SRM systems connect an organisation’s ERP system to its suppliers and refers to all activities involved with obtaining items from a supplier, which includes procurement, but also inbound logistics such as transportation, goods-in and warehousing before the item is used. Procurement is an important aspect of SRM as the cost of materials can represent a substantial amount of the total cost of a product or service. The use of process technology such as flexible manufacturing systems (FMS) (see later in this chapter) has meant a reduction in labour costs and thus a further increase in the relative cost of materials associated with a manufactured product. This means that the control of material costs becomes a major focus in the control of overall manufacturing costs for a product. A further issue that has increased the importance of procurement is that the efficient use of automated systems requires a high quality and reliable source of materials to be available. This is also the case with the adoption of production planning systems such as JIT which require the delivery of materials of perfect quality, at the right time and the right quantity.
Another aspect of supplier relationship management is the choice of supplier, but before choosing a supplier, the organisation must decide whether it is feasible and desirable to produce the good or service in-house. Buyers in purchasing departments will regularly perform a make-or-buy analysis to determine the source of supply. Often goods can be sourced internally at a lower cost, with higher quality or faster delivery than from a supplier. On the other hand suppliers who focus on delivering a good or service can specialise their expertise and resources and thus provide better performance. Strategic issues may also need to be considered when contemplating the outsourcing of supplies. For instance internal skills required to offer a distinctive competence may be lost if certain activities are outsourced. It may also mean that distinctive competencies can be offered to competitors by the supplier. If a decision is made to use an external supplier, the next decision relates to the choice of that supplier. Criteria for choosing suppliers for quotation and approval include price, quality and delivery performance.
SRM also encompasses the area of warehousing. When producing a tangible item it is possible to provide a buffer between supply and demand by holding a stock of the item. Many organisations have specific locations to hold this stock, termed a warehouse or distribution centre. Most warehouses are used to hold a stock of incoming raw materials used in production or hold finished goods ready for distribution to customers. Warehouses are also used to store work-in-progress items or spares for equipment. Because of the need to process goods and services through the supply chain as quickly as possible to serve customer demand, warehouses are not simply seen as long-term storage areas for goods, but provide a useful staging post for activities such as sorting, consolidating and packing goods for distribution along the supply chain. One of the major issues in warehouse management is the level of decentralisation and thus the number and size of the warehouses required in inventory distribution. Decentralised facilities offer a service closer to the customer and thus should provide a better service level in terms of knowledge of customer needs and speed of service. Centralisation, however, offers the potential for less handling of goods between service points, lower control costs and lower overall inventory levels due to lower overall stock levels being required.
SRM can achieve significant savings and other benefits which directly impact the customer including faster purchase cycle times leading to a need for less material in inventory and less staff time spent in searching and ordering products and reconciling deliveries with invoices. Savings also occur through automated validation of pre-approved spending budgets for individuals or departments, leading to fewer people processing each order, and in less time. SRM also enables greater flexibility in ordering goods from different suppliers according to best value. A major benefit of SRM is the integration of the many information systems that are used to cover different parts of the SRM process. Perhaps the major barrier to the use of SRM is in the difficulty of linking systems with suppliers whose systems may be incompatible or non-existent. It may be that small firms may find themselves increasingly excluded by buyers due to their lack of investment in the required information technology infrastructure.
Another aspect of supplier relationship management is the choice of supplier, but before choosing a supplier, the organisation must decide whether it is feasible and desirable to produce the good or service in-house. Buyers in purchasing departments will regularly perform a make-or-buy analysis to determine the source of supply. Often goods can be sourced internally at a lower cost, with higher quality or faster delivery than from a supplier. On the other hand suppliers who focus on delivering a good or service can specialise their expertise and resources and thus provide better performance. Strategic issues may also need to be considered when contemplating the outsourcing of supplies. For instance internal skills required to offer a distinctive competence may be lost if certain activities are outsourced. It may also mean that distinctive competencies can be offered to competitors by the supplier. If a decision is made to use an external supplier, the next decision relates to the choice of that supplier. Criteria for choosing suppliers for quotation and approval include price, quality and delivery performance.
SRM also encompasses the area of warehousing. When producing a tangible item it is possible to provide a buffer between supply and demand by holding a stock of the item. Many organisations have specific locations to hold this stock, termed a warehouse or distribution centre. Most warehouses are used to hold a stock of incoming raw materials used in production or hold finished goods ready for distribution to customers. Warehouses are also used to store work-in-progress items or spares for equipment. Because of the need to process goods and services through the supply chain as quickly as possible to serve customer demand, warehouses are not simply seen as long-term storage areas for goods, but provide a useful staging post for activities such as sorting, consolidating and packing goods for distribution along the supply chain. One of the major issues in warehouse management is the level of decentralisation and thus the number and size of the warehouses required in inventory distribution. Decentralised facilities offer a service closer to the customer and thus should provide a better service level in terms of knowledge of customer needs and speed of service. Centralisation, however, offers the potential for less handling of goods between service points, lower control costs and lower overall inventory levels due to lower overall stock levels being required.
SRM can achieve significant savings and other benefits which directly impact the customer including faster purchase cycle times leading to a need for less material in inventory and less staff time spent in searching and ordering products and reconciling deliveries with invoices. Savings also occur through automated validation of pre-approved spending budgets for individuals or departments, leading to fewer people processing each order, and in less time. SRM also enables greater flexibility in ordering goods from different suppliers according to best value. A major benefit of SRM is the integration of the many information systems that are used to cover different parts of the SRM process. Perhaps the major barrier to the use of SRM is in the difficulty of linking systems with suppliers whose systems may be incompatible or non-existent. It may be that small firms may find themselves increasingly excluded by buyers due to their lack of investment in the required information technology infrastructure.
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