In the world of manufacturing, success hinges on more than just producing quality products. A company’s ability to secure reliable, high-quality suppliers is also essential. This is where supplier relationship management (SRM) comes in. By fostering strong relationships with suppliers and managing those relationships effectively, manufacturers can improve quality, reduce costs, and drive innovation.
In this article, we’ll explore why SRM is critical in manufacturing, backed by statistics and research, and provide insights into how companies can implement effective SRM programs to achieve success in today’s competitive manufacturing landscape.
Better the Devil You Know
Managing supplier relationships through SRM can provide several benefits that cannot be achieved by not managing them or constantly looking for new suppliers. The primary advantage of SRM is that it enables companies to build long-term, collaborative relationships with their suppliers, which can lead to improvements in quality, cost savings, and innovation.
One of the key benefits of effective SRM is cost savings. By working closely with suppliers to optimise procurement processes, negotiate better pricing and contract terms, and reduce waste and inefficiencies in the supply chain, companies can achieve significant cost savings.
A study by the Aberdeen Group found that companies with best-in-class SRM programs achieved an average of 12.7% reduction in procurement costs compared to companies with ineffective SRM programs.
Another advantage of SRM is improved quality. By setting clear expectations and standards, monitoring supplier performance, and providing feedback and support, companies can ensure that suppliers meet their quality requirements and deliver products and services that meet or exceed customer expectations.
In a survey conducted by Deloitte, 65% of manufacturing executives reported that improving supplier quality was a top priority, and 57% stated that they would invest in SRM programs to improve supplier quality.
SRM can also help companies reduce supply chain risks, such as disruptions, quality issues, and compliance risks. By building strong relationships with suppliers and monitoring their performance, companies can identify and address potential risks before they become major issues, reducing the likelihood of supply chain disruptions or quality issues.
According to a report by DHL Supply Chain, 85% of manufacturers surveyed experienced supply chain disruption in the past five years, with the average financial impact of a disruption being $3.6 million.
Effective SRM can also drive innovation and new product development. By tapping into their suppliers’ expertise and knowledge, companies can identify opportunities for joint process improvement, product co-development, and other forms of innovation that can benefit both companies and customers.
In a survey by Procurement Leaders, 86% of manufacturing executives stated that SRM was critical to driving innovation in their organisations.
Competitive advantage is critical in any industry, and effective SRM can help manufacturing companies gain a competitive edge. As mentioned above, by managing supplier relationships effectively, companies can improve quality, reduce costs, and drive innovation, which can differentiate them in the market and improve their bottom line.
According to a report by McKinsey & Company, companies with best-in-class SRM programs achieved an average of 30% higher profit margins compared to companies with ineffective SRM systems.
By building strong relationships with suppliers, companies can also differentiate themselves in the market by attracting and retaining customers. Customers are more likely to do business with companies that prioritise quality, offer competitive pricing, and innovate to meet their needs. Effective SRM can help companies achieve these goals, leading to higher customer satisfaction, loyalty, and retention.
When companies work closely with their suppliers, they can set clear quality standards, monitor supplier performance, and provide feedback and support to improve quality. This can result in products and services that meet or exceed customer expectations, leading to higher customer satisfaction and loyalty.
By optimising procurement processes, negotiating better pricing and contract terms, and reducing waste and inefficiencies in the supply chain, companies can achieve significant cost savings. This can allow companies to offer competitive pricing to customers while maintaining profitability, making them more attractive to customers looking for affordable options.
In addition to quality and cost, effective SRM can drive innovation, which can differentiate companies in the market. This can lead to the development of new products and services that meet customer needs and differentiate the company from its competitors.
“New” Doesn’t Always Mean Better
While effective SRM can provide numerous benefits, not managing supplier relationships effectively or continually looking for new suppliers can lead to several disadvantages. These include:
- Higher Costs: Constantly changing suppliers can lead to increased procurement costs, as new suppliers may require more resources and time to vet, onboard, and integrate into the supply chain.
- Lower Quality: Working with new or untested suppliers can lead to lower product and service quality, which can result in customer dissatisfaction and negative impacts on the brand.
- Higher Risk: Constantly changing suppliers can increase the risk of supply chain disruptions, quality issues, and compliance risks.
- Limited Innovation: Not building long-term relationships with suppliers can limit opportunities for innovation and new product development, as suppliers may be less willing to invest in joint initiatives with companies they perceive as less committed.
Supercharging Your SRM
It is evident from numerous studies that in today’s dynamic and ever-changing manufacturing industry landscape effective SRM is crucial in driving profitability and competitiveness. To achieve effective SRM, companies must build long-term, collaborative relationships with their suppliers, set clear expectations and standards, monitor supplier performance, and provide feedback and support.
To achieve effective supplier relationship management (SRM), companies need to have the right tools and resources in place. This is where Sourcedogg’s comprehensive SRM functionality can make a major difference. Sourcedogg is designed to help companies manage their supplier relationships effectively and efficiently, enabling them to streamline their procurement processes, improve communication, and achieve better outcomes.
Sourcedogg’s SRM platform offers a wide range of features and benefits, including:
- Supplier Data Management: The software enables companies to centralise and manage supplier data effectively, providing a comprehensive view of supplier performance and enabling companies to make informed decisions.
- Contract Management: The software streamlines the contract management process, enabling companies to negotiate better terms and ensure compliance with contract requirements.
- Collaboration Tools: The software provides a platform for effective, centralised communication and collaboration with suppliers, enabling companies to build strong relationships and drive innovation.
- Performance Management: The software enables companies to monitor supplier performance effectively, track key metrics, and provide feedback to improve supplier performance.
- Risk Management: The software provides tools for collecting, storing and sharing data for identifying and mitigating supplier risk, enabling companies to minimise the impact of supply chain disruptions and compliance issues.
By leveraging Sourcedogg’s SRM software, companies can achieve effective supplier relationship management, improve procurement efficiency, reduce costs, and drive innovation. Get in touch with one of the SourceDogg supplier management experts today for a demo.