Applying the Principles of Supplier Relationship Management (SRM) to Human Capital

Abstract: For more than a decade, companies have optimized their hard goods supply chain to bring together buyers and suppliers and yield tremendous efficiencies and bottom line benefits. However, the human capital procurement supply chain remains chaotic and generally uncontrolled. Companies risk co-employment issues, uncontrolled spending, missed business objectives and the potential for non-qualified employees through these process inefficiencies. This paper outlines the benefits of applying the proven principles of collaborative supply chain management and the newer Supplier Relationship Management process to streamline and control the entire human capital supply chain for enhanced and immediate ROI.

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

A New Perspective on Human Capital

Not long ago the focus within Human Resources centered on best practices and business processes surrounding the people that became, or would become, full-time employees. Human Resources focused on efforts that made the lives of their employees easier and the tracking of those employees more effective. Data metrics, human resources key performance indicators, were captured on full-time employees to track management satisfaction, salaries and adjustments, benefits, personnel tracking and more. Were at the beginning of one of the most important revolutions in business. The Internet will forever change the way business is done. It will change every relationship, between our businesses, between our customers, between our suppliers. Distribution channels will change. Buying practices will change. Everything will be tipped upside down. The slow become fast, the old become young. Its clear weve only just begun this transformation.
Jack Welch, Chairman GE, Fortune Magazine 5/1/2000

Jack Welchs comments demonstrate that shifting market trends and changing buying patterns spurred by the adoption of the Internet economy affect not only the manufacturing lifecycle, but also services transactions and processes. The Internet and the Buyers economy that it has fostered demand a swift change in business practice and policies changes that are now beginning to unfold. As it relates to human resources, the transformation of the business climate and economy make it imperative for organizations to expand their focus to a broader spectrum of human capital management. This expanded focus on the management and control of the overall human capital spend includes the dollars spent on the contingent workforce, temporary workers, suppliers of temporary staff and the internal time related to these areas. The Buyers Side of Human Capital Management Companies today spend 60-80 percent of their indirect e-procurement dollars on services (i.e.--travel, marketing, payroll) (iSource Magazine, January 2001), and have no efficient means of tracking and managing these costs. Companies are experiencing enormous inefficiencies with their overall human capital processes and expenditures, costing them immediate dollars and placing them in undue risk of co-employment issues and uncontrolled spending. Among these inefficiencies, corporations often do not know the overall dollars being spent, where the acquired people or services are being utilized, how long theyve been employed, and where they came from in the first place. Companies continually do business with suppliers they hardly know, have no formal relationship with and may have no confidence in.

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

These loosely managed, yet highly strategic, supplier relationships can be costly elements if left uncontrolled. Besides the lost dollars from not leveraging volume discounting and solidified supplier partnerships, companies could easily spend substantial dollars on unqualified personnel that negatively impact their business objectives and operations. Processes can also become very inefficient through chaotic purchasing and non-streamlined requisition processes that often result from working with unapproved and unfamiliar suppliers, costing additional hours spent on administration and operations. Buyers are now recognizing that a vast amount of their dollars are being spent not only on full-time employees,but also on contract workers,consulting,projects, outsourcing and more. Procurement refers not to a single process, but to many inter-dependent sub processes, each with their own specialization, pain points, and opportunities for savings. The complexity is driven largely by the differences in business processes necessary to support acquisition of the wide variety of goods and services needed by every enterprise. However, existing software applications facilitate only a very small sub-segment of these processes. The bulk of process automation has yet to be addressed by any single software application provider.
E-Marketplaces: The Impact on Procurement Gartner Group, October 2000

The Suppliers Struggle The current market conditions arent just affecting the buying organizations, but staffing and service suppliers are directly impacted by the shift of power to the buyer. Suppliers have become accustomed to their personalized sales and marketing approaches their manual processes surrounding candidate submittals, paper timecards, billing, approvals and more. In most cases they have not, until recently, felt the need to adopt available technologies to support their work processes. Suppliers are now beginning to realize that these traditional manual processes carry weighty operational costs. Their clients, through the advent of new technologies and by leveraging new methodologies for acquiring human capital, have succeeded in driving down supplier margins. Clients have gained a certain level of control over the bidding process and expected rates. Contractor rates have also increased, making it more difficult for suppliers to add higher margins on already high prices. And with growing concentration on the entire supply chain, clients are applying more focus to those efforts that streamline their supply chain processes both internally and externally, making it a necessity for suppliers to join if they are to maintain critical business relationships. From a human capital perspective, suppliers must remain conscientious of client needs on a real-time basis and maintain high levels of quality assurance, all while continuing their own focus on process efficiency and optimization to ensure strong profits and their long term existence in the entire supply chain.

