Performing suppliers are the key to a well-oiled supply chain. Consequently, a good relationship with these performing suppliers is the key to a thriving business.
For instance, you are running a clinic or aged-care facility. You will need efficient material suppliers that cater to medical equipment, such as surgical instruments, mobility aids, and disinfection products. Suppliers are essential at every touchpoint.
To enhance business expertise and constantly complement new competitive advantages, enterprises must turn to supplier relationship management (SRM), particularly considering the uncertainty of today’s business environment. Accordingly, ensuring a solid relationship with your material suppliers empowers your business to provide better services and procure effectively.
Who are Suppliers in Business?
In business, a supplier is a person or an entity who delivers top-notch services and goods from manufacturers at reasonable costs to retailers or distributors for sale. They provide deliverables in the form of raw materials, which the manufacturers later process into market-ready end products.
Suppliers act as a middle-person between producers and retailers. Also, they ensure that the required stock is in adequate quantity.
Here is a simple example to understand the concept.
A café purchases various ingredients necessary to prepare coffee from different supplier groups. One material supplier delivers the coffee beans, one provides sugar (white and brown), while the other offers ovens and toasters. Therefore, this entire cycle relies on these suppliers.
Difference between Vendors and Suppliers
In the supply chain, you will often hear people using the terms vendor and supplier interchangeably as both are common (and important) participants in supply chains. However, while both deliver products and services, they differ in certain areas, underlining their uniqueness in the supply chain realm.
Let us delve into the topic.
Suppliers provide the necessary goods and services to a company, while vendors sell the same to customers for a price.
Suppliers are associated with business-to-business (B2B) sales relationships. Vendors, on the other side, are associated with business-to-consumer (B2C) sales relationships.
This is how a typical supply chain works: Supplier > Manufacturer > Distributor > Vendor > Consumer.
Therefore, suppliers are the first link of the supply chain, whereas vendors are the penultimate entity in the entire flow.
Suppliers sell deliverables to companies for resale purposes. Contrarily, vendors sell deliverables to customers for usage purposes.
While suppliers typically provide a particular sort of products to producers in bulk quantities, vendors house a large assortment of products and deliver end-users in small batches.
Importance of Suppliers in Procurement
Suppliers play an instrumental role at every phase of the product life cycle. While the product lifecycle can be small or big based on the organization’s volume, businesses cannot afford to put their relationship with their suppliers at stake.
Read on to know the advantages of having a strong collaboration with suppliers:
Innovation and Industry Intelligence
As material suppliers directly connect with the industry, they offer new suggestions for the overall development of the service and product. Based on the understanding of the company, suppliers help create fit-for-purpose ideas and, in turn, trigger product innovation by upping its ante over others.
For example, a firm that develops innovative tech-powered coffee makers will stay ahead of the curve.
On-time Product Delivery
Consumers’ trust depends on reliability, which is further based on time and delivery. This implies that if your backend (suppliers) delivers you goods on time, you can maintain the inventory turnover ratio. Consequently, you can track the cash flow and minimize the risk of inventory wastage.
And since you can eventually provide end products on schedule and defect-free, your customers will love investing money in your business portfolio.
However, the benefits further extend to the manufacturing phase. You will develop products fast, avoid returns, and build quality-centered offerings.
Quality suppliers help you handle finances from their side. For example, suppose your business runs out of liquid assets. In that case, material suppliers will keep your resources afloat by offering additional financing in the form of extending the payment deadline or even investing in your organization.
Offer Competitive Edge
Suppliers help you stay in line with the market competition; they will keep you above par regarding pricing, quality, and product usability.
What Is Supplier Relationship Management?
Supplier relationship management (SRM) is the systemic approach of strategically managing supply categories for optimal success and profitability. It is a go-to method for supply chain professionals regularly addressing suppliers in project management, procurement, and operations.
Often called the B2B equivalent of customer relationship management (CRM), SRM includes determining all suppliers’ strategic value and creating a supplier scorecard as per their contribution to your business growth. Then, you devise strategies to boost that performance by forging and utilizing strategic relationships with key suppliers in business plan.
Put simply, SRM highlights that some suppliers deserve a larger investment in terms of vetting, time, communication, and resources versus others.
