How Supplier Relationship Management Can Pay Off During Uncertain Times
- SRM today involves looking beyond price or cost reduction
- Close collaboration with suppliers yields advantages for both sides
- Advances in SRM software help to realize the benefits — and handle the challenges
As organizations find themselves navigating an increasingly disruption-prone business environment, supplier relationship management (SRM) programs have grown in importance. Especially for companies looking to increase supply chain resilience, supplier management holds a lot of promise. Yet, comparatively few organizations manage to realize that promise and abandon efforts to capitalize on the initiatives.
Broadly speaking, supplier relationship management is about strategically managing interactions with third-party suppliers to maximize value.
Rather than focusing on a single metric like price, supplier relationship management takes a more holistic view to the buyer-supplier relationship.
Vendor management involves greater collaboration between buyers and suppliers, as well as a coordinated, cross-functional approach.
The traditional adversarial relationship between a company and its supply base, especially with strategic suppliers, is ripe for disruption.
Building strong partnerships with critical suppliers is a better approach for driving value.
Here are three reasons why:
1. Managing disruption in a VUCA world
In 2020 alone, supply chains faced tremendous challenges from the COVID-19 pandemic, wildfires, trade disputes, geopolitical issues and more. Those disruptions, and their attendant challenges, are part of the new normal.
Enterprises today operate in a VUCA — volatile, uncertain, complex, ambiguous — world. In such an environment, greater collaboration between buyers and suppliers is imperative for businesses trying to establish and maintain competitive advantage.
2. Benefits in good times and bad
During economic downturns, supplier relationship management helps drive value by enabling cost reductions, improving supply continuity and allowing for better visibility.
In growth periods, supplier management helps support increases in market share and can be a driver of innovation. The key is to execute them properly to make them effective and sustainable.
3. Technologies that facilitate program implementation
A successful supplier relationship management program doesn’t depend just on software; it requires a lot of skills and focused leadership from dedicated personnel.
But technology does make the promised benefits of supplier management system more manageable, especially with cloud-based, AI-driven systems that enable real-time collaboration between suppliers and customers.
By facilitating communication and knowledge-sharing, supplier relationship management software today is more adept than ever at helping enterprises avoid or mitigate the challenges in running a successful vendor management initiative.
The bottom line: SRM creates value for companies and their suppliers
A properly designed and executed supplier relationship management program can pay off hugely, generating benefits for both the company and its suppliers. The value created might be increased innovation and efficiency or better risk mitigation.
The broader lesson is that close collaboration with suppliers can build stronger, more profitable relationships for both parties, as opposed to just haggling with them over cost reductions.
With that said, there are also significant challenges to implementing SRM that organizations can be susceptible to. To learn more about the biggest ways an SRM program can go off the rails, read GEP’s white paper Five Proven Ways to Botch Your Supplier Relationship Management Program: And Steps You Can Take to Avoid Them and Create Success.