear through many of the clauses rapidly but get bogged down on the most intricate ones that have the largest financial risk.


Six months had passed since the contract negotiations commenced and we had not reached closure. It was looking dismal. There were a few very critical clauses that we could not even come close to agreement on – we put negotiations on hold twice during the process to ensure both companies were thinking things through thoroughly. We had come to a critical juncture in the potential relationship, not just the approval of the agreement. Despite many attempts to massage the wording to accommodate both parties’ concerns, we had reached a stalemate.

It was a difficult call to make, but it was time to go to the senior vice president and tell him we had to abandon the negotiations – we could not accept the financial risk that was being put on us compared to our current situation. During the six month period of the negotiations, our existing partner’s performance had transformed markedly. The quality team had reduced the cost of quality excursions by 50%. Delivery performance climbed over our 95% objective. Inventory issues had virtually disappeared. And, cost reductions were reaching all-time levels. Was there really a dire need to change suppliers anymore? In contrast to the courting phase when we observed all of the beauty of the new supplier and the warts of the existing one, we had a more complete view of both parties now.

Cancel Contract

In the end, we said “No!” and continued a successful and productive relationship with our existing partner. We sat down and hammered out a new agreement with them in less than two months. Business was progressing well. While it was a difficult decision to make, in the end, it was clear that the grass was not greener on the other side of the contract fence.


Michael Massetti is a high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously.

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So, you really enjoy being a supply chain professional? Part 4

Resolve to Reduce Your Risk with Resilience, Really!

 Risk Dice

Let’s face it, managing a global supply chain is a fascinating and pressure-filled profession. We learned a long time ago that chains are only as strong as their weakest link. If it weren’t for the myriad ways that your supply lines could be disrupted without a moment’s notice, we’d all sleep a lot better! Don’t you wonder sometimes how and why you got into this field?

This fourth article will look at the challenge that is managing risk – from systematic solutions to the unintentional roll of the dice we often take.


Chains are only as strong as their “weakest link.” Telecommunications has it right. Fault-tolerant networks rarely fail. Do you have a supply chain or supply network?

True, chains are only as strong as their weakest link. Why do we even call what we have a supply “chain?” Do we ever settle for a supply “chain” without understanding the risks to our business without some level of protection of a “network?”

Fault-tolerance is a concept that has been used in telecommunications, airplanes, and space missions for many years. Even the simple spare tire in your automobile is some degree of risk management and fault tolerance.

Procurement professionals ponder the merits of multiple source strategies from both a pricing and supply risk perspective. But there are times when a sole-source is the only practical path. In many electronic devices, there are sole-sourced parts that are critical to the function of that device – just consider “Intel Inside” of the PC market for years, with few viable options, if any. Can your supply chain tolerate that risk?

With a multiple source strategy, there are fewer individual disruptions that, when they occur, can affect your company’s supply. This is one degree of redundancy that provides some fault tolerance. Supply chain professionals need to look up and down their entire “chain” from raw material inputs to their suppliers, through all levels of manufacturing, warehousing, and global distribution to ensure the right level of end-to-end risk avoidance is in place.

As a long-time cyclist, I always carry at least two spare tubes, a patch kit, and plenty of CO2 cartridges to repair any possible flats during the ride!


Supply disruptions will always occur at the worst possible time to your most important customer on your least flexible product when you least expect it. Think Boy Scouts “Be Prepared!

Supply Network

The 18-month stretch from mid-2010 through the end of 2011 was “one for the ages” when it came to uncontrollable and “unknowable” global supply chain risks.

It began (not so) innocently with the eruption of the Eyjafjallajökull volcano in Iceland in 2010. So, what impact can a silly volcano in Iceland have on the global supply chain?

Well, quite a lot. Most European air shipment channels were shut down for a week or more. It was rough sledding for my company during that stretch as our sole-sourced critical supply node was in Germany. It took a few days, but we got trucks to head southeast and eventually get shipments. Thankfully, we had buffer inventory in place.

Not to be undone, the massively devastating earthquake followed by the deadly tsunami in Japan hit in early 2011. The damage to the automobile industry just before the summer selling season was significant for several months.

