Supplier Relationship Management: Approaches and Strategies

Relationship management with suppliers is more crucial than ever. Increased economic fluctuation, unpredictable political conditions, and the consequences of climate change are all reasons why companies must effectively manage their strategic partnerships.

 

Furthermore, the COVID-19 epidemic has complicated supplier relationship management. While CPOs, CFOs, as well as other supply chain leaders, have long prioritized implementing business data to improve supplier relationships, the outbreak has increased the pressure. In fact, supply chain difficulties are among the top three worries of CFOs in relation to the COVID-19 outbreak.

 

So, before we go any further, let's define supplier relationship management and why it's important.

 

What is Supplier Relationship Management?

 

Supplier relationship management (SRM) is the method of recognizing a company's most important suppliers and putting in place a strategy for handling those connections. 

 

As supply chains get more intricate, it's more critical than ever before to have clear, quantitative ways to assess how each supplier adds to or diverts attention from a company's performance.

 

SRM is a component of a larger supply chain management strategy aimed at increasing efficiency in a way that benefits everyone. Because most of the ideas utilized in CRM are transferable to the connection involving suppliers and customers, SRM is sometimes considered to be the enterprise version of customer relationship management or CRM.

 

Developing a supply assessment — a more in the examination of every vendor associated with your company — is a common way to identify essential providers. In a broad variety of sectors, supplier performance measures are used to install and strengthen a successful, benchmarks supply chain.

 

Why is it Important to Manage Supplier Relationships?

 

Resources wasted, a lack of entrepreneurial insights, excessive acquisition prices, long development cycles, lost opportunities, unfavorable brand impression, and even regulatory difficulties can all result from failing to administer supplier relationships and knowledge wisely. 

 

In summary, it has the potential to endanger the company, not to mention significantly increase your burden. Without the need for supplier development technology, integrating a different vendor, for example, might take several months rather than days. 

 

Alternatively, if you don't understand what your manufacturers and sub-suppliers are, or if they adhere to industrial and environmental standards, it might significantly influence your brand.

 

Also Read | What is the Procurement Process?

 

Goals of Supplier Relationship Management

 

Every sector and corporation has its own definitions and classifications for what constitutes a key supplier, but the overall objectives of supplier relationship management are basically the same. 

 

1. Establishing Supplier Relationships

 

Each strategic supplier manager's bread and butter is this. It's crucial to figure out where the suppliers are fundamental to successful performance and which aren't, and then manage based on that evaluation.
 

For example, a microprocessor supplier for an electrical firm is far more important—and hence strategic—than a painted provider. For that purpose, a manager must establish a mutually advantageous partnership that generates value for both parties.

 

2. Supply Chain Optimization

 

A supplier relationship manager must, at the conclusion of each day, provide value. It is the manager's responsibility to develop some innovative and inventive methods to utilize strategic supplier relationships after they have been established.

 

Are there any ideas you could collaborate on? Is there a variety of routes or packaging alternatives to consider? What about purchasing partnerships? A successful SRM will go beyond the box and seek methods to improve the whole company value chain, not just the direct effect of suppliers.

 

3. Management of Risk

 

Supplier risk management is a big aspect of SRM. Sourcing risk is among the most significant issues that any company faces. Quality difficulties, compliance requirements, legitimate implications, geographic challenges, natural catastrophes, and many other elements must all be addressed when selecting a supplier.

 

In order to retain value and continuity during difficult times, it is critical to have real-time insight into supporting documents and performance, to have procedures and practices to deal with interruptions and to be able to rely on a broad supply base.

 

Also Read | Essential Guide to Inventory Management

 

Best Supplier Relationship Management Approaches and Strategies

 

Having long-term, trusting relationships with loyal suppliers ought to be a top priority for any company looking to prosper in the marketplace, so let's look at some supplier relationship management tactics to help you get there.

---

Best Supplier Relationship Management Approaches

---

 

1. Your suppliers are more than just merchants to you

 

They are business collaborators, and this collaboration should be built on reciprocal trust and confidence as well as banking transactions. Make your vendors feel like they're a member of the team. 

 

It's critical to have a two-way, win-win relationship with your major suppliers. Share details about your procedures with them, including new product launches and incentives, and listen to their complaints.

 

2. Recognize the importance of timely payments

 

Step one is not losing your providers is to make sure you pay everyone on time. Cash flow is critical to their business, and therefore it is to yours. You will demonstrate that you are a dependable client and that you are simple to work within this manner. 

 

If you are unable to make a payment on the agreed-upon date, notify the provider as soon as possible and let them know when they may anticipate payment. Vendors like prompt payments, just as you appreciate proactive steps on their part.

 

Cash flow is critical to their business, just as it is to yours. That's all there is to it. If you're having problems with other aspects of your business, such as budgeting, management software like AP Management software helps you match repayments to receipts and decrease mistakes.

