A strategic approach to supplier relationship management: Best practices and benefits

November 29, 2021

Supplier relationship management is a vital component of modern supply chain management. However, while business leaders are increasingly aware of the need to have a robust supplier relationship management strategy, you can still enjoy a significant competitive advantage owing to the volume of businesses without one.

Many people thought this 2017 Deloitte study was a new dawn for supplier relationship management. In it, nearly a third of Chief Procurement Officers (CPOs) said they were committed to restructuring how they worked with suppliers. But that means over two-thirds isn't working on their supplier relationships, which is where your opportunity lies.

If you don't have a supplier relationship management strategy, your suppliers will see you simply as a business that demands products, requests purchase orders, and pays their invoices. However, successful supplier relationship management goes beyond measuring supplier performance and transactional aspects and focuses on building mutually beneficial relationships.

Read on to learn how to make supplier relationship management a key pillar of your supply chain management and overall business strategy.

What is supplier relationship management (SRM)?

The best way to describe SRM and an SRM strategy is as a systematic approach to evaluating and working with existing and new suppliers to improve business outcomes.

Your SRM process is a vital part of your broader supply chain management strategy. Effective SRM also includes elements of managing supplier risk but isn't a substitute for managing supply risks through a proper risk assessment and mitigation process.

In addition, it's vital to recognise that many elements of SRM explore what stakeholders in your business bring to strategic supplier relationships rather than simply being a performance management tool you use on key suppliers.

You can generally break down as SRM program into three specific areas:

  • Supplier segmentation, which you can use to differentiate suppliers and measure opportunities and risks using a Kraljic matrix or business scorecard. You can also use this for effective category management. For example, if you're a clothing retailer, the supplier who provides you with your t-shirts is going to be more critical than most!

  • Supplier strategy development, where you develop an optimal way to interact with your supplier base and recognise the optimal solution for one supplier may not be the same as for another.

  • Supplier strategy execution, where you put your plans into action and get the desired results.

A great way to look at your supplier relationship management process is as a supplier development project. With some time spent on strategic planning and understanding the needs of your supply base, you can harness the full potential of supplier capability and deliver better outcomes for you and them.

What benefits will introducing supplier relationship management strategies bring to your supply chain?

1. Improved procurement outcomes

When you start focusing on your supplier relationships, you'll grow your understanding of which suppliers are the most critical in your supply chain. You will also enhance your knowledge of bottlenecks and other issues that can potentially cause disruption.

This knowledge can be vital to all stakeholders working across procurement functions in your business. For example, when you need to find a new supplier, knowing the specific functions your team needs to replace and the nature of the relationship with the previous supplier can help streamline the search for a new one.

Crucially, your CPO and procurement teams can learn from your SRM process and build that into the assessment process the next time they need to source a new supplier.

2. Optimised supply chain management

Optimised supply chain management is the outcome you're ultimately seeking when it comes to SRM.

However, it's vital to realise we're not just talking about getting products on the shelves and building up the bottom line. SRM can help you measure things like supply chain sustainability and transparency, minimise disruptions caused by geopolitical volatility in regions where your suppliers operate, and much more.

3. Better risk mitigation

Risk mitigation is always a vital factor when it comes to supply chain management. Yet, many CPOs and their teams often fail to realise the role SRM plays in this.

Using SRM to mitigate risks goes beyond having risk assessments and contingency plans in place. It's about working with your suppliers on an ongoing basis to help them reduce risks themselves. If they're reliant on downstream suppliers to provide something essential to whatever they offer you, they gain from being invested in risk mitigation, too.

A robust SRM strategy brings your business and suppliers together to deliver better risk mitigation outcomes, strategically planned responses to volatility, and minimal disruption.

4. Improved profitability

If you're a CPO trying to push for developing an SRM culture within your business, this is the point that will matter the most to your CEO!

Strong supplier relationship management practices can improve profitability in many ways, including:

  • Making procurement teams more productive as they aren't spending as much time sourcing suppliers and vendors

  • Achieving cost savings by making it easier to negotiate better deals with suppliers

  • Avoiding things like stockouts that may cause you to lose business

  • Reducing what you need to spend on PR or defending legal cases

5. Information and data sharing

We're all now operating in a world where big data is king. The more data you have, the better you can assess, analyse, and evaluate specific situations, and the more informed a decision you can make about the matter at hand. What's more, artificial intelligence and machine learning tools are becoming ever more refined and helpful in providing real-time data, early warnings, and reports at the touch of a button.