Later on, after supply resumed, who had actually thought about and prepared for the fallout from radiation due to the damage at the nuclear power plant and the need to have materials inspected for radioactivity?

Last, but not least, in late summer, the monsoon rains in Thailand created floods that eclipsed the 100-year benchmarks that most flood plains are based upon. This disrupted nearly 40% of the global hard disk drive market for months as many of the supply nodes were under water, literally.

One very interesting juxtaposition of supply chain efficiency, just-in-time inventory policies, and overall supply chain risk played out during the latter two events.

A concentration of suppliers for the two industries developed over time – automobile components in the northern part of Japan and hard disk drives in central Thailand. This looks great from a supply chain efficiency angle as transit times between steps in the process are reduced, inventories can be kept leaner, and a pool of talent is developed (no pun intended).

However, the impact of the uncontrollable and unknowable was dramatic. An efficient supply chain on one day and a dramatic impact to global supply on the next. Both industries have done some major upgrades in their overall practices to reduce the potential impact in the future.

How lean is too lean when it comes to supply chain risk reduction and overall resilience? Are you prepared?

Don’t be an ostrich. Just because you can’t see it doesn’t mean it won’t affect you!


Visibility is an essential element in risk planning and avoidance. Even events or risks that can be considered “unknowable” (like the exact timing of a devastating natural disaster) can be modeled and that intelligence deployed to your supply chain’s risk resilience assessment.

Sometimes, even internal practices that are very visible, when left alone, can open the door for a catastrophic impact due to an untimely event.

I’ve experienced some very skewed end-of-quarter delivery profiles in my career – very high risk when it comes to disruption susceptibility.

More than once we were faced with major typhoons running around Southeast Asia during the last week of our quarter. Timing-wise, we had to have all shipments out of the region by the end of the day on Friday in the US to have any real chance of revenue attainment for the quarter, which ended on Saturday at noon in the US (midnight in eastern continental Asia).

While I have no disastrous results to share, it did wake us up and probably had more of an impact to affecting the linearity in our quarterly shipments than any whining our supply chain and logistics group could muster. Even the CEO brought the topic up during the next end-of-quarter review.


Inflection points are only visible in the rear view mirror.

You don’t know until you know and then you know. Especially when it comes to a change in the curve – an inflection point in the trends.

InflectionPointEven with all the big data stories and the tremendous growth of analytics in supply chain, sometimes things change and you don’t know it until you know it.

The resilience of the supply chain depends considerably on the ability to detect and respond (react) to an inflection point. The strategies put in place to protect business are called into action when the need arises. The better prepared and more agile your supply chain is, the less the damage.

Written off as a fad in 2010 when Apple introduced the first iPad, two years later, the entire PC industry was reeling from the damage. The lack of serious attention given to that inflection in the personal device or computing market hit PC manufacturers and the rest of their supply chain very hard.

Further, the entire software model was disrupted. While “apps” had debuted with the iPhone (even the iPod Touch) a few years earlier, the entire software industry was impacted. Did anyone prepare for the impact of Angry Birds?

In the end, it’s all about preparation and detailed analysis of your entire supply network risk to determine whether or not you can weather the storm.

As the Boy Scouts of America have said for years, “Be Prepared!”



Michael Massetti is an executive who really does enjoy being a supply chain professional! Lucent Technologies once took a risk on Michael and he’s been in supply chain ever since. Thanks to my former colleagues and partners in supply chain crime Joe Carson and Chris Armbruster for their ideas.

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So, you really enjoy being a supply chain professional? Part 3

Supplier Management – Isn’t It Fun to Manage Suppliers?

Let’s face it supply chain is a fascinating and pressure-filled field. As we discussed in part 2, without demand there is no need for supply. Similarly, without supply, there’s no need for suppliers. If it weren’t for all the trials and tribulations of working with suppliers, procurement professionals would lead such a boring life. Don’t you wonder sometimes how and why you got into this field?

