Effective procurement is an integral part of most businesses and plays a crucial role in their success. Supplier relationship management is one of the most vital processes needed to build a solid procurement strategy.
Suppliers can either improve the operational efficiency and profitability of a business, or they can cause frustration due to their mismanagement and low performance.
This all depends on how the suppliers are managed and what kind of relationship the organization develops with them over a period of time.
Follow this guide to understand the important role of supplier relationship management, and how you can optimize it for a more efficient supply chain at your organization.
Supplier relationship management (SRM) is a process of staying up to date with vendors in your supply chain, evaluating their performance and maintaining a relationship with them accordingly.
Supplier relationship management applies to vendors that provide your business with goods, materials, and services. This process forms a key part of your overall supply chain management.
A supplier relationship management strategy determines the strategic value that each supplier offers. The supplier is evaluated based on how they contribute to your organization's success. These may include criteria such as the timeliness of order fulfillment, responsiveness or compliance with your terms and conditions.
Then the organization develops strategies to improve supplier performance and enhance the value they add to the company.
Supplier relationship management determines the type of working relationship that a business should form with its suppliers in order to help the business achieve its end goals.
The basis of supplier relationship management comes down to mapping the supplier base against risk and profitability. However, today’s SRM framework is broader.
Having a strong supplier relationship management system in place is a critical task for procurement and supply chain teams.
Effective supplier relationship management helps a business grow as it fosters strategic partnerships with its suppliers.
Here are a few of the most important benefits:
There are three main steps to achieving effective supplier relationship management:
First, all suppliers engaged by an organization should be segmented based on a variety of factors that are critical to the supply chain.
Segments could be based on factors like items, prices, quantities, and location among others.
Once the segmented list is created, the organization should look at all the suppliers and identify which ones are the most important for the business.
A well-segmented supplier list makes it easier to get an in depth understanding of an organization's suppliers and create a strategy that manages them most efficiently.
Following the segmenting of suppliers, an organization needs to create a supplier relationship strategy.
This strategy should aim to create mutually beneficial relations with each supplier and understand how communication with different suppliers will be managed.
It's important to realize that different supplier segments may be handled differently.
The SRM team needs to implement this supplier strategy and be held accountable for managing suppliers.
An essential part of implementing a supplier strategy is periodically measuring and monitoring supplier performance.
KPIs need to be set to measure the important success metrics. This helps your organization instantly optimize the supplier management process.
Supplier relationship management plays a critical role in the supply chain. Here are a few strategies to help you improve your SRM process.
To form strong strategic relationships with the right suppliers, you will need to have a clear understanding of your business goals.
Procurement entails a lot more than just finding the cheapest deal for your business; it’s a process that needs to be linked with your overall business goals and requirements.
By formulating these requirements, you’ll be in a better position to choose the right suppliers and evaluate their performance more strategically.
Some factors to consider in procurement include asset utilization, risk management, access to undisrupted supply, and ensuring procurement adds to revenue growth.
The procurement team needs to understand the goals of the business before negotiating contracts with suppliers.
Effectively aligning the business goals with supplier relationship management makes it easier to prioritize vendors and monitor their performance.
Any effective supplier relationship management model relies on an updated supplier database, where complete vendor information is stored and maintained.
This is necessary for assessing vendor performance, selecting vendors, and maintaining long-term relationships with them.
By using a cloud-based procurement solution like Proqura, you can easily gain real-time insights into your suppliers’ overall responsiveness and performance. You will have access to everything you need to know through one centralized dashboard.
Some features that your supplier database should cover are:
It’s important to segment your suppliers into relevant lists and prioritize them based on your business requirements.
To make supplier relationship management more efficient, organizations should develop a clear set of criteria to help them segment suppliers. This could be based on what they supply, how fast they can supply, the quality of service they offer, risk factors associated with the supplier, what kind of potential future value the supplier can offer, and more.
With suppliers properly segmented, choosing the right one to meet your specific business objectives is easier as the information is more streamlined.
This also makes it easier to measure vendor performance and understand how to develop a more mutually beneficial alliance with the given supplier.
Supplier management is a fairly complex area, with a lot of different roles and responsibilities involved. One problem that many organizations face in this area is that an unclear reporting hierarchy may affect decision-making.
To ensure an effective SRM process, organizations should develop completely transparent workflows and reporting chains. Everyone involved in supplier management should clearly understand their role and responsibilities. This will also help you gain a better understanding of your organization's capabilities.
This approach helps optimize your supplier relationship management early on to avoid any conflicts or supply management issues that may potentially occur in the future.
A good practice to improve supplier relationship management is to focus on finding areas of growth within the procurement team.
Procurement involves many different processes, and there are always new technologies being developed. This means procurement and supply chain teams should always be learning and developing new skills.
Setting up an in-house training program to keep up to date with any new advancement in the field, and continuously adding new skills to the procurement process is important for consistently improving the standard of supplier relationship management.
One of the best ways to improve supplier relationship management is to find ways to minimize communication gaps while developing a more efficient procurement process. To achieve this, organizations should look towards procurement automation tools.
With the right solution, organizations can automate the creation of purchase requests and purchase orders, thus making it easier to stay on top of orders and invoicing.
This saves effort and resources, and helps keep you and your suppliers informed and updated with your ongoing commitments.
One of the most critical parts of managing a supply chain is performing a thorough risk assessment.
When it comes to supplier relationship management, having a risk assessment strategy in place early on can help you create stronger, more strategic relationships with suppliers.
Identify key suppliers and understand any possible factors that could cause disruptions. This can help you develop contingency plans and put back up options in place.
Having a clear supplier risk assessment program in place, and applying it before choosing new suppliers makes for an effective SRM.
A healthy supplier relationship management strategy focuses on monitoring and analyzing supplier performance.
To improve vendor relationships, your organization should have well-structured evaluation systems. This ensures that you always monitor the right metrics for supplier performance and minimize risk while working with different suppliers.
When determining supplier performance, consider how the supplier aligns with your business goals and policies, and whether they are maintaining compliance.
Each supplier should have a list of clear requirements that your business should monitor.
With the right supplier relationship management strategies in place, an organization has a higher chance of operational success.
Suppliers play a critical role in a business, and managing them should be a process that adds value and develops stronger, more strategic relationships.
With the right SRM strategy in hand, your entire business operations can benefit in a big way.
