Harnessing Size and Scale— Microsoft Case Study
Tech giant Microsoft has multifaceted relationships with some of its most strategic suppliers, and SRM is critical to maximising them
For many, the name Microsoft is synonymous with M365 (Excel, PowerPoint, Word) and Teams. For others, it means leisure time spent playing games like Call of Duty or Minecraft on Xbox.
The business, which was set up in the 1970s by Bill Gates and Paul Allen, has adapted to several major technological changes. It has shifted from PC and server, to web and Internet, and then to cloud and mobile. It has grown to become the world’s largest software company.
Microsoft recorded $211 billion in revenue and more than $88 billion in operating income in its 2023 annual report, where CEO Satya Nadella said the world had entered “a new age of AI” that would “fundamentally transform productivity for every individual, organisation, and industry on earth.”
Microsoft intends to be at the forefront of this paradigm shift as part of its mission to “empower every person and every organisation on the planet to achieve more.”
“We do this by expanding opportunity, earning trust, protecting fundamental rights and advancing sustainability,” says Jonathan d’Orgee, Senior Director of Supplier Programmes.
AI and Procurement’s Role
In September last year, Microsoft announced Copilot, an “everyday AI companion” that it hopes users will rely on to shop, code, analyse, learn and create.
Organisations are already using AI on Microsoft’s cloud computing system, Azure, to help with a variety of tasks. These include helping children in Taiwan learn English and improving in-car driver assistance for Mercedes-Benz.
Procurement’s role is to support Microsoft’s overall mission by “empowering enterprise growth and value-driven, trusted procurement solutions at scale.”
It is tasked with five strategic outcomes:
Driving AI adoption
Driving operating leverage
Securing the cyber foundation of its source-to-pay ecosystem
Accelerating time to value
Delivering on its ESG commitments
State of Flux has contributed to the last of these by engaging with some of Microsoft’s diverse suppliers, as well as other providers, to assess access to a programme that supports diversity.
For each of these five key areas, supplier relationship management (SRM) plays a critical role.
Here, d’Orgee explains how SRM operates at Microsoft and what enhancements are planned for the future.
Procurement and SRM Arrangements
Microsoft’s procurement function is divided into indirect and direct spend, which includes data centres and device supply chains. SRM spans both categories, ensuring comprehensive management of supplier relationships across the business.
SRM for indirect spend sits within finance and covers enterprise supplier relationships.
Within indirect procurement, Microsoft has a few hundred employees across 30 global locations. They support over 115,000 internal customers in more than 100 countries.
“Across Microsoft, we have over 24,000 suppliers with more than $120 billion in spend. Broken down, that is 470,000 POs a year and 1.5 million invoices to be processed.”
SRM at Microsoft was reimagined just seven years ago. It began with d’Orgee and the company’s two major enterprise outsourcing suppliers, who manage order-to-cash, source-to-pay, record-to-report and supply chain fulfilment. That work delivered early wins, such as a performance measurement system.
The programme then scaled to include global systems integrators, global software providers, and consulting and advisory partners. More recently, it expanded into verticals such as financial services, manufacturing, global workplace solutions and marketing.
Today, the SRM programme covers around 40% of Microsoft’s total supplier spend and includes a significant number of managed suppliers. A dedicated team of supply chain professionals focuses on the verticals they support.
“As you can imagine, there are many complexities of working at Microsoft,” says d’Orgee. “With its breadth and scale, it is critical that we effectively prioritise the suppliers we need to manage. To do this, we run a repeatable and reproducible supplier segmentation process at the start of each fiscal year.”
Segmenting Suppliers and SRM Basics
One key challenge is that many of Microsoft’s supplier relationships are multifaceted.
“It could be a buy-from, a sell-to and a go-to-market relationship. It’s a true 360 wheel,” says d’Orgee.
The segmentation model identifies the business impact and spend of each supplier, the significance of any go-to-market relationship, and whether they are a strategic customer. Those at the centre of this Venn diagram become the core focus for SRM.
Once segmentation is complete, the SRM team reviews Supplier Account Manager (SAM) assignments. Changes are made to align with both career development and business requirements. Some SAMs manage several suppliers, others just one, depending on scale and complexity.
“We want rounded procurement professionals, so we ensure we develop them and try to fill any skills gaps, but also ensure that we have coverage and backups in place.”
At its core, SRM is about growing total economic value for Microsoft.
“Segmenting relationships is critical to ensure that we are aligned and connected. It ensures that decisions that could adversely impact the relationship and ultimately destroy value are not made in splendid isolation.”
For instance, telling a supplier they lost a bid the day before a major engagement would be less than ideal.
Plans are kept focused. Account teams concentrate on three or four key outcomes instead of listing everything. Progress is tracked through formal governance, with all groups represented.
Four Basic Areas for SRM
According to d’Orgee, SRM at Microsoft is built around four pillars:
1. Supplier Performance
Suppliers are expected to meet the quality of service or product outlined in their contracts. Microsoft uses a supplier performance tool to measure this at contract level against SLAs.
If performance drops, the SAM partners with the supplier and contract owners to get things “back to green.”
“Scorecards have broad visibility up to the company’s executives, who frequently share feedback. Knowing this drives both quality of input and accountability with our suppliers.”
2. Risk and Compliance
“This is also ground zero,” says d’Orgee. “Suppliers need to comply with our requirements, such as our supplier code of conduct, data protection requirements, financial health and more.”
3. Relationship
This is about nurturing strong, customer-centric relationships with the right level of governance.
“This is critical as we strive to achieve ‘customer of choice’ benefits.”
For enterprise-wide suppliers, Microsoft operates communities of practice where SAMs bring together contract owners across the business to share learnings and explore opportunities. This supports the “One Microsoft” approach, which promotes collaboration across functions.
4. Value
The goal here is to drive outcomes beyond contract terms. This includes ESG acceleration, innovation, continuous improvement, and co-developing ‘customer zero’ solutions.
Actions and Aims for SRM
“From where we started, SRM is now a core and valued function within procurement at Microsoft,” says d’Orgee. “Yet the work is ongoing. We must constantly iterate and challenge our norms to drive even greater impact and outcomes.”
If he could “wave a wand for SRM,” he would automate even more of the data and end-to-end processes.
Tier 2 data remains difficult to access quickly, especially through resellers or limited integrations. He also hopes to automate performance tracking, invoicing proof of execution, and guided buying capabilities.
Microsoft already runs listening systems like governance sessions, Supplier Advisory Boards and surveys. But there is room to shift toward a more continuous, survey-based model.
“SRM has grown as a strategic asset for the company. Aligning the multifaceted relationships to drive total economic value is key. As this continues to mature, we’ve found that resilience is critical and the drive to One Microsoft is relentless.”
‘Customer Zero’: Go-to-Market Partnering in Action
Some supplier relationships involve co-developing solutions that Microsoft itself uses, then taking them to market together.
One such example is with travel management technology provider Amadeus.
“As part of our strategic alliance, we partnered on a customer zero project for Cytric, Amadeus’ Online Booking Tool on Microsoft Azure, with Microsoft Teams integration for around 70,000 US-based Microsoft employees,” says d’Orgee.
“As customer zero, we were able to secure key functionality into the current Cytric booking tool, together with future roadmap commitments. And as a go-to-market partner, we will gain value through the revenue associated with the Azure consumption.”
