Supplier Relationship Management (SRM) came into life in 1983 when Peter Kraljic, a McKinsey consultant, called for corporate buyers to grow more proactive in supply management. He argued that buyers should look to understand their categories’ risk and profitability impact upon a company and devise supplier management strategies that best meet this need.
Without a proper supplier management process, suppliers might start seeing their buyers simply as negotiators who are not interested in mutual growth opportunities. As a result, buyers suffer significant harm: disrupted supply chain, delayed product launch, damaged brand image, penalties by regulatory authorities, and more. Today, 31% of CPOs made a clear commitment to restructuring their supplier relationships.
So what is supplier relationship management?
SRM is essentially the process of determining the supply categories that are most important and creating the strategies that manage these items in the most effective way. It helps foster positive relationships with suppliers and helps guide the activities an organization should engage in with each supplier. It works much the same way as customer relationship management, or CRM, does on the front-end, dealing directly with customers.
Supplier relationship management comprises of three important steps:
Supplier segmentation: mapping suppliers against profitability and risk exposure;
Supplier strategy development: distributing internal resources and plans to meet business needs;
Supplier strategy execution.
Why is supplier relationship management software important?
The key advantage of strong, healthy supplier relationships is that you can gain better value for your business. The better you know your suppliers, and the better they know you, the more likely you are to benefit from dedicated service, preferential pricing, and special terms. Through this, your supply chain becomes more efficient, cost-effective, and productive.
So here are the main benefits of supplier relationship management software:
1. Reduced spend
Often, organizations spend more on suppliers than on other internal costs. When your spend in any category is that significant, you need to be thinking of strategies to reduce it.
Having great relationships with suppliers can help organizations save a lot of money by taking advantage of attractive deals, incentives, and discounts.
In addition, the more well-run relationships with suppliers are, the less likely it will be to spend money on the unexpected costs that come with delays and mistakes in production.
2. Increased efficiency
Using automation, organizations can eliminate much of the unproductive administrative effort. This means managing suppliers, reducing the risk of errors, increasing communication, increasing control, allowing for categorization, ensuring tasks are performed consistently, solving issues promptly, and increasing the visibility that will facilitate sourcing and other aspects of the process.
The higher the organizational efficiency, the better the organization will perform.
3. Loyal suppliers
Suppliers play a significant role, and it’s crucial that organizations do whatever they can to keep the good ones around.
And it’s not easy finding good suppliers. So the last thing you want is to lose them and have to source new suppliers who might not be as pleasant to work with, as cost-effective, or as efficient.
Properly managing and strengthening relationships with the suppliers you want to keep long-term is vital to the success of your organization.
4. Improved value
The goal of procurement is to receive the best value from suppliers, and that is precisely what a good supplier relationship management software achieves.
Again, automation enables organizations to gain insights that will allow them to make the best decisions that will provide the highest value. This provides greater visibility into supplier performance, including risks, behavioral patterns, and service levels, so potential issues can be quickly rectified.
How does software help organizations improve supplier relationships?
Supplier relationship management is a complex function that involves assessment, advanced evaluation, and subsequent action planning to continuously optimize long-term strategic supplier relationships.
1. Improving processes
Unfamiliarity with a supplier’s process can create friction, but technology can solve this.
For example, usually, suppliers have no insight into the progression of their invoices. This can cause unrest, along with an increase in supplier queries. However, this can easily be avoided by automatically routing electronic supplier invoices to the appropriate verifiers or approvers from the moment of creation. This improves the transparency on your end, while also reducing the stress for the supplier.
2. Educating people
51% of procurement leaders think their teams don’t have the capability to deliver their strategy. Supplier relationship management software allows procurement executives to lift at least part of the burden off of employees’ shoulders by making their jobs easier.
Before implementing a supplier relationship management solution, consider some of the competencies that your team has, and which ones are needed to both establish and manage the SRM.
3. Building strong relationships with suppliers
Proper communication is essential in the supplier management process. Hence, it’s highly recommended to build strong and trustworthy relationships with suppliers and treat them as trusted partners.
The most effective way to build constructive communication with suppliers is by sharing your plans, strategies, or goals. Show them you’re willing to be transparent; transparency will not only strengthen the trust but will also open new opportunities for suppliers to understand where they fit in your greater plans. And what better way to ensure transparency than using a supplier relationship management software?
Organizations can automate a significant number of processes that would require a lot of time and effort if implemented without the help of software. At the same time, e-procurement platforms can enable a much more fact-based approach to the supplier relationship by having key facts related to the suppliers in one solution.
By using a fully integrated procure-to-pay system, procurement executives can access information that they would typically have to request from their suppliers. This also saves time, as they no longer have to contact a supplier by phone or email.
By simply logging into a platform, they can get what they need right then and there.
Technology also simplifies basic tasks, like ordering more supplies and renewing contracts. Digitizing key processes like these eliminates the chance of error and creates a satisfactory transaction system for both parties, reduces supplier risk, supplier cost, and improves supplier performance, quality and service.
If you’re ready to improve your supplier relationships, check out Prokuria’s key features and request your demo now!