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Buyer and Supplier Market Pains

The Evolution of Hard Goods Supply Chain Optimization

The Manufacturing Paradigm The quality initiatives of the last ten years changed the manufacturing paradigm from Mass Production to Flexible, Lean Production. Fortune 500 corporations became devout in their pursuit of Demings Total Quality Management, or Eli Goldratts Theory of Constraints (as made popular in his business novel The Goal) for identifying and resolving the shifting bottlenecks which arise in dynamic real world manufacturing environments. Companies learned that Process Maturity could be leveraged for marketing advantage as well as operational efficiencies, by imposing corporate standards on partners, and even on entire industries. This shift changed the methodology in which buyers and suppliers interacted. Both sides joined forces to complete production cycles on-time and on-budget and to streamline dollargenerating practices into the entire supply chain. Buyers drove the supply chain ecosystem to enforce collaborative best practices upon their suppliers and impose a more interactive participation toward the final output. Suppliers then became more cognizant of their clients needs, trying to accommodate Six Sigma1 practices within their clients infrastructure, and streamlining their own internal management of inventory and supply. [Six Sigma] creates a common language for understanding what customer requirements are and how you go about meeting them
Scott McNealy, CEO Sun Microsystems, Fortune Magazine 5/1/2000.

Six Sigma is the structured application of the tools and techniques of Total Quality Management (TQM) applied on a project basis to achieve strategic business goals with maximum efficiency

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

The B2X Phenomenon The adoption of Business to Consumer (B2C) e-commerce has been constrained by human factors such as book buyers preferring to browse in a bookstore when they are not buying a specific book. This has rewarded organizations who employ a clicks and mortar strategy. In contrast, Business-to-Business (B2B) e-commerce represents the wholesale migration of entire industries workflow to an electronic medium, transforming how companies communicate internally and externally (with suppliers, customers and partners) with astonishing speed. The decentralization of the corporate purchasing approval process and the vastly lower error rate of e-commerce based purchasing often cost-justify the building of these systems within two to three years. With the advent of B2B e-commerce, companies are continually seeking to collaborate across their industry, upstream (with suppliers) and downstream (with customers), sharing information to increase efficiencies in workflow, sales forecasting and inventory management. End to End Supply Chain Management In the Internet world, the competition is between entire supply chains (suppliers, customers and partners) rather than individual companies. To keep their value proposition high, corporations are seeking to embed their business workflow rules in their suppliers, customers and partners e-commerce systems, leveraging cross industry collaboration for strategic advantage. Companies have bought into the ROI-producing procurement platforms in order to deliver a streamlined purchasing process that remains central to the entire organization. A practice that drives down enterprise-wide expenditures, consolidates spend, leverages high-volume suppliers, and increases internal efficiencies. However, many organizations have limited this type of supply chain management to MRO-type (maintenance, repair and operations) spend (pencils, paper, computers, office supplies, etc.). While these materials may make up a sizeable portion of a companys expenditures, they are not strategic to their core business offering and do not directly impact their business strategies or internal production processes. The focus on MRO spend has been on the much less complex buying cycles of office supplies, rather than on highly collaborative and involved supply chain processes, such as those related to Human Capital procurement and management, that require a front- and back-end procurement process. Organizations are just recently getting back to those collaborative buyingcycles that streamline into theircore business operations and supply chain processes.

Supplier Relationship Management (SRM)

What is Supplier Relationship Management (SRM) and how has this evolved from the hard goods supply chain methodologies of the past? Looking at recent announcements from materials and hard goods application providers, SRM has been defined as the new category of solutions that enable manufacturers to optimize their relationships and expenditures with suppliers. Barry Wilderman, MetaGroup as quoted in Line56 article,
Supplier Relationship Management, January 22, 2001.

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

Supplier relationships can account for as much as 80 percent (Line56, Supplier Relationship Management, January 22, 2001) of an organizations spend, becoming a critical business relationship to manage. Supplier Relationship Management, as a software product category, has been initiated by the focus on the manufacturing process to streamline the efficiencies and costs related to purchasing components and creating product. Since these processes are driven by supplier accountability and reliability, SRM has evolved to support highly collaborative process requirements ensuring that B2B bottlenecks become a thing of the past. Organizations are changing their focus to leverage fewer supplier relationships to ensure a better services environment and to maintain a higher level of confidence in accountability and reliability. Leveraging common procedures with a smaller group of suppliers also helps to ensure streamlined B2B processes while enabling buying companies to set up discounting programs based on usage and/or expenditures. This also helps the shortlist of supplier organizations as they become more intelligent of their clients needs and processes and can ensure revenue stability through a long-term business relationship and contract. Supplier Relationship Management has developed into the concept of two organizations working together toward a common goal to leverage stronger business ties with fewer suppliers to reduce the cost and improve the quality of those elements being purchased and managed. These two principles of SRM are crucial elements to the more complex and multiprocess environment of sourcing, tracking, engaging, managing, assessing and retaining services and personnel.

Applying the Principles of SRM to Human Capital

A significant portion of the money spent on human capital involves third party suppliers. It would only make sense that companies focus on better ways to manage these relationships in order to reduce their overall cost and increase time and process efficiencies.
Gary Anderson, Corporate Procurement Carlson Companies

The Buyers Point of View For a buyer of staffing and/or services, applying SRM principles to human capital procurement and management begins with the pre-procurement processes in defining the needs of the organization. In both manufacturing and services organizations, planning ahead requires the knowledge of what you will need, when you will need it, and in many cases, how long. Both processes require the services of people, and both processes have people associated to various projects. By applying the standards used in hard goods SRM, organizations can benefit from analyzing historical metrics associated to period-based needs and organizational trends.

