Supplier relationship management (SRM) is the process of interacting with and managing third-party suppliers who supply your company with goods, materials, and services. To optimize the value of the partnership, you’ll seek out and work with suppliers that are both cost-effective and comfortable to deal with. In essence, it’s far more complex intricate than this, as with most business practices.
Because of technological advancements and the global size of the economy, supplier management has seen a significant transformation in recent years. It’s difficult to choose the best supplier when you have so many options, but adopting new techniques to streamline your supplier management system might help.
First, let’s start from the beginning to better grasp the concept of SRM.
Solutions for Managing Supplier Relationships in the Early Stages
In a Harvard Business Review essay titled “Purchasing Must Become Supply Management,” McKinsey consultant Peter Kraljic originally presented the notion of SRM in 1983.
“Rather of simply watching current developments, management must transform events to its benefit. This necessitates a complete shift in mindset: from procurement (an operational role) to supply management (a strategic function),” Kraljic stated.
This is crucial to understanding SRM. Relationships must be strategic, and they must be growth-oriented. Whether they’re purchasing real items, services or software, procurement managers and senior buyers should keep this in mind.
Approaches for Managing Supplier Relations
Where businesses only manage supplier relationships when problems arise, and then try to figure out how to improve unreliable suppliers’ performance. This method wastes a significant amount of time and resources that may be better spent on other critical business operations.
Where supplier relationship management begins even before a contract is signed, ensuring the company’s long-term competitive advantage. This is a proactive strategy that can result in a good relationship even in its early phases.
Regardless of the industry, a strategic approach to supplier relationship management has always been critical to successful organizations that rely on third-party suppliers.
Apple, for example, earned a well-deserved reputation as a worldwide leader in supply chain management by establishing long-term relationships with its suppliers an important component of its supply chain strategy, ensuring that it could deliver smoothly in large quantities when introducing new products.
Why is Your Supplier Management System Important?
Let’s start by looking at the different sorts of suppliers that a product-oriented business can deal with:
- Distributors & Wholesalers
Wholesalers buy goods in bulk and resale them in smaller quantities for a higher unit price. Because they sell in huge numbers, they tend to provide the lowest pricing and are hesitant to cooperate with smaller orders.
- Suppliers & Manufacturers
These are distributors who can handle the products of a variety of businesses. Although the costs are often greater than wholesalers’, they sometimes handle smaller orders or can supply on a shorter timescale.
- Import Sources
Domestic importers can also sell items to businesses, much the same as domestic wholesalers.
Suppliers could indeed have a significant influence on a company’s operations. Suppliers play a critical part in generating revenue, and this is something that should never be overlooked. Working with dependable, high-quality suppliers can greatly help a company in scaling up. Unreliable suppliers can cause delays in your workflow and have a higher detrimental effect on your clients and customers than you might think.
Let’s look at SRM strategies and solutions.
Stronger Relationships with Suppliers: Solutions and Strategies
Having long-term, trustworthy relationships with devoted suppliers should be a top priority for any business looking to flourish in the market, so let’s look at some strategies and approaches that you’re probably implementing or considering to deliver that growth:
1. Your suppliers are more than simply suppliers to you.
They are your business partners, and this relationship should be built on mutual trust and loyalty, not just economic transactions. Make your suppliers feel like they’re a vital part of the organization. Inform them of your procedures and upcoming plans, such as new product launches and promotions, and pay close attention to their concerns and issues too as it all has a downstream effect.
2. Relationship management with suppliers is made easier by technology.
Incorporate supplier relationship management software to centralize information about your supply base. We may be biased of course, but having a single, simple online cloud platform for supply chain management is a way to get ahead.
You can also incorporate comprehensive purchase order management software, which allows you to create, process, and track purchase orders with your suppliers.
3. Understand the importance of timely payments.
As a first step in avoiding losing your suppliers, be sure to pay them promptly. You’ll be able to demonstrate that you’re a trustworthy customer and that you’re simple to work with – its really about mutual respect. The provider should be notified as soon as possible if you cannot make the payment on the specified date. Suppliers appreciate timely payments just as much as you do. It’s that easy. Accounting software may help you link payments to invoices and eliminate mistakes if you’re struggling with other difficulties, such as expenditure management.
4. Relationships should be robust and long-lasting.
Ensure that you’re in constant contact with each of your suppliers. Keep them updated about your strategy and plans regularly so they understand where they fit in and how they can contribute, plan for, and profit from them. Then, they might become more of a strategic partner. Do not hesitate to let them know how much you value their work! Let them know if anything doesn’t work for you. This connection becomes more productive and beneficial when there is a stronger, deeper relationship with clear, regular communication.