This third article will look at the fun that is managing and working with suppliers – from the transactional vendors all the way up through strategic partners. Future story lines will include inventory, supply chain risk, logistics, and managing numbers.

Suppliers who insist on telling you how strategic they are, aren’t.

Supplier Management Pyramid

As buying evolved to purchasing, which then evolved to procurement which further evolved to sourcing, the organizational concept expanded accordingly. The tactics of buying grew into the discipline of managing supply and suppliers.

The development of supplier relationship management accompanied the stratification of the supply base into a number of different hierarchal models. The most tactical suppliers are fundamentally transactional and have the lowest level of relationship management. This highest are the most strategic with the largest and most critical spend allocation and the deepest relationships. There are way more suppliers at the base than at the top.

Then why does it seem that the suppliers who are lower in your spending hierarchy insist on declaring themselves strategic to the procurement team? Based on non-scientific surveys of suppliers who evaluate themselves as “strategic” the triangle above would be inverted with hardly any in the lowest tier!

The question really is “who’s strategic to whom?”

A cornerstone of any supplier management program is transparency between both sides of the relationship. If your suppliers are not intimately aware of their status, the program might need some work.

Regardless, this does not guarantee that the supplier will not continue to view the relationship as strategic to them … it just may not be strategic to you.


If you or your suppliers consistently refer to “the contract… the relationship definitely needs some work.

Contract Icon

Anyone who has ever negotiated a long or difficult contract has experienced the absolute relief and joy when the agreement is signed and filed. Have you had this thought before? “I just hope that my tenure with this supplier expires before the agreement!”

Regardless, contracts are necessary (evils). Many companies require formal purchasing or supply agreements for specific spending thresholds. They are the foundation for managing the relationship, executing business, and dealing with exceptions – especially the unforeseen.

Nonetheless, the most hair-raising and deflating words that a purchasing professional can hear during the normal course of business is, “But, that’s not what the agreement says …” It gets even worse when similar comments permeate the daily conversations. Been there. It’s not fun.

Believe me, agreements are one facet of the total relationship. However, if you hear about the contract repeatedly, the relationship is dysfunctional. Fix it!

“If you had told me it was a competitive bid, I’d have come in with a lower price.

Dilbert Bid Lie

I’m sure we’ve all heard the cliché: the three most important things in purchasing are price, price, and price. A lower price, for sure.

RFI. RFP. RFQ. Auctions. E-Procurement. D&B. Altman Z-score.

There are myriad methods available to sourcing pros to evaluate and eventually select suppliers. Of course, the criteria include price, capability, capacity, relationship, number of sources, and more. No matter what, it’s always difficult to avoid price … or should we say PRICE?!

And, there’s nothing more upsetting during a bid process to have suppliers try to game you. Isn’t it frustrating to have to go back to a supplier, especially one you are already working with, and they tell you that they didn’t realize that price was important? Down right maddening!

Really? You didn’t know that your best bid was required? Makes you wonder. Cross that one off the list.



Michael Massetti is a high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously. Thanks to my former colleague and partner in supply chain crime Alex Brown for his ideas.

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So, you really enjoy being a supply chain professional?

Let’s face it, supply chain is a fascinating and pressure-filled field. Supply chains exist to deliver goods and services to customers to allow their company to make money. Albeit, they are last on line, which means that all the fun begins and ends when supply enters the fray. It’s a great profession that spans myriad disciplines – procurement, manufacturing, supply/demand planning, logistics, and much more. There’s excitement in every corner waiting for you! Don’t you wonder sometimes how and why you got into this field?

Through a series of articles and musings, I will shed some thoughts through adages, quips, and comics that will look at supply chain with a tongue-in-cheek perspective. I look forward to comments and other perspectives.

This first article will look at supply chain itself. Future story lines will include supply and demand, supplier management, inventory, supply chain risk, logistics, and managing numbers


No matter how the problem starts, it always ends up as a supply issue.


Remember the game we used to play as kids where we’d all line up and the leader would tell the first person something who in turn would tell the next person in line until it reached you at the end? How many times did the message you heard ever survive that journey?

