Supplier Relationship Management (SRM) is a coordinated practice within a business to engage with third-party service and product providers to maximize their benefit to the company’s objectives.
In an economy where many external dependencies drive execution, businesses rely on suppliers (a.k.a. vendors) to provide finished goods for sale, complete tasks, or materials that are used in a company’s finished products.
Strategic supplier relationship management helps develop healthy, trustworthy relationships with your suppliers and directs the activities you should undertake with each of them. On the front end, it functions similarly to customer relationship management, or CRM, in terms of dealing directly with customers.
SRM’s primary purpose is to optimize your ongoing business processes with your suppliers. You can boost productivity for both your company and your suppliers by creating a streamlined approach.
Though the SRM method varies for every company, the fundamental goal is to build a mutually beneficial connection with all of your suppliers, especially those regarded as strategic partners for your brand. Continuing ongoing relationships with these suppliers is important for both them and your organization.
Different Types of SRM
Supplier Relationship Management (SRM) is no longer a monolithic approach to managing vendors. Today, organizations recognize the value in tailoring their strategies to different types of suppliers, fostering diverse relationships that deliver optimal value.
Let’s delve into the three main types of SRM examples, each offering unique benefits and demanding distinct approaches:
1. Operational SRM: This is the bread and butter of supplier management, focusing on streamlining day-to-day transactions and optimizing efficiency. Think automated purchase orders, streamlined invoicing, and real-time inventory visibility. Operational SRM tools track performance metrics, allowing for proactive interventions, profitability, and cost savings. This approach is ideal for high-volume, low-complexity transactions with well-established suppliers.
2. Collaborative SRM: Moving beyond transactional efficiency, collaborative SRM fosters a closer, more strategic partnership with key suppliers. This involves joint planning, knowledge sharing, and early engagement in product development, leading to innovation and improved quality.
3. Strategic SRM: This involves aligning supplier strategies with your own, leveraging their expertise and capabilities to drive competitive advantage. Think co-developing new products, exploring new markets, and even joint research and development initiatives. The strategic level of partnership demands a deep understanding of your strategic suppliers’ strengths and weaknesses, as well as a high level of commitment and trust.
Supplier Relationship Management Examples
Material suppliers and finished goods suppliers are the most prevalent for traditional companies. These are often manufacturers or producers that offer products to a business.
For example, if the company makes cars, a tire manufacturer provides finished tires to be installed in those cars. They may also engage with a material supplier that provides the aluminum for a part that the auto company must forge into making their car.
Often, the mutually beneficial relationships with those suppliers are managed by the product or procurement teams in an organization. They often need to fit a certain specification or have negotiated terms to meet the “supply chain” needs of an organization.
Service-based suppliers are known by many terms: contractors, consultants, freelancers, agencies, professional services, etc. These are professionals who provide specialized labor to drive execution. Anyone from a team that designs your website to someone who comes to water your plants each week would be a service-based supplier.
With the advent of digital economy companies, service-based suppliers are available for just about any task or project – driving, deliveries, promotion, marketing, programming, voiceovers, research, and more.
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Best Practices for Building Strong Supplier Relationships
Supplier Relationship Management process (SRM) isn’t just about ticking boxes and checking invoices. It’s about cultivating a network of trusted partners who fuel your competitive edge. But how do you actually translate this philosophy into action? Here are some best practices to elevate your SRM game:
1. Know Your Suppliers Inside Out
Supplier segmentation focuses on identifying and sourcing your main suppliers – those that offer the goods and services that keep your business functioning – so you know where to spend your efforts. However, don’t overlook specific vendors, as they’re all vital.
Many businesses will work with wholesalers, manufacturers, retailers, and more. All told, there are four main types of suppliers:
- Product suppliers: These companies provide the raw materials or products you need to produce your goods or services. This is the type of supplier used in direct procurement.
- Service providers: These companies provide the services you need to run your business, such as janitorial, IT, or security services. This is the type of supplier used in indirect procurement.
- Financial providers: These are the banks, lenders, and stakeholders that provide the financial backing you need to keep your business afloat.
- Business partners: These are the companies you team up with to help you market, distribute, or sell your goods or services.
Track performance across key benchmarks like quality, delivery, and cost. Regular evaluations provide insights for improvement and identify potential issues early on.
2. Foster Open Communication
Schedule regular meetings, both formal and informal, to build rapport, share updates, and address concerns. Share information openly, including challenges and opportunities. This fosters trust and collaboration, leading to better outcomes for everyone.
