Supplier Relationship Management (SRM) is all the rage and for a good reason. Far too many “strategic” contracts have been developed (especially outsourcing contracts) that do not include sound SRM practices.

It’s good to see that virtually all of the major advisory firms are now incorporating solid governance frameworks into their contracts. Software companies are also making inroads, such as Old St Labs and SirionLabs

A good relationship management structure creates joint policies that emphasize the importance of building collaborative working relationships, attitudes and behaviors. The parties monitor the agreement within the framework of a flexible governance structure that provides top-to-bottom and peer-to-peer insights into what is happening, including risks. The more strategic the relationship, the more formal the SRM efforts should be.

The Vested Outsourcing Manual advocates for the creation of a tiered management structure with peer-to-peer alignment.

A tiered management structure is a fairly easy concept to grasp and virtually all SRM methods advise the use of a tiered structure. The tiered framework commonly involves three levels and helps the parties to attain vertical alignment:

• Executive level, which provides an overall sponsorship vision and goals for the buyer-supplier relationship. The executive level also makes decisions related to escalated issues. (Usually meets quarterly, but no less than annually)
• Management level, which provides direction on service delivery, monitors service quality and the progress of the outsourcing relationship, scope of work and innovation priorities. (Usually meets monthly – but no less than quarterly)
• Operational Level, which oversees the day-to-day operations at each location at the peer-to-peer level. (Usually meets weekly, but can meet daily based on the nature of the work)

Equally important to having tiers, is to make sure your governance structure has horizontal—or peer to peer—alignment. This is done by establishing “two-in-a- box” communications protocols. This concept is often referred to as “two-in-a- box” because two-in-a-box peers at the company and the supplier are accountable for success, together. It is also often depicted as a “reverse bow tie” because communications exchanges are designed to be direct in nature, allowing box mates to work in a more collaborative and streamlined manner.

 

Creating Horizontal Alignment

     

A properly implemented two-in-a-box approach creates an environment for highly collaborative interaction. It improves the flow of information in a timely fashion. Problems, and ideas for improvement, are vetted together with your box mate. And when box mates don’t see eye to eye, they should escalate together to the next tier in the governance structure in a timely manner. In this setup, the best organizations adopt a “no blame” mindset and encourage a quick resolution and timely escalation if needed.

For those who are beginning to implement SRM practices, note that it’s not necessarily thinking outside the box that matters, but rather communicating and aligning collaboratively with your box mate!

Image: two by Michael via Flickr CC