All products in a market travel through lengthy, interconnected supply chains before reaching their final destiny: the consumer. In today’s competitive business environment, it is essential to maintain dynamic relationships with every supplier involved in the chain. By doing this, a business can ensure higher productivity, better cost management, and slick operations. According to an analysis by the U.S. Agency for International Development, there is a significant connection between effective Supplier Relationship Management and overall firm performance. In this blog, we will unearth the concept of Supplier Relationship Management to help your business perform better.
Introduction to the term ‘supplier’
The word supplier refers to the entity responsible for providing raw material, goods, or services to a business. Moreover, they act as intermediaries in a supply chain, bridging the gap between manufacturers and retailers. There is an interdependency between suppliers and businesses where both benefit one another. This symbiotic nature further validates the importance of successful supplier relationship management.
To be precise, businesses look forward to suppliers for getting the necessary material and producing their final output. Whereas suppliers depend on businesses for the sale of their products. For example, a car business would need vendors who manufacture tires or sell aluminum for the body.
What is Supplier Relationship Management (SRM)?
In general, it is a method of maintaining constructive relationships with the suppliers of a business to boost efficiency and foster a healthy work environment. Before a company owns a finished good, it carries out multiple purchases, deals, and meetings with several vendors. Importantly, these encounters determine the success of your final product and in turn, the profitability of your business. Therefore, being able to deal and communicate with the suppliers in an eloquent manner can do wonders for any business.
Types of Supplier Relationship Management
Managing worthwhile relationships with suppliers is not a flat process. Instead, it requires a multi-dimensional approach catering to all the aspects of a business. These are some types of SRM, each with a unique goal in perspective:
Collaborative SRM
This is an approach that deals with joint planning with potential suppliers to ensure the best outcome. Here, all parties team up, exchange their expertise, and share their knowledge of the market with each other. It helps them come up with innovative ideas and improve the product’s quality.
Operational SRM
This is the backbone of supplier relationship management as it is concerned with all the daily operations and finances of a firm. With a sturdy grip on operational SRM, businesses can streamline their orders and ensure cost-effectiveness. Having well-established suppliers means that you can negotiate the terms and costs to lower complexity and multiply profitability.
Strategic SRM
In this strategy, the business is interested in evaluating the strengths, weaknesses, and potential of their prospective suppliers. This helps them decide who gets along with their functions in the best way, paving the way for efficient decision-making.
The Process of Supplier Relationship Management
To adeptly handle, maintain, and foster professional relationships with suppliers, companies need to follow clear steps of the SRM process:
Step 1 – Understanding and segmenting the suppliers
Initially, the journey sets off with a profound understanding of all potential suppliers and their capabilities. This includes in-depth analysis of product suppliers, service providers, investors, business partners, and business consultants. Doing this, a business can make informed decisions about who they should collaborate with, and when. Often, this segmentation is based upon specific models like the Kraljic Matrix, to identify the benefits and threats of a supplier.
Step 2 – Setting objectives
Every business is different and has unique needs and objectives. Whether your goal is to save time, manage costs, or promote creativity, it is important to recognize and implement it. Moreover, your objectives will determine the layout of your supplier relationship management process. They clarify which supplier you should collaborate with and how they can benefit your overall business.
Step 3 – Evaluating supplier performance
Furthermore, once you have identified your prospective supplier, the next step is to evaluate their performance. See if they sync with your business objectives, plans, and daily timelines. Well-defined performance metrics and Key Performance Indicators (KPIs), such as cost reduction, serve as the foundation for successful evaluation. When these metrics are in harmony with the organization's business strategy, you know that you are moving in the right direction.
Step 4 – Promoting open communication
A key component of solid relationships with a supplier is transparent and respectful communication. As strategic partners, suppliers should have the right to participate in the business goals. Additionally, there should be regular meeting sessions, feedback generation, and cohesive engagement at both ends to maintain a productive work decorum.
Step 5 – Planning and issue resolution
Moving further, systematic supplier relationship management cannot be established without careful and well-thought-out planning. Vendors and business representatives should frequently discuss future strategies, changes, and financial pursuits to remain on the same page. Consequently, this will help them improve the outcome and resolve present challenges.
Step 6 – Managing risks
Despite the robustness of your relationship with the suppliers, unwanted complexities can still arise. In order to deal with such situations, you should always have a competitive risk management plan ready at hand. This helps you play safe in unpleasant circumstances such as delays in product delivery. For example, if there is a limitation at the end of one supplier, you should have a plan B with another supplier to avoid inconvenience.
Step 7 – Keeping room for improvement
Even when you have established a stable and powerful connection with your suppliers, there is still room for improvement. In supplier relationship management, all parties should be flexible to change and open to betterment in future.
Benefits of Supplier Relationship Management
There are inevitable benefits of disciplined and healthy relationships with suppliers, some examples include:
- Improved end-product quality
- Better management of business expenses
- Efficient supplier performance
- Streamlined operational continuity
- Higher transparency
- Mutual respect and compensation
- Thorough risk management
- Enhanced customer satisfaction
- Better decision-making
- Boost in profitability
- More creativity, innovation, and agility
Key takeaways
To conclude, effective supplier relationship management is important for all businesses to reach their desired goals and achieve new milestones. It helps them maintain their product quality, streamline daily operations, and boost their profit margin. With clear business objectives in mind and regular evaluation of business performance, an organization can choose the right supplier. It helps them sustain themselves in the modern competitive market and take their business to great heights.
