Supplier relationship management (SRM) is an important function in many organizations because good relationships with vendors can lead to better prices, better planning, better responses to adverse events, and less risk in operations and supply chains. While some supplier relationship management best practices are simple to implement, others require more effort and imagination. Let’s define supplier relationship management (SRM), its software, and its technology.
What is Supplier Relationship Management (SRM)?
Supplier relationship management (SRM) is a systematic and ongoing process of evaluating an organization’s vendors—both goods and services—to determine if any changes could be made to improve business operations.
Understanding Supplier Relationship Management
The exact set of tasks covered by SRM is not universally agreed upon, but its goal is to add value to your organization by assisting you in making better decisions about how to engage with suppliers and potential suppliers.
The most obvious SRM task is assessing suppliers’ strengths and weaknesses. For example, one supplier may be faster while another is less expensive; this type of assessment can provide supply chain managers with a clear way to determine what types of orders should be placed with each company. Deciding which goods to buy from each supplier and when to add new suppliers are both crucial.
There are benefits to not adding a new supplier to manage and negotiate with, but if another company offers a better product or service in a category that none of your current vendors can match, the extra work and coordination may be well worth it. Knowing when to negotiate, with whom, and for what purpose can be an art in and of itself in SRM, even before the art of negotiation begins.
Supplier relationship management also entails knowing when and how to cut ties with a supplier, either due to incompatibility (e.g., they can’t meet new business requirements, or perhaps they began making too many mistakes) or because the relationship has reached its natural end (e.g., your company stopped selling the product made with that supplier’s inputs).
While the majority of these relationship management tasks can be carried out analytically, there is also a human factor to consider and manage. Relationships between organizations almost always include relationships with people within those organizations as well.
Goals of Supplier Relationship Management (SRM)
Every industry and business has its own definition and categories of what qualifies as a strategic supplier, but the main goals of supplier relationship management are generally the same.
#1. Establish supplier relationships.
Any supplier relationship manager’s bread and butter is this. Figuring out which suppliers are critical to business success and which are not, and then managing based on that scorecard, is critical.
A company’s supplier of microprocessors, for example, is far more critical—and thus strategic—than its supplier of paint. To that end, a manager must establish a mutually beneficial relationship for both parties to generate value.
#2. Risk management
Supplier risk management makes up a sizable portion of SRM. Supplier risk is one of the most significant issues facing any business today. Suppliers cannot deliver on time, and many other variables must be considered with each supplier, including quality issues, compliance issues, ethical concerns, geographic obstacles, natural disasters, and so on.
#3. Streamline the value chain
A supplier relationship manager must add value at the end of the day. The manager must come up with new and creative ways to leverage the relationships with strategic suppliers.
A good SRM will think outside the box and look for ways to optimize the entire business value chain, not just the immediate impact of the supplier.
Supplier Relationship Management (SRM) Process
Three main steps make up the basic SRM process.
#1. Segment your suppliers
The first step in the process is to look at your supply base and create categories. This will look different for each company, but you can segment by item, quantity, location, price, and so on.
Then you must determine which suppliers are most strategic and important to your company’s success. This is a straightforward but crucial step that is frequently overlooked. There is no easy way to view your suppliers and develop a strategy that is tailored to them without it.
#2. Create a supplier strategy
Next, develop strategies based on your segments and strategic suppliers. Not every segment, and not every supplier within a segment, should be managed in the same manner. The SRM must devise a strategy that benefits both parties and fosters a mutually beneficial relationship to drive value.
#3. Execute (and monitor) the strategy
The SRM must own the execution of the strategy because someone must be held accountable for each strategic relationship and driving value. Not only that, but you must find a way to track the performance of each supplier as well as the performance of each strategy you implement so that adjustments can be made in real-time.
Establish your KPIs and success metrics so that you can benchmark and continuously improve performance. In this situation, a supplier management dashboard is especially helpful.
Supplier Relationship Management Software
To facilitate and improve business relationships between companies and their suppliers, supplier relationship management software is used. This type of software is used to manage interactions, evaluate suppliers based on performance, and choose the best provider for a variety of needs such as transportation or professional services.
Procurement professionals optimize purchasing by establishing mutually beneficial business relationships with suppliers using supplier relationship management solutions.
Supplier relationship management software is available as a standalone software product, as well as a module or component of supply chain suites. Software for supplier relationship management must integrate with software for purchasing, supply chain planning, and supply chain visibility when provided separately.
Best Software for Supplier Relationship Management
#1. Pipefy
In addition to building and optimizing procurement and purchasing processes, Pipefy is a business process automation solution that can be used for supplier management. Contracts and supplier databases are centrally stored on the platform.
#2. ProcureWare
An e-procurement system called ProcureWare includes features for sourcing, contract management, and supplier management. Improved online bidding tasks, contract administration, risk management, reporting, and document management are all made possible for businesses. For both small and medium-sized businesses, the software provides collaboration and transparency in supplier management.
#3. Ivalua
Ivalua offers Supplier Relationship Management tools for source-to-pay workflows. It digitizes all procurement processes and enables greater information transparency and data accuracy. Request management, supplier master data management, and sourcing and contract management are just a few of the supplier management features in Ivalua.
#4. AdaptOne
Supplier diversity and management platform AdaptOne is cloud-based. It enables businesses to better manage supplier risks and maintain compliance. Supplier management, supplier diversity management, and certification management are all services provided by AdaptOne. It also provides a platform for suppliers to better update and manage their information.