5 Benefits of Supplier Relationship Management
Here are some ways SRM benefits organizations and their procurement teams:
- Cost Reductions
With better visibility, businesses can spot the hidden expenses and take measures to convert them into cost efficiencies. Moreover, solid supplier relationships help companies negotiate things, such as better rebates, rates, delivery cost discounts, and volume thresholds. Similarly, manufacturers and suppliers can partner on payment terms, contract length, ancillary charges, and other incentives to boost profit margins.
- Efficient Onboarding
Sampling new products, sourcing new suppliers, and negotiating agreements consumes significant money and time. By leveraging SRM to optimize supply chain management practices, organizations can easily collect relevant insights, including vendor company profile, supplier capacity, and capability data. Additionally, they can drastically trim the expenses related to accelerating onboarding activities, building new supplier relationships, and relevant procurement procedures.
- Strengthens Buyer-supplier Bond
With SRM, prioritizing the sources and having a clear picture of the supplier's value induce trust and mutual respect. This, in turn, results in stronger and longer buyer-supplier relationships.
Additionally, better collaborations contribute to responsible business practices. Making room for routine and substantial discussions about communication and performance helps companies stimulate an environment of innovation and collaboration. As such, this will help both parties shape a sustainable future by receiving brand recognition and increasing goodwill.
- Better Operational Efficiencies
SRM helps organizations achieve economies of scale annually by automating and streamlining repetitive and routine supplier management tasks. A centralized dashboard helps through online record-keeping, reducing errors, administrative labor costs, data duplication, and loss of critical supplier data.
As companies grow, so are their supplies both in complexity and size. SRM enables manufacturers and suppliers to remove existing communication loopholes with time and establish a clear view of what they need to stave off supply chain delays.
- Risk Mitigation
By offering greater visibility, SRM helps spot and minimize potential risks. Alongside online inventory management, SRM enables businesses to monitor suppliers and accumulate crucial information to confirm supplier data, track performance, and detect possible supplier risks quickly and easily. Moreover, data gathered from performance monitoring will flag upcoming challenges and single out the areas for improvement.
Manage Supplier Risk and Compliance Effortlessly with Beroe
Enterprises today are exposed to multiple risks if they do not know their suppliers. As such, supplier risk and compliance is no longer a “nice-to-have” but a “must-have.” Beroe’s Know Your Supplier (KYS) solution provides organizations with deep insights and increased transparency in their suppliers and associated risks. Our cloud-based program offers an integrated panorama for due diligence on third parties across critical risk and compliance parameters - money laundering, cyber risk, and regulatory issues.
Leveraging cutting-edge technologies to oversee supply chains, Beroe’s KYS lets procurement teams import suppliers and assign them a questionnaire - an essential move for due diligence. Moreover, they can monitor every touchpoint of the due diligence in real-time and access the report with a click. Furthermore, procurement teams will have a 360-degree view of the corporate entities and deep-dive into enterprise frameworks, ownerships, and reports.
With our KYS program, get the comprehensive picture and uncover hidden relationships and ownership structures that you would not find anyplace else.
Supplier Updates 2022
Study reveals automotive suppliers’ sentiments worsening despite solid demand
The Original Equipment Suppliers Association’s (OESA) Q4 2021 Automotive Supplier Barometer Index (SBI) has revealed that continued supply chain disturbances from input deficits and the resulting OEM production halt are weighing significantly on the supplier managers’ sentiments despite staggering US demand for light commercial vehicles (LCV).
The study’s net results underscored an index reading of 34, dropping from the Q3 2021 reading by 18 points and neutral reading by 16 points.
Sponsored by RSM US LLP, the results of the Q4 2021 OESA Automotive SBI indicate:
Due to semiconductor shortages, stricter labor conditions, and insufficient raw materials, manufacturing standstills will remain to loom the industry over the coming year. Moreover, suppliers’ optimism on the US economy has waned as pandemic-related obstacles have lingered longer than anticipated.
Actual production levels in 2020 and 2021 will fail to hit the supply base volume by nearly 500,000 units. While 2022 output volumes are likely to restore their positive run, they will continue to encounter semiconductor shortage-related risks.
