Supplier relationship management is the structured approach to assessing the strengths and weaknesses of suppliers or vendors supplying the organization with products or services and arriving at their strategic value to the organization.
It is a part of vendor management, which falls under supply chain management. Organizations use SRM to segregate their suppliers into categories to ensure business continuity and to improve performance. The basis of segregation is their strategic value to the organization. SRM thus helps to foster better supplier relationships and manage the products supplied or services provided.
Aim of Supplier Relationship Management
Supplier relationship management or SRM aims to foster supplier relationships beneficial to the organization and its suppliers, especially those considered strategic to the organization's brand and profitability. The SRM system also focuses on quality, productivity and innovation to boost efficiency and to gain competitive advantage.
Supplier Relationship Management Strategies
Another effective SRM strategy is to cultivate personal relationships with suppliers and work together to build trust. For example, investing in the supplier's innovative programs or developing innovations together is a great way to build trust through collaboration.
Leaders involved in SRM initiatives must align everyone in their organization to comply with the objectives. They should also design a process to determine the SRM program's value to the organization.
Some of the supplier relationship management strategies that enterprises can quickly adopt:
Develop Supplier Relationships
An organization's SRM program must be proactive by strategizing as follows.
Adhere to long-term engagements with critical suppliers that affect the organization and its profitability to ensure continuity of supplies.
Short-term relationships with suppliers can best ensure business agility and flexible pricing. For instance, an automobile company's supplier of gearboxes is much more critical — and therefore strategic — than their supplier for office supplies. Therefore, a crucial SRM strategy is to develop a beneficial relationship with both types of suppliers to create value for the organization.
Manage Supplier Risk
Supplier risk management is also one of the significant activities of SRM. Some of the risks that need analysis are:
- Lack of on-time delivery
- Quality issues
- Compliance issues or ethical concerns
- Geographical hurdles
- Natural disasters, wars, pandemics and other such variables
Real-time visibility of supplier data and past performance, risk mitigation plans to deal with disruptions, and being able to depend on a broad supply base are critical to maintaining value and continuity through difficult times. SRM leaders must be able to rely on a vast supply network.
Optimize the Value Chain
Supplier relationship management has to create value for the enterprise. A good SRM manager thinks outside the box and always looks for ways to leverage supplier relationships and maximize the entire business value chain.
Supplier Relationship Management Business Process
The SRM business process has these three main steps:
Segment your Suppliers: Segment suppliers based on item, quantity, location and price. Understand which suppliers are strategic and essential for the business and its success, and accordingly segment the suppliers based on business strategy so that you can ensure complete visibility and control.
Create a Supplier Strategy: Enterprises need not manage every segment the same way or control every supplier the same way. SRM can help create a strategy that encourages a beneficial relationship to drive value.
Execute (and track) the Strategy: The SRM team needs to own the plan and drive strategy-based supplier relationships for achieving the desired outcome and value. SRM must track each supplier's performance per the strategy adopted to make adjustments in real time. Establish the benchmarks and the corresponding KPIs and metrics for continuous improvement.
Additional Read: Supplier Relationship Management Best Practices
Supplier Relationship Management (SRM) Benefits
- Better leveraging of supplier capabilities
- Costs reduction
- Ensure supply chain continuity
- Better visibility helps to limit supply chain risks
- Improved responsiveness of suppliers
- Improved quality
- Gain visibility into future prices
Additional Read: SRM Can Pay Off During Uncertain Times
Supplier Relationship Management (SRM) Challenges
SRM has its unique set of challenges:
- Managing the risk and continuity during pandemics or environmental disasters, or wars
- Lack of visibility into suppliers and their strategic value to the organization
- Used only for driving value by cost reduction instead of leveraging the strategic relationships
- Lack of alignment with business objectives and clear benchmarks
- Lack of a broad supplier base
- Lack of commitment to the program by ignoring the principles of supplier partnership management
Supplier Relationship Management Technology
Good Supplier Relationship Management technology can provide relief from the aforementioned challenges and ensure increased ROI.
SRM e-solutions can enable businesses in the following ways:
The SRM solution allows suppliers to manage their profiles on the portal, update order completion details and track their payments.
Supplier Onboarding Automated
The SRM software technology automates supplier onboarding. The technology integrates RFP/RFQ, contracts, and other purchasing processes across business systems.
Access and review supplier data such as past performance reports and financial data such as supplier's credibility and regulatory compliance.
When assessing supplier relationship management technology, the following capabilities are necessary:
- User-friendly dashboards that integrate reporting, target setting
- Evaluating supplier performance
- Total real-time view of the supplier data
- Risk management alerts and suggestions are built on the latest
- AI-driven technologies
- In-built sustainability and diversity scorecard
- Supplier onboarding for collaborative interaction
- Transparent communication management
- Generate invoices and requisitions
- Past data, orders and performance analysis
- Procurement scheduling
- Risk management
- Strategic sourcing
- Contract management
- E-auction platform
Not just as a negotiating tool, SRM solutions can enable enterprises to plan supplier relationship management to improve the organization's profitability. Therefore, companies looking to improve upon their existing SRM process must invest in a great supplier relationship management system.