Managing the supply chain is quite similar. No matter how or why a problem starts off, a demand error, a design error, a change in customer’s mind, an unforeseen holiday, a weather event, or a quality issue, it always becomes the job of the supply chain to deal with. Immediately.

I’ve lived through this type of hell before during a launch of a brand new product in a brand new technology that was a disaster. The company and customers were clamoring to get this highly innovative, disruptive device. It turned into 17 weeks of stress and being under a very bright and hot spotlight trying to get enough supply to meet the demand.The demand seemed to grow every day we said the supply was still in trouble. I saw my CEO, CFO and CSO more times in 17 weeks than all of the previous years in my career. Ugh.

It takes some backbone and a lot of mental fortitude to resolve issues, especially those that affect multiple customers, which means YOUR bottom line. Owning the issue, maintaining accountability, but working with a sense of urgency across all the organizations needed to fix the issue is essential for success.

You never know when the opportunity (right!) will prevent itself to the supply chain to deal with. Hold on tightly or you’ll be taken for a ride instead of driving it yourself.


Supply Chain people are only popular during their highest state of unpopularity.

How many times have you gotten that blank stare when you tell an inquirer that you are in supply chain as a field? Huh? And then you try to explain it. Not worth it. They just won’t get it.

Most of the time, that’s how everyone in the business world feels and thinks about supply chain. Who? What? Oh, those guys.

Until it hits the fan. And, it always seems to hit the fan. Suddenly, without notice, you are amazingly popular. Instantaneous infamy. What a pleasure!

Then all the help starts to come. Everyone’s an expert. “That is an easy problem to solve, just tell the supplier to fix it.” “How come you didn’t anticipate that the typhoon would hit when the shipments were due?” “Just expedite the manufacturing.” When you try to explain the few laws of physics that come to mind, that “deer in the headlights” look resurfaces. “Tomorrow?” they ask. Back to work, time to move on.

The redeeming value is that we get to be heroes. Hopefully, we weren’t the arsonists. Putting out a blazing fire is exhilarating but not what we aim to do on a daily basis. That is way too exhausting.

Once the problem is cleared, normalcy returns to the supply chain folks. Who?

build it and they will come

In “The Field of Dreams Kevin Costner was told “build it and they will come. In supply chain and manufacturing, if we build it they will order something different.

In the next article we’ll talk more about supply, demand, and the elusive balance of the two.

For now, we all know the supply chain financial drill. Drive to lower cost of manufacturing, increase asset utilization, improve cash flow, and the world will be great. Sufficient inventory to handle upside demand. The CFO will smile and the supply chain team can remain out of the limelight.

Right …

The build plan was vetted with marketing, with the business unit, with sales, with everyone during S&OP. Manufacturing is told to get the inventory in place – lead times are real, so you have to build in advance. Then the orders come in.

“I know we ordered that SKU but we need the other SKU now. How come you can’t give us the other SKU instead?” We hear it all the time. Other times you blow through all of the buffer inventory, expedite the new parts to replace the stock, and the order changes again.

Chasing demand is the never-ending story of supply chain. How much do you need? By when? OK, we’re on it.


Michael Massetti is a global high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously.

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What does your supplier relationship management program look like?

Supplier Management Picture

How To Differentiate Between Your Suppliers With SRM

Supplier Relationship Management – SRM

Democratic institutions around the world promote the core doctrine that all people are created equally. This is clearly not the case in the world of supplier management. All suppliers are not created equally and they should all be managed with this distinction in mind.

This article will look at a model for stratifying and segmenting your supply base within the confines of a structured and formal supplier relationship program (SRP).

Basic Construct

The development of supplier relationship management (SRM) accompanied the stratification of the supply base into a number of different hierarchical models. The most tactical suppliers are fundamentally transactional and have the lowest level of relationship management. This highest level is for those that are the most strategic with the largest and most critical spend allocation and the deepest relationships. There are considerably more suppliers at the base than at the top.

For this SRP discussion, we’ll use the following three-tiered model. Supplier management organizations can add levels above “strategic” in this construct for situations where specific partnerships or alliances exist. In some cases, purely transactional suppliers in regional or out-sourced models may be placed below the level of “approved” in this model.

