The Importance of Effective Supplier Relationship Management

The recent pandemic has affected every part of the supply chain, from sourcing to end customer, and has tested the operational, financial, and organizational resilience of the majority of enterprises across the globe. Supplier relationship management, therefore, is more important than ever in evaluating the risks, understanding the supplier interests, better coordination and aligning the suppliers to the strategic plan.

Supplier relationship management is about integrating the right processes, resources, and tools needed to align the enterprise with the suppliers to create effective and more loyal relationships. It allows for greater focus on what is critically important to your business. But, for some reason, it’s not as well understood or formally adopted, as it should be. With a greater focus on customer relationship management, higher sales, and greater profits, many organizations forget how important their relationships with their suppliers truly are. They do not see suppliers as being strategically critical to success, and unfortunately, neglect supplier relationship management at their own peril. The fact is supplier relationship management is one area of business that needs to become a top priority.

During pandemic enterprises across the industries have already experienced the risk related to supplier dependence on their ability to respond faster to the changing macro-environment. According to a recent Global CPO Survey, the second biggest focus for CPO leaders in order to unlock the most significant value is supplier collaboration. The most effective way of Supplier Relationship management is threefold:

Supplier Segmentation
Evaluate your supplier base and come up with categories based on the item, quantity, price etc. The categories of suppliers can look different for each organization. But the main reason behind the categorization of suppliers is to identify which suppliers are more strategically important to your organization.

Supplier Strategy Development
Each supplier category needs to be managed in a different manner. Develop a type of collaboration that is beneficial to both you and the supplier. Be open to feedback from your suppliers as well. It can often bring you surprising gains. Also, be transparent with your suppliers. Let them know your objectives and share performance data with them.

Supplier Strategy Execution and Constant Improvement
No matter how excellent a strategy is, all ideations will be futile if not executed properly. As they say, the proof is in the pudding. Along with execution, it is also important to keep reviewing your strategy to adapt to the constant changes.

Investing in an SRM application can help you with your overall SRM strategy. Digitally enabled supplier engagement helps in generating more value for organizations. An SRM software can help you with tracking supplier performance, document storage, invoices, vendor certification etc.

Some of the benefits of Supplier Relationship Management are as follows:

Reduced Costs
The costs related to finding new suppliers can be significantly reduced if your supplier relationship management is optimized. Finding new suppliers, assessing the quality of their products, negotiating contract terms, all take up significant time, effort and money. All this can be avoided if your relations with your existing suppliers are properly maintained and tended to.

Stable Pricing
SRM can help organizations identify suppliers who offer stable pricing. Organizations can then negotiate long-term contracts with such suppliers to ensure stable pricing over a course of the period.

Increased Efficiency
By constantly communicating with the suppliers and being transparent with them, over a course of time your suppliers will understand and even predict your needs. This will help in avoiding supply chains delays.

Priority Service
Important customers are often given priority service, especially in times of difficulties or production availability. This ensures that organizations are in turn able to meet the needs of their own customers. Sometimes your suppliers might even consider upgrading their production capacity to meet your organization’s demands.

Supplier Management Tools:

Supplier management tools enable organizations to control costs, drive service excellence and mitigate risks to gain more value from their suppliers throughout the deal life cycle.

Self Service Supplier Portal
Leading enterprises are looking to automate response to supplier queries, remove paper-based onboarding process and keep the suppliers in the communication loop via solutions like supplier portal. A supplier portal provides a self-service platform to suppliers, access new RFQ/RFIs, purchase orders, generate and submit invoices, track payment progress and seamlessly communicate with the customer.

Reverse Auction Solution
A reverse auction is a strategic sourcing event in which suppliers bid to provide products and services which helps buyers ineffective price discovery, gain in-depth supplier market knowledge and drive price reductions. With reverse auction solutions, enterprises can create, conduct and report on auctions with ease.

Contract Management Solution
After identifying serious suppliers, enterprises can make use of contract management software as they proceed to discuss and negotiate contracts.

This kind of application makes it possible to manage suppliers efficiently. A clear dashboard brings to your attention contracts needing renewal and those about to expire thereby encouraging best contract management practices.

Challenges in SRM:

• Sometimes organizations may get into the trap of using SRM only to reduce costs. In reality, SRM’s objective is to build long-term mutually beneficial relationships and build strategic ties.
• Improper segmentation of suppliers may result in ineffective strategic alliances. This can be a result of poor visibility into suppliers. Hence properly evaluating suppliers before segmenting them is of utmost importance.
• A lack of a top-down approach may result in poor execution of SRM strategy. In this case, the whole responsibility will land on the shoulders of the procurement team. An effective SRM strategy needs seamless alignment of people, processes, and overall business strategy.

The implementation process of an effective Supply relationship management strategy is gradual and organizations will have to overcome many hurdles. But the benefits reaped from it will more than compensate for the efforts. The most important thing to keep in mind is to keep reviewing your SRM strategy and make continuous improvements to it.