Terms of credit lines and commercial loans will continue to stiffen throughout the following year. Even though confidence in capital acquisition stays strong, suppliers are less optimistic about access to their required capital compared to 2020.
While about 2 out of 5 suppliers have surpassed the industry’s innovation pace, about a third are behind. Companies are investing in mergers, portfolio diversification, technological R&D, and creating offerings that bolster the electric-vehicle (EV) market to stand out from their peers.
“Leading firms continue to navigate pervasive supply-chain constraints with a focus on teams and technology to improve visibility and manage through the current crises to lift competitiveness and build a stronger position in the market recovery,” says Mike Jackson, executive director, strategy and research at OESA. He continues, “Despite year-over-year profit pressures, suppliers continue to display remarkable tenacity by disrupting past practices to uncover new solutions and address opportunities across the mobility landscape – through a renewed focus on software competency and a vital commitment to harnessing innovation.”.
Survey reveals only a quarter of UK suppliers being regularly measured on climate-related data by organizations
A recent survey revealed that only 1 out of 4 UK suppliers were enquired about carbon emissions by their end-users, despite a rise in net-zero commitments. The report incorporated 300 suppliers, 100 from the UK and 200 across Germany, France, and Switzerland, from various industries, including finance, healthcare, and logistics.
Additionally, only a fifth of the supplier cohort was requested to disclose data about air pollution, water stewardship, and deforestation from their buyers. The fraction dips to a tenth when it comes to sustainability-associated requirements in contracts and agreements.
The survey especially highlights that the UK-based incumbents in high-emitting zones, for instance, will need to evaluate and declare climate risk throughout their supply chains by April 2022 and roll out net-zero strategies from 2023. For these companies, at least 90% of the overall carbon footprint will exist in Scope 3 indirect sources, such as supply chains.
Moving forward, about 8 out of 10 respondents reckoned that sustainability offers a competitive edge, while nearly 3/5 asserted that end-users would pick the sustainable path, even if it costs a fortune.
Additionally, over a third of the supplier cohort emphasized the need for better collaboration with buyers on their sustainability journey – rapid decarbonization, reduced ecological harm, and improved resource efficacy.
“Suppliers have a vital role to play in reducing environmental impact, but organizations have a responsibility to give them the right tools to boost green initiatives,” said Ivalua’s smart procurement lead Alex Saric. “This means regularly communicating with suppliers, assessing their efforts, and providing them with the flexibility to offer innovative solutions.”
Victoria’s Secret to invest $150 Mn to address supply chain issues that could impede sales
Victoria’s Secret has declared that tackling supply chain hurdles could cost the firm around $150 Mn for Q3 and Q4 for additional freight and other expenses associated with the supply chain. And despite that, sales could take a blow.
“We estimate the COVID-19 related disruption to our base of supply will increase our freight and product costs by as much as an incremental $100 million in Q4 (or $150 million in total for Q3/Q4 combined vs. our previous guidance of a total $100 million),” the firm commented.
“In addition to higher costs, we know these challenges will minimize our flexibility to chase winners and deliver increased sales versus our forecast, which in turn may inhibit our ability to accelerate sales growth year-over-year beyond what we are forecasting for the quarter.”
Victoria’s Secret is steering toward Q4 sales of up to 3% versus $2.10 Bn last year. The FactSet estimates sales of around $2.02 Bn.
While the supply chain and inflation constraints on Victoria’s Secret will compound during the holidays, the overall business is following a positive trail.
“[The] recovery story remains undervalued, [and there’s] a lot to like in a tough retail environment,” analysts said. “Victoria’s Secret has shown us the brand momentum remains on track, but cost pressures are building – and the Street needs to appreciate that margins will likely come down next fiscal year.”
Kellog's success story of weathering the 2020 supply chain imbalance
In a mission to build supply chains resilient enough to survive a certain risk degree, Kellogg Co. moved from offering restaurants and schools in bulk to feeding remote employees.
With people staying in their homes and reducing shopping trips, the sales of Kellogg’s noodles, cereals, and snacks surged amidst the COVID-19 crisis. Additionally, the at-home consumption far outweighed the dipping on-the-go retail.
While growth had steadied by September, the American multinational’s sales during the first three quarters of 2020 rose 7% year-over-year, to $10.5 Bn, barring currency rate volatilities and divestitures.
