At first, Irish bank AIB looked to SRM to improve compliance in this highly regulated industry. Soon it found innovation to be an added benefit of better relationships with suppliers. But it also discovered attention to people and training was essential to achieving both goals.

Like people, companies often need to feel right about a relationship to take it to the next level. So, when a supplier finds a customer relationship hard work, they are hardly likely to bring their best or newest ideas to the table. Yet a systematic approach to SRM can shed light on the problem, as Allied Irish Bank (AIB) was keen to discover. 

AIB commands leading market shares in banking products in the Republic of Ireland, with operations in the UK and US. Its group chief procurement officer, Philip Thomas tells State of Flux: “If we are going to develop in a relationship, then being an easy customer to work with is important. To stay ahead of the market we need suppliers to discuss new ideas, new technology and work jointly with us on new projects and initiatives early in their development."

Easing regulatory compliance

But innovation was not the primary reason that AIB wanted to create consistency in the way it managed its supplier relationships. The banking sector has always been highly regulated, more so since the financial crisis, and some of the rules require an assessment of suppliers’ performance.

We were doing SRM across the organisation but, as we discovered, it was not being done in a systematic or consistent way,” says Thomas.

In 2014, AIB began to create a framework, setting out how to measure supplier performance and relationships across the organisation. It engaged State of Flux to review and implement this framework. As a result, the bank created a scorecard for each supplier that supported a governance process, facilitating the reporting of supplier performance to the bank’s board.

The system has helped AIB to comply with European Banking Authority rules and GL44, which sets out internal governance processes for managing outsourcing providers.

“SRM put us in a good position, because we now have a consistent approach to how we govern our suppliers, and that gives our board assurance that we are in control,” Thomas says.

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Creating consistent performance measure

Beyond compliance, AIB wanted to create a consistent understanding of its relationship with suppliers across the organisation. State of Flux helped to segment all its suppliers, not just based on the value of trade with them, but against the bank’s ‘5C model’, a set of criteria that includes criticality to the business, customer impact, control, culture, cost and capability.

“We wanted to look at suppliers along a number of dimensions. It helps you to measure what each supplier means to the bank, regardless of whether they are an IT company or a catering supplier,” explains Thomas.

AIB’s strategic sourcing team collected data from around the business and discussed it with stakeholders to measure suppliers against the 5C model. The next step in the bank’s SRM journey is to begin raising awareness of the new SRM process across the organisation and to deliver training, from executive level down. This was scheduled to begin in the third quarter of 2016 and will see AIB roll out State of Flux’s SupplierBase technology across the organisation to record and manage supplier performance.

There was an element of reluctance to change how we conducted our reporting, but when it was explained that it is consistent across the business and goes directly to board level, it was accepted. Where possible, we also tried to adapt processes that already existed, pulling them together in a consistent manner,” says Thomas.

Defining the supplier relationship

AIB will decide what kind of relationship it should have with a particular supplier and will apply that relationship in the same way throughout the organisation… “otherwise, it could get fragmented with some people thinking we are strategic partners with a supplier, while others see it as a transactional relationship. It is about speaking with one voice, being consistent when dealing with suppliers, to ensure they do not get mixed messages when dealing with us,” Thomas says.

With the benefit of hindsight, the strategic sourcing team learned that communication and training, detailing the new approach to SRM, could have included more people and been set in place earlier.

Thomas explains: “We had working groups and we had steering committees, but we could have been broader in our approach. SRM means lots of different things to different people. Sometimes it is focused only on the performance of a particular supplier: it is uni-directional, but you need to understand your importance to them and how they look at you.”

AIB’s suppliers also see AIB in different ways depending on where they are in the world. In Ireland, it is a pillar bank that commands a significant portion of the market. It is very influential, exercising considerable buying power and leverage, but it is a different story when dealing with suppliers that operate on a global basis.

Laying the groundwork for innovation

“With consistent management of supplier relationships, AIB is hoping to utilise its position in the home market to extract innovation from global providers”, says Thomas. “One of the benefits of being so big in a relatively small market is it is quite self-contained. We can be early adopters for suppliers, where we can measure the impact, while at the same time suppliers have the opportunity to trial new products and services in a contained manner,” he says.

“The extent to which the bank can extract innovation from these suppliers will be predicated by how they view AIB as a client. The stronger the relationship and the easier we are to do business with, the more likely the bank is to be offered innovative solutions and services.

 “Innovation can become mechanical, as if it’s something the supplier has to tick off a list, whereas if you have a good relationship with that supplier, they innovate because they want to, which means you get a lot more out of it. Most global suppliers are looking for an area to pilot and trial new ideas. If you make life easier for them, guess who comes first? They know you will try new things, work with them and offer feedback.”

What began as a project to make compliance with banking regulation easier to manage, is now growing into a system for extracting more innovation from the supply base. There’s no doubt that strategic sourcing professionals with an interest in SRM will be watching AIB’s progress with interest.

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