Procter & Gamble

The world’s biggest maker of household and personal care products began working on Supplier Relationship Management (SRM) in the mid-1990s and turned it into a formal programme in 2003. 

For the past five years, responsibility for developing tools and best practices, ensuring their consistent application across P&G’s global operations and training its employees has fallen to Mary Wagner, a purchasing director currently based in Guangzhou, China. We talked to her about the company’s experiences.
 

What is P&G’s approach to SRM and how has it evolved over time?

We have definitely learned and evolved this skill over time, but fundamentally SRM has always been designed to deliver sustained business results and grow and strengthen our most critical supplier relationships. Our focus is on having a solid methodology that can be applied in full or in part, depending on the complexity, size and magnitude of this relationship. For our most critical relationships, we likely have an aligned SRM strategy, a top-to-top relationship, clearly defined joint action plans, scorecards, and regular performance evaluations.
 
When I picked up responsibility as the global SRM skill owner, we taught the skill based on theory and documentation of best practices. The most common question I received was, “OK, I get it, but what do I do with it?”. This led to shifting to a more systemic, pragmatic approach, with a common methodology focused on several core levels of activity and tools that buyers can apply to better understand or analyse a key relationship.
 

How do you put this methodology into practice? Do you have dedicated relationship managers or is it part of purchasing managers’ jobs?

P&G Purchases has a comprehensive training programme aimed at developing and growing a broad set of technical and business skills. SRM is one of the core skills that our buyers are expected to develop and practise. Owners of key relationships are responsible for:
 
  • Developing a deep understanding of their suppliers;
  • Connecting with internal clients/business partners to penetrate and align on key opportunities
  • Developing SRM strategies
  • Nurturing the overall relationship
  • Facilitating key top-to-top relationships
  • Managing business and personnel changes
  • Managing the annual evaluation and recognition process
  • Delivering results that improve P&G’s competitive position
We do have people at different levels owning different types of relationships – more experienced managers, for example, typically own complex, global supplier relationships across multiple spend pools [P&G’s term for spend categories]. P&G also values owning the relationship 'end-to-end', from idea generation, through the negotiation of the deal, to the management of the long-term relationship. Unlike some companies that may separate these responsibilities, we feel that it is in the best interests of both parties to manage the relationship holistically in order to best set it up for success.
 

What do you see as the core skills you need to manage supplier relationships?

Successfully managing supplier relationships takes great listening and communication skills, strong strategic thinking and analytical skills, leadership and influencing skills, and even project management skills. It takes time to build a productive relationship with a supplier, but you must quickly understand their business needs, key leaders, key influencers (not always those with the biggest titles), key decision-makers, their key connection points, and how things work. The better you understand a company, the more likely you can successfully manage and grow the relationship.
 

To what extent is your SRM activity focused on innovation and growth, as opposed to traditional purchasing metrics such as cost reduction?

We expect P&G Purchases people to manage supplier relationships to deliver cost reduction and innovation and growth. There is pressure to be smarter and more productive with how we spend the company’s money, but there are also clear expectations that our third-party supplier and agency relationships will deliver new product or marketing ideas to help us grow our business. We bring value to P&G’s business – sometimes that value comes in the form of reduced cost but often it is in the form of new ideas.
 

How is SRM aligned with P&G’s much-publicised Connect and Develop programme for external innovation?

The Connect and Develop programme is a way of bringing in ideas and innovation from resources outside P&G. We would certainly apply SRM methodologies when this work involves new or existing suppliers as appropriate.
 

The complaint you hear from suppliers is that their ideas go into a 'black hole' and aren’t dealt with. How do you avoid that?

We work hard to ensure that supplier and agency ideas are vetted and reviewed for viability. There are certainly times when it is hard to get traction on an idea because it has not been presented to the right person or group at the right time, or the idea is just not commercially viable. P&G has a process of vetting ideas and, thankfully, we have a good track record of supplier involvement in our ideas and innovation pipeline.
 

In our survey, Rick Hughes [P&G’s CPO] noted that cross-functional co-operation and changing mindsets about the role of suppliers were still internal challenges. Do you see those in your daily work?

Yes, absolutely. Bottom line, P&G is structured around business units and, like any company, different functions are typically rewarded for different deliverables. Our spend pool structure leverages P&G’s scale by cutting across business units, but with such a large global company it is sometimes difficult to meet everyone’s needs equally. We believe our SRM methodology helps to manage these internal challenges effectively by focusing on key alignment tools – input and concurrence to strategies, joint action planning, etc.
 

What are the key lessons you’ve learned from your SRM experiences?

I would break my learnings into four key areas:
 
  1. The importance of having a long-term strategy. Having that long-term view ensures that a relationship can thrive through the inevitable short-term challenges.
  2. The value of top-to-top relationships, which can elevate the relationship beyond the day to day and ensure things are on track.
  3. While Purchases may manage the overall relationship, having multi-functional involvement in key supplier relationships is vital.
  4. Clear expectations and communication. You need to be clear what you are holding suppliers accountable to deliver. Our business needs are changing all the time and we need to make sure we are managing relationships and setting expectations in a way that allows suppliers to evolve and adapt.

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