A successful supplier relationship management (SRM) strategy requires dedicated supplier managers, effective processes to create standardized best practices, and tools to track and evaluate the results. The success of an SRM plan can dramatically impact the value of a supply contract.

Those words of advice come from Joseph Youssef, director of global technology supplier management for McDonald’s of Oak Brook, Ill. Youssef detailed the worldwide restaurant chain’s SRM strategy at the June Best Practices Xchange forum on global strategic sourcing and supply chain management, a quarterly event hosted by The Mpower Group, of Oak Brook, Ill.

"You need to segment your suppliers; you need to measure your suppliers; then you need to manage your suppliers based on those measurements,” Youssef told Purchasing. McDonald’s kicked off its global SRM initiative in May 2004, soon after the worldwide restaurant chain began a new contract to outsource its IT infrastructure with Dallas-based Affiliated Computer Services (ACS). As the company’s business relationship with ACS evolved, Don Chapman, senior director of global technology sourcing at McDonald’s, says it “realized the concepts and principles used to manage [the contract with] ACS were applicable to our other strategic suppliers."

Youssef outlined four prime measurements as best practices to manage its supplier relationships. First are performance measurements, which evaluate a supplier’s efficiency in delivery and service. Second is contract administration, which ensures an agreement is followed and double-checks for any changes or variations, always with an eye on additional business prospects. The third element is financial management administration, which confirms that invoices are correct and the buyer is paying for the agreed-upon services under the contract. And, fourth, relationship management keeps both parties in close contact to maintain, as Youssef describes it, a healthy relationship and to ensure that the purchaser’s end users also are benefiting from the supplier contracts.

McDonald’s also utilized the expertise of the Procurement Strategy Council, which provides best practices research and executive education to senior procurement executives, for what Chapman called the company’s “get what you pay for strategy.”

Approximately 80% of McDonald’s restaurants in the U.S. are run as franchises, while the remaining 20% are owned or operated by the company. Outside of the U.S., there are additional ownerships models, such as joint ventures and developmental licensees.

In the U.S., mcdonalds has eight people who are actively involved in the company’s technology supplier management, with similar teams in other regions of the world. The group’s global leadership participates in a weekly conference call to discuss issues they are facing, share information on suppliers and their performances, and coordinate global initiatives. “For instance, Panasonic supplies point-of-sale terminals worldwide,” Chapman says, “so we need to coordinate our efforts in working with a key supplier like Panasonic.”

McDonald’s also has an ongoing effort to evaluate, or “scorecard,” its restaurant-level, or point-of-sale (POS), suppliers. All of the people on the global IT supplier management group are part of the process. “It is a single initiative that brings all those folks together to get a clear global picture of what the supplier’s performance is like,” says Youssef.

As McDonald’s began to see positive results from applying SRM methodologies and measurements to its relationship with ACS, the company took the next logical step to extend the strategies to other IT contracts. The SRM plan included segmenting its suppliers, based, in part, on contract size, strategic value and risk. McDonald’s proceeded to group network vendors, such as Verizon and MCI, and restaurant-level IT suppliers to its restaurants (or POS, point-of-sale), which include Panasonic, ParTech and NCR. The company also created an executive sponsorship program, through which McDonald’s assigns executives to keep in close touch with all of its major suppliers.

Once the company is satisfied with the application of its SRM strategy with IT suppliers, it plans to move to other indirect materials suppliers. McDonald’s will proceed in that direction with the help of the Procurement Strategy Council and other sources. The company plans to work with procurement services provider IQNavigator, of Denver, to implement a reporting tool to assess the performance of suppliers’ help desk operations, should, for example, a McDonald’s restaurant manager call with a problem or question about a vendor’s product or technology.

Youssef emphasized that SRM must be coordinated at all levels within a company, from sourcing executives to business unit staff to senior executives. In addition, as a company moves from transitional relationships with suppliers to strategic partnerships, the number of vendors designated as strategic will decrease.

“Typically, in most organizations, you have maybe 10% of the suppliers you do the majority of business and the majority of the spend,” he says. At the same time, “the number of resources you have to dedicate to those relationships increases. In order to drive the value out of the supplier relationship, you need to increase the time you spend managing those suppliers.”

While Chapman says McDonald’s can cite some cases where costs were avoided and money saved, the company has not come to the point where it can put a specific dollar amount on its two-year initiative. “That’s one of the challenges of this program, when you don’t have the easy metric of cost savings of a contract,” he says.

Youssef concurred, adding that it is too early to judge how well the measurements and methodologies have worked financially, because the results are not easily quantifiable in dollars and cents. “We are still early in the maturity of this process,” he adds. “I think next year we will be able to measure that and provide a dollar savings.”

Until then, McDonald’s is confident that it is heading in the right direction.