5. Value is what you get for the price you pay.
Nothing beats getting a good service or products at a good price for growing your revenue. Use your financial freedom if you have it. You can buy in bulk and save money, but you’ll have more inventory on your balance sheet, or you can pay a supplier sooner to gain a greater discount. It’s often preferable to spend a bit extra if the supplier provides a quality service that pays for itself over time since you require less time to manage them or they can be trusted to deliver straight to your client.
Relationships are very important, as mentioned in the previous section, however, you shouldn’t remain with a supplier just because you like them personally. Go for the best balance of quality service and minimised risk for your company, and remember that efficiency is a value product, not simply a cost.
6. Supplier relationships are made simpler by detailed agreements.
Supplier Relationship Agreements are essential if you buy from a supplier regularly. Make a list of everything that both sides anticipate from your partnership, including the item or service description, price, delivery terms, payment terms, communications, and so on, and also have both stakeholders sign it.
Depending on your company’s needs, this might be a basic or complex document or perhaps held in an online platform like SourceDogg. A well-documented Supplier Relationship Agreement can help you avoid any misunderstandings or conflicts. It’s a good idea to make a flowchart or a deck to describe the process to your team so that everyone understands their responsibilities and can identify problems in the workflow.
7. Assess the risks.
Always consider the potential risks of engaging with a supplier, especially if your supply chain is challenging. Inquire about references, prior work samples, years in business, areas of competence, how they handle crises, whatever they did previously they had a crisis, and so on. Are they reasonably priced? Do they have the necessary background, experience and accreditations? Do they have the resources to handle your orders? Is their financial situation secure? These are just a few of the inquiries you should make. You can live with it if the supplier you choose isn’t the cheapest but guarantees 100 per cent on-time delivery with a money-back guarantee; you can live with it because a chain is only as strong as its weakest link, and if your supplier fails you, your entire supply chain could be jeopardized, affecting your ability to deliver to clients.
Things can go wrong in business; by analyzing your suppliers’ risk profile in conjunction with a good Supplier Relationship Agreement, you can reduce the risks and be prepared to deal with any crises in collaboration with your suppliers, reducing business interruptions.
8. An investment in a specialized SRM procedure is worthwhile.
People and their soft skills are at the heart of SRM, according to the State of Flux’s 2017 Global SRM Research Report. Having people in the organization who are responsible for the SRM process is crucial, whether you need up an entire department to manage supplier relationships, a dedicated Supplier Relationship Manager, or even if it’s just a part of someone’s role.
Create a defined procedure to guide your team through the process of managing and administering suppliers. This can include flowcharts, SOPs, Policy Documents, and agreements in a large company, or just a 2 to 4-page document that includes all of your and the supplier’s points of agreement. Ensure that all procedures are followed and that all paperwork is signed when they are finally completed.
9. Not all suppliers are treated equally; think globally while acting locally.
As the world gets more linked, we are increasingly interacting with suppliers who are located elsewhere, whether across the state or around the globe. Every city, state, and nation has its own set of rules, regulations, and language. For example, in the United States, the word vendor is more generally used, but in the United Kingdom, In Brazil, and many other South American nations, the phrase supplier is more commonly used, every document must be physically stamped on receipt.
If some of your suppliers are based in another country, you and/or your SRM experts should keep cultural differences in mind while interacting with them. Workplace attitudes differ from culture to culture, so be aware of this and make sure you’re comfortable with it. Variations between currency, VAT rates, and other financial differences should all be taken into account. Finally, consider the time zone variations, i.e. be aware of the times when the supplier is accessible to communicate.
10. Above all, make sure everyone is on board.
It’s vital to have a Supplier Relationship Management Process in place, but it’s even more important to have everyone in your business on board.
According to research by American Express and AT Kearney, $533 billion is spent annually outside of traditional procurement channels. This is known as maverick spending, and it implies that procurement is not done per supplier agreements, resulting in additional expenditures. According to the report while 95% of companies questioned had preferred supplier lists, just 50% of them had procurement procedures in place.
This Is How You Can Make SRM Workflow Smarter.
If a company wants to be successful, it should not overlook supplier relationship management.
Every penny saved via effective supplier management goes directly to the bottom line. It is also important not to overlook the time and expense savings.
Having a process, following best practices, and using supply chain software like SourceDogg will help you optimize your supplier relationship management, give your employees clear procurement guidelines, and enables them to focus on their core responsibilities, all while providing your business with the insights it needs to continue to evaluate and increase the effectiveness of your suppliers to you.