Utilize diverse channels like email, video conferencing, and collaborative platforms to ensure everyone is on the same page.
One of the best ways to build strong supplier relationships is to demonstrate that you’re a good customer. This means issuing and paying your invoices on time, being polite and professional when you communicate, and generally making things as easy as possible for your suppliers.
Of course, you can’t always control everything on your end. There may be times when you have to make a last-minute change or have delays in payment processing. But if you’re generally a good customer, your suppliers will be more likely to continue to work with you even when these things happen.
3. Collaborative Innovation
Partner with key suppliers to leverage their expertise and develop innovative solutions that meet your evolving needs. Foster an environment of open exchange of ideas and best practices. Workshops, training sessions, and knowledge portals can facilitate this exchange.
Include suppliers in the planning stages of new projects or initiatives. Their insights can optimize processes and lead to better results.
If you want to build strong supplier relationships, it’s essential to have a centralized point of contact. This is the person who will be responsible for managing all communication and interactions with your suppliers.
This doesn’t mean other people in your organization can’t interact with suppliers. However, having one central point of contact will help to ensure that all communication is coordinated and consistent and everyone is on the same page.
4. Invest in Technology and Tools
One of the best ways to implement your supplier management strategy is to use supplier relationship management software. This software provides a central place for all communication, documentation, and collaboration.
When working on supply chain management, the correct SRM software will provide transparency and facilitate data sharing between the firm and the supplier. It can also help you automate many day-to-day tasks associated with managing supplier relationships, such as procurement and supplier performance monitoring. That means you’ll have more time to focus on other parts of your business.
When shopping for SRM software, make sure it has the functions you demand while also requiring minimal training. Supplier onboarding should be straightforward. In addition, there must be supplier-facing functionality and communication to create stronger involvement. Reporting capabilities should include extensive supplier performance metrics to aid in improved procurement and other decisions.
There are many different SRM software programs on the market, but not all are created equal. Always consider details like price, features, and ease of use when choosing your SRM software.
5. Come Up with a Risk Management Plan
No matter how strong your relationships with suppliers are, there’s always a chance that something could go wrong. That’s why it’s crucial to have a risk management plan in place.
This plan should identify the risks that could impact your business, such as supplier failure or natural disasters. It should also outline the steps you’ll take to mitigate these supplier risks.
For example, if you’re concerned about supplier failure, you might choose to work with multiple suppliers for each product or service. That way, if one supplier has an issue, you can rely on the others to keep things running smoothly.
6. Create An Issue Resolution Plan
Even with a risk management plan and KPIs in place, it’s important to have an issue resolution plan as well.
This plan will outline the steps you’ll take to resolve any issues that do come up. It should include things like who to contact, what steps to take, how long it should take to resolve the issue, and what needs to be done to prevent the disruptions from happening again.
Having this plan in place lets you ensure that issues are dealt with quickly and efficiently, minimizing any negative impact on your business and helping you to maintain a prudent business strategy.
Remember, SRM is a two-way street. By investing in these best practices and fostering genuine partnerships, you can build a robust supplier network that drives mutual success and fuels your long-term growth.
Bonus Tip: Don’t underestimate the power of relationship building. Treat your suppliers with respect, value their input, and celebrate successes together. Strong personal connections can go a long way in solidifying your partnerships and navigating challenges collaboratively.
Why Supplier Relationships Matter?
Supplier relationships can either make or break a business in a competitive space; therefore, how your suppliers perceive your business is critical. Having reliable, trusted suppliers:
- Ensures or reduces time-to-market
- Ensures the best terms, price, and value for needed products and services
- Ensures availability that affects corporate revenue for its own products and services
- Enables focus on core innovation and strategies by offloading non-core activities and products
What Supplier Relationship Management Challenges Exist?
Like most processes with external parties, there are inherent challenges. Competition for suppliers that are offering unique quality products can be fierce. These challenges are dramatically increased with cross-border suppliers.
- Pre-Relationship
- Knowing Your Supplier
- During-Relationship
- Supplier Engagements
Will the supplier be a good partner? Are they a legal entity that can be paid? Are they solvent? Do they offer favorable terms? Do they value the relationship with your company? Can they do what they say?
Has the supplier provided all the necessary paperwork to start the relationship? Have they met the terms of the agreement? Does the supplier continue to provide value? Are there disputes or issues related to working with the supplier? Are there communication challenges?
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