What is Supplier Relationship Management?
Supplier relationship management is also known as SRM. This systematic approach is used to evaluate the contributions of suppliers to your business. This helps you identify the suppliers that have the greatest impact on your business’ success and makes sure they perform well. Supply chain management employs SRM in operations, procurement, and project management.
SRM can help you build positive relationships with suppliers and guide you in the activities that you should do with them. SRM works in the same way that customer relationship management (or CRM) does on the front end dealing with customers.
SRM’s main purpose is to improve business processes between your company and your suppliers. You can improve the efficiency of your business and that of your suppliers by using a simplified approach. Although SRM approaches can differ from one organization to another, the key focus of SRM is to build a mutually beneficial relationship between all your suppliers, particularly those that are strategic partners for your brand.
SRM can be used to refer to both business practices as well as software. Let’s take a look at each.
SRM Business Practices
Three steps can be used to manage your supply chain relationships. This dynamic approach will simplify supplier management across your entire supply chain.
Step 1: Segment Suppliers
This stage involves looking at all your suppliers and deciding how important they are for your business. Segmentation of suppliers focuses on identifying your key suppliers. Those who supply the essential goods and services required to keep operations running. So you can choose who to concentrate your attention on. Nonetheless, you shouldn’t overlook important supplier
There are many types of suppliers you will work with – wholesalers and distributors, manufacturers, import sources, and manufacturers. Each one plays an important role in your business, and segmentation ensures that they are all given the right attention.
Your business can be influenced by different suppliers. Let’s take, for example, a furniture manufacturer. While their stationery supplier has little effect on their overall profitability, however, their lumber yards have a huge effect because they don’t have the lumber to make their furniture. The lumber yard’s operations can pose a significant risk to furniture manufacturers, which is why they are a key supplier.
Strategic sourcing allows furniture manufacturers to have additional lumber suppliers in case of an emergency. However, this may lead to them paying more for the same product. This may lead to a longer time to market as the second supplier is unable to fulfill their immediate needs due to a shorter lead time. Regardless, the furniture company wouldn’t have the need to stop operations for a prolonged period of time. However, this would cause problems throughout the supply chain.
Step 2: Create a Supplier Strategy
This stage will allow you to look at all of your suppliers and rank them from most important to your company to least important. The plan will outline how you’ll interact with each supplier. All suppliers are considered partners. They are your partners as much as you are theirs. Your strategy should reflect mutually beneficial ways to keep everyone happy. SRM strategies that foster collaboration with suppliers are the best.
Demonstrate You’re a Good Customer
You must show suppliers that you are a reliable customer by paying your bills on time, giving vendors as much notice as possible, and communicating openly and clearly with them. To maintain a positive relationship, it is important to communicate with your supplier when payment can be expected. They are just like you and depend on prompt payments from customers to keep their operations afloat.
Come Up with a Risk Management Plan
Working with vendors comes with inherent risk. The best way to reduce risk in the supplier selection process is to look at their references and see examples of their work. Also, consider their financial stability, past work, and their ability to handle your order.
The business will fail at some point. It’s a fact of life. A plan for potential risks such as having another vendor available in the event of a problem with the primary vendor can help to prevent problems in your supply chain from spreading to the rest.
Devise a Plan for Issue Resolution
No matter how much everyone tries to maintain a good relationship, things will happen. It is important to have a plan for how to resolve an issue and what to do about it.
- If the problem is not resolved at the simplest level, who should it go to?
- Are there other routes of escalation?
- What the stakeholder companies will involve in? What will their involvement look like?
This plan should be prepared in advance to ensure that the situation can be resolved quickly and without causing any disruption to your relationship.
Centralize Point of Contact
Suppliers have traditionally had multiple contacts within your company. While procurement handles contract negotiations and logistics, quality assurance and logistics address shipping and quality issues, and other business units handle ordering and delivery, Procurement manages procurement. Instead of interacting with suppliers in multiple silos within your company, centralizing everything makes it more efficient and less expensive. It also builds trust with suppliers.
Suppliers often feel frustrated when they have to deal with multiple people. There is often no coordination between all communication. Unpredictable customer behavior can result, especially when there are inconsistencies in policies and practices within the organization. This means that they will incur more costs to sort it all out, and these costs will most often come back to you.
Encourage executives representing various departments of your business to meet with suppliers’ executives annually to exchange information. This collaboration ensures that everyone benefits from the business plan.
Use Two-Way Balanced Scorecards
Reach out to suppliers and develop metrics that measure and manage performance according to the value they provide. Create a scorecard process to not only give you scorecards to compare each other but also allows data-driven discussion about problems to help build better solutions.
Ask suppliers to provide feedback. You should ensure that there are both outcome-based metrics, such as incremental revenue contribution and cost savings. With indicators for proactive relationship managing.
Step 3: Execute Supplier Strategy
This step will see you implementing each of your supplier plans, guided by your business goals. To ensure that each vendor is properly addressed, it’s a good idea for you to assign dedicated relationship managers to your suppliers.
Each of your key suppliers should be assigned a manager. They should focus on building a relationship with them by maintaining open communication with all suppliers and the relevant staff within your company. You should match your business plans and needs with their knowledge about suppliers so that it is easier to determine if and how to switch suppliers.
SRM software will help you track all your suppliers. This is especially important if you have a large list of vendors. The more vendors you work with the more difficult it will be to keep track.
- SAP Business One
SRM systems make it easy to centralize all information about suppliers. SRM Software allows you to integrate your purchase order management and your supplier relationship management software. Your supplier information and all purchase orders can be stored together, making it easier for you to manage contract management and evaluate supplier performance.
One way to gain a competitive edge is through supplier relationship management. Your bottom line will be positively affected by strategic supplier relationships in many ways. When vendors are happy with you, it’s possible to negotiate better deals. This could include cost savings, cost avoidance, and higher value-add. You will see a quicker time to market and better risk management. This will also result in financial gains. To continue reaping the benefits from optimal supplier relationship management, you must treat it like a living organism. To ensure mutual benefit, segment and evaluate suppliers consistently.