#5. SAP Business One
Business management software called SAP Business One. It combines departmental data into a single software platform, allowing you to manage procurement and purchasing tasks. While it has enterprise-wide applications, it also provides purchasing functions like quotation requests, approvals, and goods receipt PO updates.
Supplier Relationship Management Technology
“Technology is one of many elements,” Dsouza continues, explaining that “it is key to effective supplier relationship management when implemented in the right ways, but it does not operate alone, in a bubble.” Strategy and culture are equally important.”
This is why organizations that want to ensure the sustainability of their SRM should invest time and effort not only in technology but also in people and processes. “Buyers must be acutely aware of and comprehend the advantages of enabling sustainable supplier relationship management,” the author writes. “It is critical to source and procure wisely, selecting the right partners who meet the company’s goals, objectives, and values,” says Dsouza.
“The next step is to enable the appropriate mechanisms for information sharing, working methods, financing, and implementing controls that can strengthen the relationship.” The right operating model that drives governance, with a focus on making the relationship work, is also critical. Senior stakeholders must be involved.”
Wabara adds to Dsouza’s remarks, “We also need to get much better at using data in our processes.” Greater levels of data analytics can provide customers and suppliers with greater insight across the supply chain while also allowing for data-driven efficiency savings by reducing human error and speeding up order processes.
Supplier Relationship Management Benefits
The following five key benefits are consistently gained by supplier relationship managers who do everything right:
#1. Reduced costs.
Saving money with each transaction is the primary objective of most SRM operations. The first step in supplier relationship management is choosing which suppliers to work with, and cost will be a key differentiator for many types of supplies and services (subject to minimum standards in other areas, such as quality).
#2. Better risk management.
Risk management is a significant and frequently overlooked goal of SRM, as was previously mentioned. You can reduce the likelihood of a bad event occurring (by doing things like building in redundancies) and reduce the cost of an adverse event when it occurs by being proactive about supplier relationship management (by being ready with mitigation strategies and alternatives).
#3. Enhanced responsiveness of suppliers.
Good relationships emerge from effective two-way communication. Keeping suppliers informed of your company’s changing needs and circumstances encourages them to keep you informed of theirs. It also encourages them to be more responsive to your requests, both expected and unexpected.
#4. Increased visibility
Good SRM improves the visibility of your value chain and operations, as well as your understanding of what is going on within and around your business. Good supplier relationship management will provide you with detailed information about your incoming goods and service progress.
#5. Utilize all of the capabilities of your suppliers.
It’s often beneficial to learn what else your supplier can do for you as your relationships with them grow. Perhaps they can provide additional services beyond what you approached them for; perhaps they have expertise in logistics or dealing with government red tape that can assist you; perhaps there are opportunities to collaborate; and so on.
Supplier Relationship Management Challenges
Although SRM is beneficial to an organization, it is not without its difficulties. SRM necessitates frequent and dedicated attention to quantitative and qualitative factors, as well as caution to avoid common pitfalls. Here are the four main types of SRM challenges:
#1. Misalignment.
Given the positive potential of supplier collaborations, innovation, and deep, meaningful relationships, it’s easy to forget that your interests won’t always be perfectly aligned with those of your suppliers.
#2. Managing supplier diversity improperly
Despite their common label, supplier diversity is the goal of two very different challenges: lowering supply chain risk and increasing the volume of purchases your organization makes from minority-owned businesses.
#3. Not mitigating risk and continuity.
The increasing frequency of supply chain disruptions in recent years, as well as unusually high turnover in businesses (namely, more frequent closures and acquisitions), have made business continuity more difficult.
#4. Lack of visibility.
We discussed how visibility is beneficial, but it does not occur naturally. It must be developed through effective relationship management. You’ll rarely have as much insight into a supplier organization as you do into your own, even with excellent visibility.
What are the 4 types of supplier relationships?
Supplier relationships come in five types:
- Arms-length.
- Partnership.
- Just in Time (JIT)
- Strategic alliance.
- Outsourcing/Subcontracting.
What are the three basic components of supplier relationship management?
Supplier segmentation, supplier strategy development, and supplier strategy execution are the three main steps of supplier relationship management.
What is a supplier relationship management example?
If the company manufactures automobiles, a tire manufacturer provides finished tires for those automobiles. They may also work with a material supplier who supplies the aluminum for a part that the automaker must forge to manufacture their vehicle.
How do you maintain a good relationship with a supplier?
How to maintain positive relationships with your suppliers:
- Select suppliers who share your values.
- Recognize the needs of your suppliers.
- Provide excellent customer service.
- Maintain consistent communication.
- Provide prompt feedback.
- Show loyalty to those who have provided good service.
What is the importance of supplier relationships?
Getting more value for your company is the main benefit of establishing strong, mutually beneficial supplier relationships.
What are the goals of supplier relationship management?
SRM aims to improve supply chain performance by improving communication, collaboration, and coordination with suppliers.
Conclusion
Supplier relationship management is a critical function for businesses that rely on material goods and services to arrive on time, meet proper standards, and be sold at a reasonable price. On the other hand, great supplier relationship managers look for opportunities to deepen relationships, mitigate risk, and even form partnerships with suppliers to create the next generation of innovative goods and services.
Related Articles
- SUPPLIER MANAGEMENT SYSTEMS: Process and Best Tools
- BUILDING A BUSINESS RELATIONSHIP: Effective Steps & Tips for Any Business (All You Need)
- HOW TO DROPSHIP TO AMAZON: Everything You Need to Know!!!
- How To Find The Best Wholesale Suppliers In The United States
- BARGAINING POWER OF SUPPLIERS: What It Is & How It Works
References