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

Companies can also associate just-in-time inventory methodologies to temporary personnel by looking at upcoming engagement roll-offs ensuring resource requirements are met now and into the future. The second step requires sourcing various places or suppliers, from which an organization is going to acquire their materials and/or services. Organizations need to be able to locate suppliers and establish relationships with multiple and/or single suppliers based on various parameters (i.e., area of expertise or specialty, location, other). In many cases, companies need to bid out requisitions to multiple suppliers so they can choose the best bid based on ability to fulfill, quality and/or cost. Thus begins the application of the true principles of Supplier Relationship Management, enabling organizations to effectively optimize supplier relationships to reduce cost and increase quality and efficiency. Once a supplier is chosen, a highly collaborative process may take place to define exactly what the needs are and how they are to be filled jointly by both client and supplier. Note, in many cases the supplier is chosen before a requisition is even created. Buyers prefer to leverage preferred and known suppliers to fill their needs and most have pre-contracted relationships set up with those vendors to accommodate long-term needs and volume discounts. Some additional similarities between hard goods and human capital exist within the lifecycle of the purchasing process. Some of these include in-bound and outbound logistics, quality measurements and tracking, and ongoing supplier management. People, temporary or permanent, need to have a place to sit and their materials ready for them once they are brought on-site. Similar to material-based logistics applications, an automated logistics capability can greatly streamline internal processing and timeframes while ensuring incoming personnel needs are met. This also allows organizations to effectively manage all personnel logistics throughout an engagement, noting any unforeseen changes in space, supplies, or other. Just as it is important for organizations to manage and track all their supply chain activities by consolidating information into a single system, it is even more important to enable users to get information out. An SRM platform needs to have highly analytic capabilities to support future decision-making and validate historical performance and efforts. These assessments include internal processing and timeframes, external spending and quality measurements, and other subjective and/or objective metrics based on suppliers, candidates or internal management. The information will enable decision-making validation and will assist in optimizing supplier relationships and expenditures around staffing and services. The Suppliers Point of View From the suppliers point of view, establishing strong client relationships is critical to support their clients needs and fill their requirements on a real time basis. Suppliers prefer the revenue-stabilizing long-term contract and appreciate it when clients abide to the terms associated with preferred vendor programs. Bottom line, suppliers prefer to work collaboratively with their clients to ensure they are doing everything possible to manage and maintain solid business partnerships, giving the supplier peace-of-mind for future stability and revenue growth.

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

While suppliers like the potential of doing business with additional client organizations, they ultimately value the benefits of taking on a preferred status. Being in a preferred status allows specific suppliers to see their clients needs first, without outside suppliers having knowledge of the business opportunity. Thus a major requirement from a suppliers point of view is to make sure there is no leakage of job postings outside the preferred vendors. A common shortcoming of Internet technologies to date is that they facilitate only one side of the buying equation. Staffing and services purchasing and management requires that both sides are in-the-know and thus work together in the pre- and post-procurement processes. By applying the principles of SRM to human capital, suppliers benefit from streamlined processes throughout the pre- and post-engagement lifecycle. Suppliers can leverage Internet technologies to automate and streamline many of their time and cost-consuming manual processes around timesheets, billing, approvals and sales. In summary, an SRM platform needs to leverage business relationships to facilitate both sides of the B2B buying infrastructure. Suppliers, like clients, need to have accountability in the overall goal, and by leveraging a streamlined process with checks and balances on both ends, suppliers have an increased confidence level and satisfaction in knowing their clients needs are being met.

Supplier Relationship Management Organizational Impact

Leveraging the Internet to establish strong B2B relationships can impact a business, whether buyer or supplier, in many ways. The following list represents some high-level benefits, or business impacts, companies should recognize through the use of Supplier Relationship Management principles and processes:

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White Paper - Applying the Principles of Supplier Relationship Management to Human Capital -- 4/26/2001

Conclusion Companies are now focusing on enhanced quality and efficiency in and around their human capital supply chains. More organizations are utilizing temporary services and outsourced functions to accommodate a number of business requirements. It is critical that companies know what is really happening in their human capital efforts, and that these processes enhance the organizations overall goals with limited cost and increased efficiency. Exploiting the business practices that have been prevalent in hard goods supply chain in recent years, puts organizations at an operational and competitive advantage in maximizing the efficiency and return on their human capital supply chain. Supplier Relationship Management (SRM) maximizes business relationships to streamline the entire supply chain. The inherent principles of SRM that have been proven in the procurement of hard goods can be applied to human capital procurement and management, ensuring that both buyers and suppliers optimize their human capital supply chain by leveraging strategic business relationships. Providing a two-way approach to the purchasing lifecycle enhances the timely fulfillment of client needs while increasing supplier productivity.

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