Understanding Supplier Relationship Management – Tips & Best Practices

What Is Supplier Relationship Management?

Supplier Relationship Management (SRM) is a company’s strategic management of its interactions with its suppliers. Good supplier relationship management creates and sustains relationships that are mutually beneficial for both the supplier and the organization. 

SRM aims to enhance the value and efficiency of supplier-related interactions as part of the entire product life cycle. Supplier relationship management is a crucial operation of an organization as it controls and manages the suppliers and, in turn, the supply.  SRM maintains the relationship with suppliers to the advantage of all the parties involved. 

Without a suitable supplier relationship management process, suppliers may begin looking at their purchasers as just mediators who are not concerned with mutual growth prospects. They might not chip in their best efforts in satiating your expectations.

As such, corporate purchasers confront considerable damage - delayed product roll-out, interrupted supply chain, penalties by regulatory bodies, hampered brand image, and so on.

Ways To Improve Supplier Relationships

There are three 3 key focus areas that can help improve relationships with one’s suppliers.

Consistency:
SRM is not a process that can be implemented by the procurement team alone. It must involve all the people who engage with suppliers at multiple levels of management. The strategy and processes of SRM should be seamlessly integrated with the strategies and processes of the entire organization at all levels. This improves process consistency and the ease of doing business with the organization.

Clear Process Definition:
The flow and process of all the steps in supply should be clearly defined and implemented. Documentation at each step makes the system transparent for both the supplier as well as the organization. It prevents misunderstandings and miscommunication. 

Involve Suppliers:
Supplier Relationship Management is not entirely an internal process. Periodic joint meetings and activities with suppliers can help enhance and streamline supply chain management, demand management, inventory management, and total cost modeling. Occasional meetings create an environment of collaboration and can help better tackle potential roadblocks and also take advantage of opportunities in the field.

Supplier Management Practices

Refine Strategies:
Not all suppliers are equal. Supplier Relationship Management strategies should study and categorize suppliers. Some example categories are; distributors, wholesalers, manufacturers, and importers. Uniform supplier relationship strategies and processes may not apply to all the supplier categories. Refine SRM strategies for each category for better relationships. 

Identify Key Suppliers:
Key suppliers are strategically vital to the organization. Supplier Relationship Management strategies should give these suppliers extra attention while also ensuring that there are alternatives in order to mitigate any possible risks of supply disruptions. 

Payment Management:
Paying suppliers on time is one of the most essential practices in SRM. Timely payments build trust with the supplier. When one is a reliable customer, it helps strengthen value in the relationship for both parties.

Agreements:
It cannot be stressed enough that good agreements make for good business relationships. When every aspect of the supplier and buyer relationship is agreed upon in detail, it prevents disputes and misunderstandings. It also creates a clear process and workflow that both the buyer and supplier can follow. 

Good Communication:
Regular communication and documentation between the supplier and buyer keep information flowing smoothly between the organization and its vendors. It also helps identify and eliminate potential problems early. It might be tempting to only contact a supplier when there is a problem or issue. However, nurturing an atmosphere of regular and pleasant communication ensures that when there is a problem it will be identified and addressed sooner. Good documentation also helps to evaluate the relationship and helps in issue resolution. 

Supplier Relationship Management Practices

Even though several organizations have a process in situ to manage their supplier relationships, most often, there is still scope for improvement. Here are some supplier management best practices:

Risk Mitigation:
Problems with a supplier can cause a domino effect through the processes of the entire organization. Supplier Relationship Management should include a process of evaluating suppliers based on their previous work, organizational stability, and experience with crisis management. When risk management is integrated into the process of selecting and maintaining suppliers it helps mitigate risks. 

Positive ROI

Many procurement teams encounter issues while ensuring the commitment and finances for their SRM strategy. The primary reason behind that is they find difficulty in creating a business case that accents the financial advantages of supplier relationship management.

Procurement crews can begin evaluating the benefits by determining the effect of risk mitigation, value leaks due to non-adherent agreements, and narrating persuasive customer stories via case studies. By incorporating the finance officials from day one, procurement crews can grab the impact SRM creates on the business’s balance sheet.

Value Vs Cost:
On the surface, measures to cut costs and take the cheaper route may seem the obvious choice in customer relationship management strategies. However, it is more important to consider not just the cost advantage but also the overall value that a supplier holds. Supplier Relationship Management ideally identifies and nurtures relationships with those suppliers who are more likely to add value to the organization in the longer run. Suppliers that help improve the long-term quality, value, and growth strategies of the organization while also lowering the risk factor are desirable.

Leverage Technology:
There are many Supplier Relationship Management Solutions that help to implement SRM strategies across the entire process. Technology helps make the SRM transparent and less cumbersome. It also enables real-time evaluation of all the aspects of SRM. 

Spend Optimization

Strategic sourcing has attained a threshold where the returns are declining gradually for certain domains. Almost every ‘low-hanging fruit’ has been plucked and so pulling out value through bidding and consolidation is becoming a tough nut to crack.

SRM practices, such as process re-engineering, cooperative supply chain evaluation, decreased inventory, joint demand management, and overall cost modeling, ensure cost-cutting and optimize business spend.

Perks of Having an E-procurement Solution in Supplier Relationship Management
E-procurement solutions allow businesses to rapidly identify and analyze potential suppliers, quickly bring them aboard, and gather a comprehensive view of all supplier-associated information, including risk and performance, in a single platform.

Paperless Onboarding
RFx and other buying procedures are synchronized smoothly with the supplier management module to stave off physical labor and automate onboarding.

Supplier Self-service
Provide suppliers the capability to manage their profiles, monitor payments, and update order details via an easy-to-use collaboration platform.

Fast Supplier Screening

Regain and validate vendor details, such as financial data, business reports, and credit risk, using the supplier’s unique number.

Corrective Actions

When vendor performance stumbles, companies have the choice to start a supplier corrective action plan (SCAR) or offboard them from the platform.

360-degree Performance

Intuitive dashboards provide a holistic vision of supplier performance information, including regulatory compliance, order timeliness, and so on.

Conclusion

Good supplier relationships go beyond just transactional levels of engagement and involve a personal understanding of key vendors. Furthermore, proper supplier relationship management strategies help businesses enhance efficiency, curb costs, create ever-lasting relationships, decrease pricing fluctuations, and become the best organization possible.