Margins are being stretched like never before as supply chains get more complex and the demand to decrease prices for the customer grows. Businesses are increasingly turning to supplier relationship management (SRM) as a structured and systematic practice to procuring the goods and services they require in a more strategic way to sustain revenues and improve efficiency.
Without a good supplier management strategy in place, suppliers may come to view their customers as nothing more than bargaining partners who aren’t interested in mutual growth and development. If this occurs, they may be less likely to deliver their best efforts in meeting your company’s objectives. The result is that, due to the more transactional supplier relationship, your business might lose out considerably as a result of disruptions in supply chains, delayed product launches, and a tarnished brand image, amongst other things.
The requirement for an efficient procurement operation is growing, and the advantages of using a supplier relationship management platform are becoming more apparent. As a result, implementing such a solution has become (in our opinion) essential, as it serves as an important conduit in the improvement of procedures between buyers and their vendors.
Many organizations of all sizes and sectors have already resorted to SRM software to achieve high-quality production, lower supplier costs, and other economic advantages. SRM has benefited the decision-making process significantly. Since all useful data is integrated, the entire process is simplified and streamlined.
Furthermore, effective SRM may automate or allow the quick duplication of many manual tasks, substantially lowering the time spent. It will also enable the company to enhance its whole supply chain, giving them a competitive advantage in its specific niches and/or businesses. It’s also worth mentioning that an SRM platform may assist companies in determining the strategic relevance of each of their suppliers and acting on that knowledge. But, before we get into the major advantages of supplier relationship management solutions, let’s first define SRM and why it’s critical.
What exactly is Supplier Relationship Management (SRM)?
Supplier Relationship Management (SRM) is a structured way to analyse suppliers’ contributions and impact on success, choosing strategies to optimize suppliers’ efficiency, and building a strategic plan for implementing these decisions.
Supplier relationship management is a component of vendor management in which businesses classify their suppliers and identify integral supply categories to develop strategies capable of handling their vendors and supplies more efficiently.
The following are the three key steps in managing supplier relationships:
The aim is to distinguish amongst suppliers to identify potential threats and opportunities.
Development of Supplier Strategy
Develop an optimum approach to interacting with suppliers based on business objectives.
Implementation of Supplier Strategy
The planned strategy in the previous phase is implemented efficiently to achieve the desired outcomes in line with the objectives of the business. The implementation phase also includes an “evolution” stage that allows a business to adapt its strategy to changing market conditions.
What is the significance of Supplier Relationship Management (SRM)?
Purchasing serves a critical strategic function in keeping a business running by being integral to cash flow through controlling expenditure whilst serving the customer. However, if supplier relationships are strained, both sides risk losing a significant amount of time and money. As a result, developing and managing positive supplier relationships will provide significant value to the business as a whole.
Supplier Relationship Management is focused on assisting in the development of healthy buyer-supplier relationships and determining which actions to engage in with each supplier.
The objective of SRM is to enhance and streamline practices between a buyer and the suppliers.
Supplier Relationship Management involves establishing a beneficial trade relationship with suppliers, particularly those considered to be the most critical to the business, to enhance quality, efficiency, innovation, and other potential benefits.
However, it’s critical to remember that supplier relationships must never be one-sided. They must always be built on agreements that benefit both parties. In ideal circumstances, both parties are happy with their commercial relationships, resulting in a win-win outcome.
The Benefits of an Efficient and Effective SRM
Modern companies operate with a diverse set of vendors, and their supply chains are getting increasingly complex. Because of the growing requirement to lower consumer costs, margins must be squeezed as far as plausible. Companies must use SRM as a structured and systematic method to procuring the goods and services they require to run their business to preserve profitability and efficiency. This is especially true in niche businesses where suppliers are inherently limited, such as in the construction sector when dealing with specialist subcontractors. The market is not infinite, so SRM is a much more successful strategy.
There are numerous advantages to supplier relationship management, all of which contribute to a healthy bottom line.
The following five are among the most important of them:
1. A more efficient procurement method
Even the most well-thought-out procedures can be upgraded. A strong supplier relationship encourages the exchange of ideas and feedback, which may be utilized to enhance operations and speed up time to market. This will eventually result in lower expenses.
Procurement experts are now realizing that building strategic alliances with their primary suppliers can benefit both the customer and the supplier.
Some organizations have been ignoring SRM in the past since their primary focus has been on developing customer relations and cutting costs. However, when the price is as low as is feasible, these companies are now aware of the significant advantages that effective supplier relationship management can deliver.
There is a correlation between effective supplier relationship management and the following business outcomes:
- A greater proportion of the market
- Adaptability to market changes
- A higher return on investment
- Order fulfilment lead times are shortened
2. Cost Reduction
The setup of partnerships with new suppliers generally involves considerable costs, but most can be eliminated with a supplier relationship management platform.
In a partnership with major suppliers that benefit each other, a company can seek long-term cost reductions. Good ties with suppliers can not only save money, but also decrease the problems of availability, delays, and quality concerns.
3. Less waste and volatility in the cost
Waste might be produced because the processes between the purchaser and the supplier are inefficient.
Contracts define, as far as what is to be supplied and for what price was agreed. SRM platforms can detect and eliminate waste sources, reduce costs further and improve services.
In addition, companies can utilize supplier relationship management in exchange for a minimum order, longer-term contracts, or any other criteria, to make use of set prices or scaled increases. This reduces pricing fluctuation for companies, which might reflect badly to customers. Companies are then more able to determine their price structures when they have an unambiguous cost basis, which typically results in better and more loyal consumers.
4. Increased efficiency
Communication will grow as the relationship between a business and a supplier grows. As the supplier learns more about the company with whom they are partnering, they can improve the quality of their service.
Order or project difficulties are less likely, and if they do emerge, the two’s close connection will make it simpler to resolve them.
5. A more robust supply network
Working together helps suppliers and buyers to have a deeper understanding of each other’s inner workings.
Both parties may be able to adjust their working behaviours and processes to better suit the other in some situations, resulting in increased efficiency and commercial business advantages.
A stronger supply chain enables buyers to minimize the number of vendors from which they procure, simplifying the purchasing process to make budgeting much easier.
A long-term relationship between your company and its suppliers enables the constant exchange of feedback and ideas, which is why supplier relationship management is so critical. This will result in a more optimized, efficient supply chain in the long run, which will save costs and improve customer service.