 

3. Supplier relationship management has never been easier thanks to technology

 

Investing in supplier management software that collects all of your supplier information in one location. You may also install comprehensive buy order management software to produce, execute, and track customer orders with your vendors. 

 

Many software systems, such as PLANERGY, combine numerous purposes of supplier management into a common network.

 

4. Value is everything you get, not what you pay for

 

Nothing beats getting a good commodity at a good price for increasing your earnings. Use your financial freedom if you already have it. You can buy in bulk to save money, but you'll wind up with more inventory on your balance sheet and maybe an inventory tracking issue, or you could just pay a vendor sooner to receive a greater discount.

 

It's sometimes preferable to spend a bit more if the supplier provides a superior service that pays for itself since you'll require less time to manage them, you'll prevent interruptions, or you could just trust people to deliver straight to your client.

 

Relationships are vital, as discussed in the beginning paragraph, but you shouldn't continue with a supplier just if you really like someone. Want the most excellent alternatives for your company, and remember that effectiveness is a reasonable expense, not merely a cost commodity.

 

5. Relationships should be solid and long-lasting

 

Remember to keep in touch with every one of your providers on a regular basis. Keep them updated about your strategies and vision on a regular basis so they understand where you fit into it and how they can support, plan for, and profit from things. Make it your accomplice. Let them know how much you admire their work. 

 

Let them know if anything isn't working for you. This connection might become more spontaneous as a result of a stronger, stronger relationship with straightforward and regular communication.

 

Also Read | Cash Conversion Cycle

 

6. Supplier interactions are made simpler by detailed agreements

 

Supplier Relationship Agreements with a reasonable contract management process are necessary if you purchase from the provider on a frequent basis. 

 

Make a list of almost everything both sides anticipate from your partnership, including the item or commodity descriptions, price, terms of delivery, monthly payments, interactions, and so on, and have each party endorse it.

 

Depending on the organization's needs, this might be a basic or complex document. A very well Supplier Relationship Agreement can help you avoid any misunderstandings or disagreements. It's a good place to make a schematic or a deck to explain the method to your group so that everyone understands their responsibilities and can spot problems in the operation.

 

7. Investing in a specialized SRM process is a wise decision

 

Individuals and about their personal skills are now at the heart of SRM, according to State of Flux's 2017 Global SRM Research Report. 

 

Experiencing people in your organization who really are willing to take responsibility for the SRM procedure is extremely important if you really need up an entire division to maintain relations with suppliers, a solely devoted Supplier Relationship Manager, or if it is just a part of somebody's contribution.

 

Create a written procedure to guide your organization through all the procedures of managing and administering vendors. This can include flowcharts, SOPs, Policy Documents, and collaborations in a large business, or just a 2 to 4-page report that includes all of your and the vendor's areas of agreement. Ensure that all stages are performed and that all paperwork is acknowledged when they are finished.

 

8. Assess the consequences

 

Always weigh the dangers of engaging with a supplier, especially a new one, particularly if your supply chain is complicated. For strategic sourcing and assessment, having the proper supplier data is critical.

 

Inquire about references, past work samples, years in the organization, areas of competence, how they handle crises, what company did the very last occasion they faced a crisis, etc.  Are they reasonably priced? Do they have the necessary background? These are just a few of the inquiries that should be made. 

 

You could indeed live with it because the provider you choose isn't the least expensive but assurances 100 percent on-time shipment with a financial guarantee; you could indeed live it's because a string can only be as strong as the weakest connection, so if your merchant fails you, your entire supply chain could be jeopardized, affecting your capacity to achieve to customers.

 

Things happen wrong in operation; by reviewing your suppliers' risk profile in conjunction with a robust Supplier Relationship Agreement, you may significantly reduce the risk and be prepared to deal with any crises in cooperation with the suppliers, reducing business disturbances.

 

9. Most crucial, make sure that everyone is on board

 

It's crucial to have a Supplier Relationship Management Process in place, but it's even more essential to get everyone in your business on onboard.

 

As per a survey by American Express and AT Kearney, $533 billion is spent annually outside of the selection of procurement procedures. This is known as maverick expenditure, and it indicates that acquisition is not done in accordance with vendor commitments, resulting in additional expenditures. While 95% of companies polled had preferred supplier lists, just 50% of them had purchasing procedures in place, according to the report.

 

Also Read | Types of CRM

 

 

Conclusion

 

It is vital to approach acceptable connections from a practical standpoint in order to effectively manage relationships. Procurement's responsibility is to gauge performance based on the capacity to produce business results by splitting knowledge on the relationship into procedural phases.

 

Highly respected clients are frequently given priority manufacturing accessibility, and providers may even consider investing in expanding their manufacturing capability to fulfill increased customer demand, depending on the extent of activity and the sustainability of the relationship.