Supplier Relationship Management

 What is Supplier Relationship Management (SRM)?

Supplier relationship management is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. In practice, SRM entails creating closer, more collaborative relationships with key suppliers to uncover and realize new value and reduce risk of failure.

Getting back to the initial goal of cost savings, the question becomes ‘when cost savings is a critical driver in supplier selection, how do you balance the collaborative relationship with low cost?

The major key is internal alignment between procurement and other business units. Supply Chain leaders must be able to explain why certain vendors are selected who may not be the low-cost option for reasons like customer service, on-time deliveries, payment terms, reporting, etc. while also stating how they are managing those vendors to get the best price possible. 

Category leaders must be able to explain how new suppliers versus incumbent suppliers will impact the company. There are too many cases where the grass appears to be greener on the other side and by selecting a low cost, new supplier, operational differences get lost in the shuffle and the transition becomes a disaster.

Why is Supplier Management Important?

In plain and simple terms, it creates a competitive advantage. Whether you are the procurement or the supply chain leader for your organization, having a strong supplier management system in place allows for maximin opportunities in cost reduction, value driven services, and over all systematic efficiencies which otherwise would be achieved.  

Supplier Relationships

A critical component to any company’s success is their ability to maintain strong working relationships with their suppliers and vendors. SRMs should always look to avoid complacency. You should never be satisfied with the idea of ‘if it’s not broke, don’t fix it’. SRMs should always be looking for opportunities to improve the relationship, streamline processes or procedures, or change costing models. Relationship Managers should always be looking to challenge the status quo.

Another key to a strong supplier relationship is to open that line of communication and don’t be afraid to ask the question, ‘what we can be doing better?’ Here are some quick ideas as to how you, as a customer to your key suppliers, can help enhance your relationship and make those suppliers want to compete for your business. 

Trust and Loyalty (treat them as more than just vendors)

Improve technology and automation

Adhere to payment terms

Develop communication plans

Differentiate between price versus value

Have a dedicated Supplier Relationship Manager (SRM)

Internal alignment between Procurement and Supply Chain Category leaders

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