May 04, 2023 | Supplier Management Technology
Organizations today rely on suppliers for cost optimization, supply chain assurance, innovation and corporate social responsibility, making supplier relationship management (SRM) a key driver of collaborative efforts for long-term mutual benefit.
Modern-day SRM is far more than just executing tactical activities.
It involves proactive management of long-term supplier relationships through mutually beneficial actions such as joint design, process improvements, collaborative solutioning, joint mitigation of risks and leveraging innovations to maximize customer value.
The four key aspects of modern-day SRM that drive the success of the function are supplier segmentation, supplier performance management, performance improvement discussions and risk identification and mitigation.
These aspects can drive success and help organizations achieve sustainable long-term value.
This involves tiering or classifying suppliers based on criteria such as annual spend, business criticality, availability of alternative suppliers, supply chain complexity, substitutability and supply-demand volatility. This allows enterprises to focus their time on the most important suppliers and nurture relationships leading to mutual benefit. A well-defined segmentation strategy helps identify high-value suppliers, understand their viewpoints and work with them more effectively, resulting in benefits beyond the limits of the contractual relationship.
This involves measuring, analyzing and managing overall supplier performance via scorecards that provide a structure for documenting and tracking supplier performance against defined KPIs/metrics. Inputs for scorecards are collected from identified data sources/tools, stakeholders and the procurement team to build measurable performance. This way, organizations can effectively manage their suppliers, ensuring continuous improvement, cost optimization and innovation.
Download our bulletin: Four Steps to Better and More Effective Supplier Relationship Management
These are a critical aspect of modern-day SRM that helps build efficient and performance-driven relationships with suppliers, leading to improved assurance of supply. These discussions involve periodic alignment and review with each supplier, addressing gaps/weaknesses, and assigning practical and reasonable improvement targets based on business requirements. This is followed by aligning the supplier with the expectation that a "true partner" will address them with urgency and seriousness.
These have become a focal point for most clients with the exponential increase in complexity and impact of risks in global supply chains. The SRM team must identify and document these risks and jointly develop mitigating actions with suppliers. A robust tool with the ability to document and periodically report risks is necessary, in addition to a highly trained workforce. By doing so, organizations can encourage diversity, equity, and inclusion throughout the supply base, leading to sustainable long-term relationships with suppliers.
Recent disruptions have highlighted the importance of investing in the right tools, processes, and people for SRM. Organizations that effectively manage their suppliers, identify and mitigate risks and drive sustainable long-term value through modern-day SRM can achieve their business goals, implement long-term category strategies and foster efficient and performance-driven relationships with suppliers.
Know how GEP can help your company improve its supplier relationship management.