Supplier relationship management (SRM) is critical in any business’s supply chain management. Earlier considered primarily a transactional activity involving purchase orders and invoices, supplier relationship management has transformed into a more strategic role. Leaders are aware that with an effective SRM strategy and a mutually beneficial relationship with suppliers, they can stay a step ahead of the competition.
As the number of suppliers increases, you need to have an effective supplier relationship management strategy in place to ensure uninterrupted, sustainable and cost-saving supply chain management. So, let’s dive in.
What is Supplier Relationship Management (SRM)?
Supplier relationship management was first introduced by Peter Kraljic in 1983. He primarily discussed segmenting the supplier base and mapping it against two aspects—profitability (opportunities) and risk. Over a period, SRM has become more refined and broad.
SRM can be defined as a structured approach that helps assess or evaluate vendors’ contributions to your business. It primarily involves determining the value of each supplier based on a specific scorecard or matrix, developing tactics to help improve their performance, and leveraging strategic relations with them to improve your business outcome.
SRM can be effectively categorized into the following three steps:
- Segmentation: In this step, you differentiate and evaluate suppliers based on opportunities and risk using a Kraljic matrix or a scorecard. You can also use this in the category management of suppliers.
- Development of strategy: In this step, you identify ways to interact with the suppliers with an understanding that each supplier is different and one approach may not fit all.
- Execution: In the final step, you execute your strategy to get the desired outcomes.
It won’t be wrong to say that SRM is a continually evolving process that involves utilizing the full potential of your supplier base to deliver results that benefit both your business and the vendor.
What Are the Benefits of Implementing Supplier Relationship Management?
Here are some top benefits of implementing a strategic approach to supplier relationship management.
- Cost savings: With a win-win partnership with suppliers, you can effectively reduce your costs across your supply chain by optimizing operations, beyond traditional sourcing and category management.
- Improved procurement process: Knowing your suppliers will increase your understanding of their critical role in your supply chain. This will also help you identify hurdles or issues that disrupt your supply chain, improving your procurement functions.
- Supplier performance: Monitoring and maintaining transparency in supplier performance can help you focus on supporting your business objectives, thus, driving performance.
- Risk and compliance management: By ensuring transparency and visibility across supplier relationships, you are able to effectively manage risks and compliance with responsible and ethical sourcing.
- Innovation and business development: When you identify and execute opportunities together with your supplier base, you create long-term value for both businesses.
- Improved productivity and profitability: With strong supplier relationships in place, your procurement team will spend less time managing requirements with suppliers, negotiate better, avoid stockouts, prevent brand damages, etc.
- Data sharing and decision-making: The more data you have on your suppliers, the better you will be able to assess and evaluate them. Moreover, with real-time updates, reports, approvals, etc., decision-making has become quick and efficient.
Top 6 Best Practices for Strategic Supplier Relationship Management
#1 Choose the right partners/suppliers
When differentiating and choosing a supplier base, move beyond strategic and financial fit. Since these suppliers will be your long-term partners consider culture, business practices, operating model, and other aspects. Moreover, think ahead and what competitive advantage you want to gain in future and choose your suppliers.
#2 Align with all stakeholders (external & internal)
It is important to align with business stakeholders, both internal and external, at all levels and ensure that they have a clear understanding of supplier relationship management, the requirements, and practices/initiatives outside and inside the company. Analyse the cause-effect relationship across the extended supply chain for your organisation as well as the involved strategic suppliers.
#3 Develop mutually beneficial supplier relationships
Undoubtedly, negotiation is an art. However, when negotiating with your strategic suppliers, strike a win-win proposal for both the parties involved. You should also consider present as well as future requirements when finalizing deals. Encourage collaboration between your team and suppliers by equipping them with a proper skill set including networking, problem-solving, and conflict management.
#4 Define KPIs and exchange information
Start with defining mutual goals for your organisation as well as suppliers and based on that define how you would want to measure those goals. This will also include measures to make sure both parties are on the right track. Moreover, keep communication channels and make sure the information is exchanged between parties on a real-time basis.
#5 Handle changes effectively
When you add any new strategic supplier, it is bound to lead to changes in your business as well as for other partnerships or suppliers. Make sure to have a clear communication plan in place, defining all relevant information such as aim, scope, and their role in the supplier relationship management for all the parties involved.
#6 Adopt technology
Embracing technology can help you streamline multiple, critical aspects of your supply chain management including supplier management, accounting, contract management, etc. on a single platform, making your team’s life easier!
Supplier relationship management helps you determine which suppliers are positive influencing or supporting your business and make sure they continue to perform well based on a mutually beneficial arrangement. An effective SRM also helps you improve the processes, productivity, and proficiency of both parties involved. However, with an increasing number of suppliers and diverse requirements, SRM can be tricky. Therefore, make sure to follow best practices and embrace technology to streamline your entire supply chain.
Want to know how Induzbuy is helping businesses foster profitable and mutually beneficial relationships with a smart procurement management system, get in touch with us today!