In the Asia Pacific, the Middle East, and Africa (AMEA) alone, Q3 net sales – barring currency swings – shot by around 11% to $600 Mn, and operating profit increased 6% to $59 Mn, quarter-on-quarter.
“There was one day in March when our third-party warehouse had to do the equivalent to a week’s worth of dispatching, and then we worked at that level for three weeks,” said Shanaka Wijesuriya, FCMA, CGMA, FCPA (Australia), CFO for Kellogg’s in Australia and New Zealand. “We are used to big surges during promotions, but this was unprecedented.”
Based in Sydney, Wijesuriya said that the multinational rapidly underwent its several weeks’ buffer stock in Australia, where Kellogg’s has produced for nearly nine decades.
Wijesuriya was a steering committee member that focused on the major stock-keeping units (SKUs) harboring over 100 products, including Nutri-Grain cereal bars, Corn Flakes, and Coco Pops. They swiftly used up loads of the grains stored in warehouses.
Kellogg’s warehouse and factory workers – and those of its suppliers and transportation partners – walked extra miles to boost the production and rapidly load more containers and trucks.
However, paperboard packaging became a hindrance, as transportation delays due to the COVID-19 pandemic left the region’s Korean supplier scarce. The procurement crew searched across the globe for a new paperboard source and discovered a substitute supplier nearby New Zealand. As such, reduced shipping expenses helped them compensate for the expensive local paperboard.
For Wijesuriya, the public-health crisis underscores the benefits of having dispersed supply chains and locating suppliers in the vicinity. Moreover, the massive inventory is always valuable in contenting consumers who are happy to find a trusted label on the shelves.
As organizations incline toward automation, partially to weather future health emergencies, Wijesuriya attributes the human element of the supply chain for its capability to stretch. While mechanization is on the cards, the human spirit and resilience will remain unmatched.
Frequently Asked Questions
Why is supplier relationship management important?
Supplier relationship management is about helping forge positive supplier-buyer relationships and determining which activities to take up with every supplier. And with healthy supplier relationships, companies can benefit from preferential pricing, dedicated service, and special terms. Consequently, their supply chains become more efficient on the whole, driving better value for their businesses.
What is the supplier relationship management process?
Supplier relationship management (SRM) is the process of evaluating every supplier’s measurables and performances to understand how well they match an organization’s goals while also creating strategies with these suppliers to enhance collaboration and workflows. By forming partnerships with suppliers professionally, companies can fuel and save time and money for both parties with cooperative, streamlined procedures.
How to develop supplier relationship management?
Here are the basic steps to develop supplier relationship management:
- Categorizing suppliers based on suppliers’ responsibility, profitability level, product type, and delivery speed
- Creating tailored strategies according to the categorization
- Gathering supplier-associated data, including contact details, contracts, location, product dealings, quotes, work ratings, and certifications
- Highlighting various risks related to supply chains and strategizing accordingly to eliminate and minimize potential uncertainties well in advance
- Gauging and rating supplier performance based on the deliverables promised, such as timely delivery, obeyed agreements, and following legalities
- Entering into a legal written contract to avoid confusion and conflicts between buyers and suppliers
How to improve supplier relationship management?
Here are some practical ways to optimize supplier relationship management:
- Always keep suppliers in the loop when it comes to creating or updating business strategies
- Establish meaningful KPIs to determine suppliers’ quality and performance
- Spot potential supply chain problems and risks in the business relationship and recalibrate
- Make the most of technology
- Create a well-documented agreement that fulfills both parties' needs
Minimize Supplier Risk to Achieve Higher Scalability
Fulfilling consumer promises kick-starts with material suppliers. Irrespective of how robust your procurement teams might be, looking for suitable suppliers to satiate your business requirements is time and cost-intensive.
Besides, numerous entities can get involved in delivering a service or product, and the onus is more on companies to understand these upstream relationships. Hence, it is paramount to know not only your first-tier suppliers but also other tiers as well (supplier network) throughout the relationship.
Backed by the right digital tooling, Beroe’s KYS program brings the pieces of the puzzle together. As a result, your procurement team will have a complete picture of every risk type alongside a well-deployed risk management framework.
Check out Beroe KYS Program.