  1. Strategic
  2. Preferred
  3. Approved

The following establishes some essential differences between each level of supplier.


•      Long term relationship & business commitment

•      Formal supply agreement/contract in place

•      Value-based interdependency

•      Strong executive-level engagement

•      Cooperative strategic planning

•      Detailed business reviews


•      On-going supplier-customer relationship

•      Formal supply agreement/contract in place

•      Steady supplier management & sales relationship

•      Some executive relationships

•      Regular business reviews


•      Transactional buy-sell relationship

•      Part of category approved supplier list (ASL)

•      Formal supply agreement/contract optional

Supplier Relationship Program (SRP)

Supplier Management Pyramid

Supplier relationship management is a process for developing and managing collaborative relationships with suppliers at all levels to achieve the required business objectives and overall supply chain strategy. SRP allows the supply team to determine the criteria for establishing the appropriate relationship levels needed to drive supplier engagement.

The process should be managed across the enterprise consistently to ensure alignment with all corporate and supply chain objectives. An annual process of planning, evaluation, and feedback is recommended to adjust for changes in business conditions, supplier performance/capability, new suppliers, and more.
It is critical that this type of program be aligned across the entire corporate enterprise to present a single face to the suppliers. Additionally, including product development, finance, marketing, and other key organizations helps guarantee the success of the program and integration of all activities in the company. Successful supplier programs depend on cross-functional integration and alignment.

All Aboard!

In any SRP approach, there are multiple levels of management engaged in the process. All levels of the organization must be involved, from the procurement person responsible for the supplier up through the CEO, depending on the value of the supplier. Further, multiple organizations will touch and interact with various peer organizations at the supplier.

Thomas A. Stewart described a classical single focal point model and contrasted it to a more enlightened multi-point model for relationships between a supplier and a customer in his book “Intellectual Capital.” The classical model is called a “Bow-Tie Model” as the engagements between the sales and procurement representatives always go through them – a single control point structure that resembles a bow-tie. The newer model is called the “Diamond Model” and more accurately reflects the reality of multi-touch and multi-functional interactions with suppliers.

SRP Diamond Model

To be successful, the SRP must include all of the key organizations in the planning, selection, review, and decision-making processes. The sourcing or procurement function will own the relationship and manage the overall process. Without the engagement across the enterprise, the supplier may get mixed messages from different organizational agendas.


SRP incorporates multiple levels of communications with the supplier throughout the year. Tactical communications include daily interactions and updates on supply. Weekly and/or monthly communications address demand, purchase orders, inventory levels, deliveries, quality, and more. Of course, issue management is critical and will involve all critical parties until resolution. Many organizations have developed web-based portals or use other cloud-based services to tie the supplier and buyer together.

Structured meetings for review of the relationship, performance, and progress are another integral part of a successful SRP. These meetings will look at all aspects of the engagement with less focus on tactical issues and more attention to the long-term. The procurement team needs to include all of the essential organizations for each review, per the model above. Successful SRM relies on cross-functional engagement and alignment.

Regular, formal business reviews (whether monthly or quarterly) include all aspects of the procurement scorecard to ensure the supplier is performing up to the required and agreed-to levels. Typical metrics will include on-time delivery, cost savings/reductions, quality performance, innovation contributions, and more. Higher-level management from both sides of the relationship should attend.

The more strategic the supplier is, the more important it is for executive management to participate. Of course, the most strategic suppliers may have senior executive involvement and commitment up to the CEO level. Many companies include annual supplier events to roll out strategic plans, recognize top suppliers, and share the direction of the company/supply chain. Some companies run quarterly all key supplier meetings where they present updates about the business, product strategy, and other subjects. This allows one single message to be sent more efficiently than covering the material one supplier at a time.

Many organizations have multiple locations and manufacturing sites associated with their business. In addition to the meetings that take place at procurement’s location, supplier engagement at higher levels is important for the rest of the corporate footprint. Structured meetings with engineering, manufacturing, marketing, and other groups that are spread out around the world are important to the overall communications hierarchy.

