As supply chains are growing increasingly complicated, the need to cut prices for the buyer means margins are being squeezed like never before. To maintain profitability and drive efficiencies, organizations are turning to supplier relationship management as a controlled and systematic approach to sourcing the goods and services needed.
What is Supplier Relationship Management (SRM)?
Supplier Relationship Management (SRM) is the systematic approach of assessing suppliers’ contributions and influence on success, determining tactics to maximize suppliers’ performance, and developing the strategic approach for executing these decisions.
Why is Supplier Relationship Management (SRM) important?
Supplier Relationship Management helps create positive buyer-supplier relationships and determines which activities to engage in with each supplier.
The goal of SRM is to streamline and improve processes between a buyer and its suppliers. Buyer Relationship Management focuses on developing a mutually beneficially relationship with suppliers, especially those deemed as most strategic to the brand, to promote quality, efficiency, innovation, and other benefits.
The advantages of effective supply chain management
There are several benefits associated with supplier relationship management, which ultimately lead to a healthier bottom line:
1. An optimized procurement process
Most processes, no matter how well-thought-out, can be improved. A positive supplier relationship leads to the sharing of ideas and feedback which can be used to improve operations and go-to-market times. In time, this will lead to lowered costs.
Procurement professionals are finally acknowledging that developing partnerships with their main suppliers can deliver significant benefits to both the buyer and the supplier.
Up until now, organizations were neglecting SRM because their main focus was on nurturing customer relationships and reducing costs. Now, organizations have recognized the considerable benefits a good supplier relationship management can bring.
Research made by PWC showed that there is a positive link between a good buyer relationship management and the following positive outcomes:
an increase in market share;
responsiveness to market changes;
increased return on investment;
shortening order fulfillment leads times.
2. Reduced costs
There are usually significant costs involved in setting up deals with new suppliers, but a supplier relationship management platform can eliminate most of them.
By entering a mutually beneficial relationship with key suppliers, an organization can strive for cost savings in the long run. Good relationships with suppliers will not only deliver cost savings, but they will also reduce availability problems, delays, and quality issues (which means a better service for the consumer).
3. Reduced waste
Waste can be created due to inefficiencies in how the processes between the buyer and the supplier are established.
Contracts set out what has been agreed upon in terms of what should be delivered and for what price. An SRM platform can identify sources of waste and eliminate them, further lowering costs and improving services.
4. Improved efficiency
As the relationship between an organization and a supplier develops, communication will also improve. As the supplier gets to know more about the organization they are working with, that enables them to increase the efficiency of their service.
Order issues are reduced, and in case they do arise, the strong relationship between the two will make it easier to solve the issues.
5. A strengthened supply chain
As suppliers and buyers work together, this allows both parties to better understand the inner workings of the other.
In some cases, both parties will be able to adapt their working practices and operations to better accommodate the other, which can lead to further efficiencies and operational advantages.
A strengthened supply chain allows buyers to reduce the number of suppliers they purchase from - streamlining the purchasing process and making budgeting a far simpler task.
How you can improve Supplier Relationship Management (SRM)
Having long-lasting, trusted relationships with suppliers should be a primary goal of any organization that strives to succeed in the market. Let’s see how you can improve your relationship with your suppliers:
1. Invest in a buyer relationship management platform
Investing in a supplier relationship management platform to keep track of information about your suppliers will really benefit your relationships in the long run.
2. Use detailed agreements
If you’re buying from a supplier regularly, Supplier Relationship Agreements are a must. Writing down everything that both parties expect from your partnership (such as item or service description, price, delivery terms, payment terms, communications, and so on), will reduce the possibility of confusion or possible disputes.
A best practice would be to also explain the process to your team, so everyone knows their duties and can recognize if something goes wrong in the workflow.
3. Evaluate the risks
Always evaluate the risks of dealing with a supplier. Ask for references, examples of their previous work, years in business, areas of expertise, how they deal with a crisis, what they did the last time they had to deal with a crisis, and so on.
Are they competitively priced?
Do they have the right experience?
Do they have the capacity to deal with your orders?
Are they financially stable?
These are just some of the questions you should be asking.
The supplier you select may not be the cheapest, but if he guarantees 100% on-time delivery with a money-back offering that is more valuable to your business. If your supplier lets you down, your whole business may be at risk.
Importance of supplier partnership
Supplier relationship management is important because, over time, a long-term relationship between your organization and its suppliers allows for the free-flow of feedback and ideas. Over time, this will create a more streamlined, effective supply chain that will have a positive impact on costs and customer service.
To manage all your suppliers in one place, use Prokuria. After joining and inviting your suppliers on the platform, you’ll be able to communicate more easily and establish better long-term working relations.