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The savings chase: is SRM about impacting price, or streamlining the process? (source).

Article Excerpt
Manufacturing companies have been chasing cost savings since the industrial revolution brought workers into factories equipped with powered machinery. Automation has attacked the labor content to the point where, in most industries, labor is a relatively small contributor to product cost. That leaves purchased parts and materials as a target for new cost saving initiatives, which has companies including AMETEK Power & Industrial Products addressing what's become known as supplier relationship management (SRM).

"We believe the best way to achieve lower costs and inventory levels is to improve collaboration with our suppliers," says David McGinley, vice president of finance at AMETEK. The Wilmington, Mass.-based maker of electronic instruments, engine sensors, and condition monitoring equipment for turbine generators recently purchased the. SmartHub/SRM system from Bellevue, Wash.-based Entomo to help AMETEK gain more control over the procurement side of its business.

"We expect the Entomo system to have an immediate impact on our procurement processes," adds David Zapico, division vice president and general manager. The company currently is in the process of consolidating materials planning and purchasing across six locations, creating a single point of view from disparate systems.

SRM encompasses much more than simple purchase order release and vendor performance measurement. Just as customer relationship management (CRM) grew from order entry to a comprehensive suite of applications aimed at effective management of the entire customer relationship, SRM takes the same approach on the supplier side.

"Procurement represents 40 percent or more of the cost of goods sold in most companies," says Nima Bakhtiary, president and COO of supply chain software developer RiverOne, which includes SRM in its product offerings. "The focus of cost-savings efforts today is on the procurement process itself, and not so much on the price paid to the supplier," adds Bakhtiary.

And that makes this current focus much different from what was done in the past. Over the years, companies have pushed suppliers to reduce costs and prices, sometimes to the detriment of quality...

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