Simply stated, supplier relationship management (SRM) is a comprehensive approach to managing your organization's interactions with its vendors. Historically, SRM's main goals have been to streamline the B2B technology and processes used for procure-to-pay transactions in order to maximize quality and profit while lowering production and distribution costs.
Though these aspects of SRM are critical for success, the “relationship” part of SRM has often been at best managerial and at worst mutually adversarial. Often, it would be more accurate to describe the process as “supplier management.” This approach worked well enough in the past for many organizations, but not without its costs in the form of excessive inventory, short-term vendor relationships, negative brand reputation with suppliers, and an inability to take advantage of discounts, to name a few.
Here are three ways to boost your supplier relationships to bolster your supply chain:
1. Know your network
The importance of deep knowledge of your supplier network cannot be overstated. The first critical strategy to developing an effective SRM system is to list and categorize all of your suppliers:
- Strategic suppliers are key to your organization's ability to be successful and competitive. As a result, the treatment of this group should be managed closely. Ensuring your strategic suppliers can meet the performance and quality metrics can help your measure your SRM effectiveness and ensure you are instilling concrete processes and goals.
- Tactical suppliers comprise a significant amount of your business, but they have less overall impact on your organization's product delivery. Though you will not need to manage tactical suppliers as closely as strategic suppliers, it is important to ensure they are regularly monitored for quality improvement.
- Commodity suppliers have the lowest value to your organization and typically are easily replaced. You may have carefully engaged multiple commodity suppliers that provide the same material or service, so that you can use them interchangeably based on their ability to deliver to your demand requirements.
2. Map criteria to the right SRM tool
Now that you have divided your suppliers into meaningful categories based on their impact and purpose, the next step is to define the criteria that you will need to manage your suppliers.
- KPIs: An ideal SRM software solution will be configurable, so you can input the exact key performance indicators (KPIs) you want to measure for each supplier. Look for a tool that can automate reporting on these measurements, by setting up automated email notifications that help you manage by exception (MBE) to take action when a supplier is underperforming in an agreed-upon area, such as on-time deliveries or fulfillment commitments.
- Supplier scorecards/analytic dashboard reporting tools: Good business intelligence (BI) analytics tools are becoming a requirement for supply chain organizations to remain competitive. Look for the ability to create custom reports for your suppliers on demand, compare them side-by-side, and rate them using dashboard tools that can score each supplier based on how they performed against their custom KPIs.
- Terms and conditions/regulatory compliance: One of the most important tools now available in SRM solutions is digital contract management — including terms, conditions, and regulatory compliance certifications — where all agreements with your suppliers are formalized and stored in a centralized repository. This functionality helps you manage your supplier partnerships with the ability to mutually alter agreements quickly and transparently, measure the success of the relationship, and identify areas of improvement.
- Dynamic discounting for early payments to suppliers: Successful supplier relationships involve strategic negotiation on payment terms. Look for a tool that provides flexibility in payment options and workflow to allow for customizations such as invoice tolerances, along with a mechanism to maximize working capital by taking advantage of dynamic discounting for early payments to suppliers. You will also benefit from greater control and visibility into your payables maturity and invoice status.
3. Define processes for resiliency
Strong, nurtured relationships with your strategic suppliers will make it more likely to continue operations in the face of catastrophic disruptions in the chain. Consider how you might implement some of the following practices in your organization to manage your supplier relationships and position your company for success in uncertain climates.
- Institute business practices that will maintain your brand integrity and give you a competitive edge.
- Think “out of the box” to research suppliers for risk management.
- Leverage collaboration to build and nurture relationships with your suppliers.
All these factors underscore the importance of building a comprehensive SRM system that includes a software tool to streamline processes such as onboarding, terms and conditions compliance, KPI measurement, and analytic reports of supplier performance — as well as the human-powered strategies of relationship building and intelligence gathering from other sources.
The bottom line to remaining a successful organization in turbulent times is to create systems and business processes that not only lower costs while delivering higher quality products, but also take vendor relationships to much higher, strategic levels. By implementing SRM tools and strategies combined with collaborative capabilities, supply networks can achieve better forecasting, faster fulfillment, increased regulatory compliance, higher customer satisfaction, and, ultimately, less tension between organizations and their suppliers when they have achieved a win-win relationship.