The Ultimate Guide To Supplier Relationship Management (SRM)
Supplier management is a process that drives the best value between a company and the suppliers they work with. Within strategic procurement, Supplier Management allows companies to plan, manage and improve interactions with third-parties that provide them with goods or services. Supplier relationship management (see below) is a key factor in a company’s Supplier Management processes and should be beneficial to both parties when procuring goods and services.
Establishing strong relationships, and managing requirements on both sides with your suppliers is essential. It should never be one sided and should benefit both parties.
Below you can find best practices for starting or improving your supplier relationship management process.
What is Supplier Relationship Management (SRM)
Supplier relationship management (SRM) is the process a company carries out to optimise their suppliers performance and develop strategic relationships with them. This is another crucial factor within the supplier management process and one that each company approaches differently. The overall goal however is usually the same, to build a stronger and closer working relationship with the supplier, in turn building confidence in results from both parties and also better communication which should result in improved customer service for the company and potentially more work in the long-term for the supplier.
Supplier relationship management is becoming evermore important to companies. In Deloitte’s 2017 CPO Survey, nearly 31% of CPOs wanted to focus more on restructuring existing supplier relationships. This is rarely a straightforward process for companies to carry out and without a robust supplier management process, buyers and suppliers might find it difficult to work together effectively within a mutually beneficial relationship.
Companies who fail to implement a proper supplier management process run the risk of significant harm resulting in disruption in their supply chain, increased costs and poor customer service when things go wrong.
Supplier relationship management is just one part of the supplier lifecycle management process (SLM) however arguable the most important. There are three main stages of any success SRM process:
- Supplier segmentation: Differentiate suppliers to reduce costs, enable process improvements & encourage innovation.
- Supplier development: Generating a new capability or competency in suppliers
- Supplier Evaluation: Measurement of a suppliers performance and offering them transparent and effective feedback
Strategic partnerships are at the top of the corporate agenda of many global organisations and Supplier
Relationship Management (SRM) is seen as one of the few remaining procurement topics that can still make a significant difference. But many organisations
encounter difficulties in initiating, developing and managing partnerships. In particular, leadership and soft skills are mentioned as primary reasons for failure, alongside technical & functional competencies. We initiated a study on SRM to gain a better understanding of the typical challenges involved and to determine how supplier capabilities drive competitive advantage.
Supplier Relationship Management Strategies
Below are 5 key areas that organisations can use to improve their supplier relationship management strategy:
1. Value (more than cost savings)
Most companies still focus their supplier management efforts on obtaining cost-savings, looking for cost-reduction opportunities prior to signing a contract as well as during the supplier lifecycle management stage. Companies can learn to map true value and think beyond just cost-reduction. Focusing on other values such as customer service, lead delivery times or compliance can often outweigh any savings benefits. E.g. a supplier that offers a good cheaper than another supplier might not have as good customer service and therefore a company might struggle to return that good if any faults arise.
Building stronger and closer working relationships with suppliers, will in turn build confidence in results from both parties and also better communication which should result in improved customer service from the supplier.
2. Supplier Owners
In most organisations, you will usually expect to hear that supplier relationships are owned by the Procurement team. Although procurement might have been the department to find and negotiate with the supplier pre-contract stage, it should not be assumed that they should hold the relationship with that suppliers throughout the supplier lifecycle management process.
In larger organisations it is not uncommon to see multiple internal stakeholders take ownership of a single supplier. e.g.
Business Supplier Owner: An internal stakeholder who might manage the day to day administrative tasks that comes with supplier relationship management such as managing returns of goods or ensuring that the supplier has been paid on time.
Procurement Supplier Owner: This internal stakeholder might be in charge of managing the onboarding and due diligence of a supplier such as ensuring that the supplier holds the correct insurances or anti-slavery certificates.
Supplier Contract Owner: This internal stakeholder will usually own the contract between the company and the supplier ensuring that the contract does not automatically roll over or handling any disputes that might arise.
3. Supplier consolidation
Supplier consolidation can work great for both the supplier and the company. Reducing the number of suppliers you use within a category down to one or two means that the suppliers will get more business from you. In turn, by putting more orders through these suppliers they will often offer a company preferred pricing, better customer service and improved KPI’s.
4. Supplier risk management & mitigation
If a company identifies any risks with one of their suppliers, it is always important to communicate closely with that supplier to discover further details and to manage the potential risk together, especially if they are critical to the operation of the company.
Every company will experience supply chain disruption due to good or service quality issues, supplier due diligence, contractual issues etc. However, companies that have an robust SRM program in place can better predict and manage those disruptions.
Free online tools such as the Deloitte Priority Model can be used to segment supplier based on risks.
5. Return on investment (ROI)
A lot of companies are vigilant about investing in a SRM strategy due to upfront funding needed. It can be difficult for companies to build a convincing business case to senior stakeholders that captures the true Return On Investment (ROI) of SRM.
Companies should start by calculating ROI benefits by estimating the impact of risk, non-compliant contracts & suppliers, and poor KPI’s. From there, companies should be able to calculate the impact of not having a SRM strategy in place and what that means to their overall balance sheets.
How Can a SRM Software Help You Manage Suppliers Better?
Whether a company is just starting to produce their SRM strategy or looking to improve it, having a good supplier relationship management system is essential and will help to:
- Reduced risk – A supplier Management System can reduce the chance of risk as well as providing a benefit of eliminating supply problems via regular supplier evaluation and supplier information insights.
- Reduced costs – A proper supplier relationship management process can lead to stronger communication between a company and a supplier which in turn drives compliance and confidence. This can eliminate certain risk elements and also results in additional business being awarded to a supplier, resulting in better economies of scale.
- Transparent pricing – Properly managed suppliers will usually have commercial agreements in place with a strong relationship behind them, resulting in companies being able to take advantage of fixed or discounted pricing, economies of scale and other qualifying criteria.
- Consolidation of suppliers – A consolidated supplier base allows companies to reduce the number of suppliers they purchase from, offering increased business to suppliers they have a stronger relationship with, driving economies of scale and also reducing the number of invoices they need to process.
oboloo is a comprehensive procurement software that offers a robust supplier management system. It’s an intuitive and simple solution that also incorporates eSourcing, Contract and Savings management to enable companies to be supplier smart. To learn more please visit www.oboloo.com
oboloo’s supplier management module helps companies to address issues such as low supplier engagement, risks in compliance and gaps in due diligence.
Try the oboloo demo for free for 30 days. You can cancel at anytime.
Additional resources
These external articles contain useful points to consider when creating creating or improving your supplier relationship management (SRM) process: