With energy prices at all-time highs and commodity markets tightening, buyers are quickly losing leverage in certain supply segments. In the November 2007 issue of “Inside Supply Management” magazine, Robert Engel suggests that ensuring supply and minimizing supply cost increases will require you to be a better customer.

In his article “Cultivate Supplier Relationships,” Engel, the national director of client services for Resources Global Professionals, rightfully claims that supply management professionals have done a great job at negotiation but have faltered at capitalizing on the savings, containment and innovative ideas from the supply base.

The hallmarks of an effective SRM program are numerous but primarily include effective communication, clear performance expectations and an established forum of trust.

I should caution that Engel’s advice does not mean you can’t be a shrewd negotiator. It does mean that you must treat suppliers fairly and with consistency. Upshot: those of you that pulled an “Ignacio Lopez” in the past (i.e., tearing up supplier contracts and browbeating them into price concessions) will be lucky to secure a lump of coal for your stocking in today’s supply markets.

How does Engel suggest getting started? The first step is to create a supplier or alliance management team consisting of representatives of the buyer and seller. This team will ensure the relationship stays healthy, address all issues, provide a platform for improvement and ensure performance objectives are achieved.

This team focuses on those supplier relationships that are core to the business. And, although automation can provide efficiencies to help you be more collaborative with a greater portion of your supply base, Engel argues that there are not enough hours in the day for teams to be established for every relationship.

Instead, Engel outlines six elements of an effective SRM process:

1. Define the type of relationship – core or non-core to the business?
2. Establish the team – look for communicators, analytical thinkers, problem-solvers and those with a customer service focus.
3. Obtain contract information - understand the fine details of the T&Cs.
4. Assess current satisfaction and current state - ensure customer satisfaction is meeting expectations.
5. Establish feedback-and-fix process – adopt of process to report issues; establish a tracking toolset; take action and publish results.
6. Conduct structured ongoing alliance meetings – establish standing meetings that occur on a regular basis – don’t wait for a problem to occur.

Now that most industries are becoming a seller’s market and not a buyer’s market – its time supply management organizations refocus their efforts to supplier relationships.