Executive commitment to the process is critical to its success. Managing the relationship at higher levels requires an appropriate investment in time from senior executives. The more strategic the supplier, the more imperative it is that executives from the buying side invest time and effort into the relationship. Suppliers need to understand how important they are to the business all the time, not just when a crisis occurs. Senior management’s full commitment to the process demonstrates that.

One cornerstone of any SRP is transparency from both sides of the relationship. If your suppliers are not intimately aware of their status in your hierarchy, the program needs work. You do not want a supplier to believe they are more important to you than how they are classified in your SRP hierarchy.


Relationship Investment 

SRP requires investments by both the supplier and customer to be effective. There are many ways to describe the attributes of a success engagement. Suppliers will achieve different levels of investment depending on where they sit in the hierarchy – strategic or preferred or approved.

The first attribute is access to technology, knowledge, and capability. The supplier ensures executive engagement in critical functions, active participation in business reviews, and early access to product development roadmaps. In return, the receiving organization provides access to key decision makers across the enterprise and feedback to the supplier for wins and losses of competitive bids.

Second is the commitment to world-class quality and execution. The supplier must consistently achieve quality levels agreed to with procurement. Appropriate quality standards must be realized and adhered to as they evolve. Immediate attention to any excursions by the supplier is vital. If the supplier performs to expectations, or better, they will improve or maintain their SRP rating.

The third area of importance is the speed and agility of the supplier. They must deliver or realize that the competition may very well beat them out. Delivery performance relies upon typical supply chain tools – buffer stock, supplier-managed inventory (SMI or VMI), just-in-time (JIT) delivery, lead-time improvement projects, improved forecasts, etc. Additionally, new product introduction (NPI) must be prioritized by the supplier to enable the customer to meet its market requirements. In return, the customer provides early engagement in the design process. Finally, the procurement team will participate closely with the supplier in collaborative planning and forecasting to support agility.

Cost is next on the list. In the world of never-ending cost reduction expectations, the supplier-customer relationship must deal with this directly. There needs to be an intimate understanding of the cost needs and drivers on both sides. The supplier must demonstrate commitment to on-going cost reduction and engage closely with the procurement and engineering teams to identify ways to lower costs, not just reduce prices. Procurement must clarify long-term cost requirements clearly. Active engagement by both parties in cost reduction workshops and planning sessions helps to manifest the mutual investment. Procurement will allocate more spend to a supplier who, all else equal, helps drive cost down.

Finally, the more important the supplier is, the more resources must be visible to the procurement and other teams at the customer. Suppliers must share their technology and operational roadmaps to gain alignment. The customer design teams require access to technical expertise from the supplier to achieve their goals. The supplier who does this best will gain access to early product design requirements and closer engagement with the design team itself. Innovation is required to drive long-term success of both parties. The supplier has to strive to be a market leader to remain atop the SRM hierarchy.

The table below summarizes these investment attributes.

SRP Investments 

Pulling It All Together

Supplier relationship management is a core process for a successful procurement or supply chain organization. We’ve touched on a number of essential elements of SRM and SRP in this article. The table below highlights a more comprehensive view of supplier relationship programs across many of the dimensions discussed above. It also highlights the differentiation across the three levels of SRP hierarchy in our model – Strategic, Preferred, and Approved.

SRP Attributes


Effective supplier relationship management is an important element of a successful procurement program. The concepts highlighted here can be expanded or reduced to fit any company’s supply management objectives. Once you decide on the scope and complexity of the program appropriate to manage your supply base, then you must drive integration of the process across your organization and with the suppliers.

Suppliers should know where they stand in the SRP hierarchy, why, and how to improve. Similarly, the supplier needs to communicate to procurement where they stand in the supplier’s customer relationship hierarchy. Clarity in how the process works, the roles of each party, defining success, and commitment to make the process work are the key components of the SRP foundation. Without these, SRP will not deliver the expected results.


Michael Massetti is a global high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously. Thanks to the editorial feedback from Antonio Braga, Alex Brown, Joe Carson, John Fredette, and Richard Porcaro.

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