What is Supplier Relationship Management?
Supplier relationship management (SRM) is a strategic approach to facilitating and maintaining an organization’s relationship with its suppliers. It’s a set of practices aimed at building mutually beneficial relationships with suppliers and ensuring the efficient flow of goods, services, and information. Through SRM, organizations move past purely transactional relationships and instead build meaningful business connections with suppliers, with a high focus on long-term collaboration, continuous improvement, and innovation.
Importance
The importance of good supplier relationships can’t be overstated. Having long-term suppliers who you are comfortable working with and can trust to deliver top-tier materials, products, or services to your company is essential in building strong foundations for your business in the future.
Many businesses heavily rely on their suppliers to deliver specific goods or services for their production line to perform efficiently and on schedule. Having good relationships with your suppliers makes it easier to ensure that everything happens on schedule, within budget restraints, and problems are solved instantly.
Because of this, organizations are heavily encouraged to pay close attention on the supplier selection process. Once they find a good supplier, the team must put in the effort to maintain mutually beneficial relationships with the supplier that they can rely upon in the future.
Objectives of SRM
SRM aims to accomplish different goals that can vary depending on your organization. However, some of the main objectives of SRM include:
Cut Costs
Mutually beneficial relationships with suppliers can result in much more favorable terms for both parties. This allows businesses to cut down on supplier costs while still maintaining the quality of products or services. To do this, organizations must have sustainable and healthy relationships with their suppliers.
Reduce Risks
Working with various suppliers can be risky, as many factors can affect the quality of the products or services they provide. If your business heavily relies on your suppliers, you should ensure that you build good relationships with them. That way, you can trust them to consistently fulfill their end of the bargain, reducing the risks that your organization faces.
Improve Supplier Performance
SRM is all about developing your relationship with your suppliers. This involves giving feedback, submitting reports, and collaborating with suppliers to find ways to improve your production line. It also establishes a proper way of assessing and managing supplier quality.
For these reasons, the right SRM practices can work wonders on supplier performance. This, in turn, can significantly improve the quality of products or services provided by any organization.
Promote Innovation
SRM encourages innovation in the same way it improves supplier performance. When organizations work side by side with their suppliers and employ strategies to foster healthier relationships, they promote innovation and find the best possible deals for both parties.
4 Steps in Implementing an SRM Strategy
Implementing an SRM strategy varies for every organization. Ideally, organizations should create tailored SRM strategies for their needs and the unique challenges of their industry.
That said, there are certain steps that every organization should go through when implementing their strategy to ensure that they cover all bases. These essential steps include:
Develop Clear Communication Channels
Effectively managing your relationships with suppliers begins with building good rapport with them. This is why establishing and developing clear communication channels between you and your supplier is key to your SRM strategy. That way, you can deliver feedback, send inquiries, or receive messages wherever you are.
This prevents communication delays, which can lead to misunderstandings between organizations and suppliers. Moreover, it ensures that information flows seamlessly on both sides, problems are addressed promptly, and opportunities for improvement are identified.
Establish Key Performance Indicators
Another important aspect of supplier relationship management is establishing key performance indicators or KPIs. These are metrics that you can use to gauge the performance and quality of your suppliers. That way, you can find potential areas of improvement and give suppliers feedback that’s based on concrete data.
Manage Contracts
Contracts are the foundation of supply relationships. Both parties should be fully satisfied and informed of the contents of the contract before signing, as this will serve as your basis whenever there’s confusion or misunderstanding in your agreement.
To handle contracts effectively, you must develop clear and legally sound agreements that specify expectations, responsibilities, pricing structures, and dispute resolution mechanisms.
Leverage and Utilize Technology
Technology can take your SRM strategies to the next level. When you digitize your supplier management processes, you are given unique ways of managing, receiving, and interpreting data. For instance, digital tools facilitate faster and more accurate information sharing in real time—all using your preferred device.
Aside from their ease of use, they also foster transparency and accountability by leaving a digital trail of all transactions and communications from both sides. In fact, SRM software can even serve as the main platform to manage all your supplier relationships.
FAQs about Supplier Relationship Management
SRM emphasizes collaboration, performance measurement, risk management, and mutual value creation, whereas traditional procurement and vendor management often prioritize cost reduction and transaction efficiency.
In addition, SRM is a more holistic and proactive approach that extends beyond the procurement process to encompass the entire supplier lifecycle.
To measure the performance of their SRM initiatives and strategies, it’s crucial for businesses to establish KPIs. These are set metrics upon which their SRM strategies and supplier performance are measures to standardize the approach to SRM assessments.
Typically, supplier relationships fall under the responsibility of the supply chain management division of an organization. This team is responsible for managing everything supply chain-related, which includes the relationships the organization has with its suppliers.
Technology plays a massive role in managing supplier relationships as organizations can now shift their entire SRM approach to the digital space. This makes for more efficient communication, effective data management, quality control, compliance, and document control.