With so much potential to be realised from data, it makes sense to be sharing your data and have the ability to use supplier data, too. If you have a great relationship with your suppliers, you'll find developing mutually beneficial data-sharing practices much easier.

Think about all the things you could do better if you had access to supplier data around things like quality control and assessment. Likewise, how could your suppliers deliver better products to you if they had visibility of your customer satisfaction levels?

The possible benefits of data sharing are endless, and SRM is your pathway to facilitating it.

6. Improved service levels

If you spend time on your supplier relationships, you can expect that to pay for itself via improved service levels and maybe even priority for new developments and innovations when they come on stream.

Having that rapport will mean that whether pandemic-related disruption rears its head again or you need to quickly tie up a contract management oversight that you can get things done quickly and with the minimum of fuss.

7 supplier relationship management best practices and initiatives to introduce into your business

1. Treat suppliers as partners.

If you're serious about implementing SRM to any significant degree, the first thing you should do is kill any notion of your supplier relationships being solely transactional.

Even if you have hundreds of suppliers across your supply chain, you need to make them feel like they're part of your business. For example, you can easily set up a mailing list to send out monthly updates or provide newsletters detailing new product launches or promotions. Some of those suppliers will have played a role in getting those new products to market, so how great will it feel for them to be a part of you celebrating their launch?

Make it a two-way street, too, so you develop a mutually beneficial relationship.

2. Develop KPIs and benchmark supplier experience metrics

There are many ways to build those mutually beneficial relationships, but this is one of the most effective. What is it like for suppliers to work with your business?

You don't know unless you ask, and it's always dangerous to assume that a supplier thinks you're great just because you've never received any negative feedback.

An easy way to make this happen is to set up a Net Promoter Score measurement using Survey Monkey. Then, if you find that supplier sentiment isn't as strong as you'd hoped, use the results to make changes to your SRM practices and develop a case study around the improvements you achieve and the positive outcomes this brought to your business.

3. Plan for disruptions with robust risk management and assessment processes

In supply chain management, you're pretty much wasting your time if you try and 100% eliminate the potential for disruptions. The bottom line is, disruptions will happen, be that due to a raw materials shortage, a natural disaster, or pandemic-related disruption.

Work with your suppliers to help manage and mitigate those risks, whatever they are.

In doing so, you will develop a more robust and more transparent relationship with them and be in a stronger position to deal with disruptions when they do occur.

4. Think local to maximise your global potential

Imagine all your suppliers were in the same town as your headquarters. Managing supplier relationships would be easy. You could visit your suppliers or pick up the phone whenever you want and know everything about cultural and regulatory issues they face.

You need to have the same outlook for suppliers in other cities, countries, and continents, too.

Do your SRM specialists know the best times to schedule calls with your suppliers on the other side of the world? Are the regulatory challenges they face factored into your supplier risk assessments and mitigation processes? 

Ensure your relationship with a supplier on the other side of the world is as close as it could be to one with a supplier on the next street.

5. Make agreements detailed and precise.

Poor contract management processes account for a significant number of issues with supplier relationships.

Thankfully, the solution is simple: make all your agreements detailed, clear, and ensure that they outline expectations and obligations both of your business and the supplier. This way, you can have honest conversations if things do go wrong, but more importantly, invest more of your resources into making your supplier relationships work and realising the potential of your mutually beneficial relationship.

6. Embrace technology

Investing in SRM software or using a supply chain visibility platform will go a long way to helping you develop exceptional relationships with your suppliers.

Serai Visibility Solution

Look out for software solutions that you can integrate with your existing tools. You'll find yourself able to manage supplier invoicing, manage risk, and plan SRM and other supply chain management activities from a single dashboard.

7. Make SRM a business priority.

You can have the first six points in place, but if no one in your business knows or understands why they're there or of their importance, you might as well have not bothered doing it.

Get your team together for a Town Hall or prepare an internal EDM that highlights your new SRM strategy, what your business needs to do to execute it, and the key supply chain and supplier performance outcomes you're hoping to achieve.

Excellent supplier relationships mean more straightforward supply chain management.

Supply chain management isn't easy.

However, investing time in your supplier relationships will help remove many of the most common and significant bottlenecks and friction points that you'll experience when optimising your supply chain.

Make SRM a key focus within your broader supply chain management strategy and enjoy the competitive advantage strong relationships will bring to your business.

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