The Essential Supplier Relationship Management Guide

Introduction to Supplier Relationship Management (SRM)

This Supplier Relationship Management guide aims to be the one article you'll need to get started with your SRM program!

Supplier relationship management (SRM) is an increasingly important practice in modern business. As we enter a "new normal" of less supply chain stability, more disruption, more price volatility, and growing interconnectedness of supply chain risks, organizations need to ensure that they are getting the best quality products at the most competitive prices in the most efficient way possible. SRM helps build strong, long-term relationships with suppliers, which can lead to increased product availability, better visibility and predictability, and reduced costs.

The Supplier Relationship Management Guide will cover the basics of SRM, including how to develop a successful strategy, identify key suppliers, and measure performance. It will help you understand SRM and how it can provide tangible benefits for your organization. 

What is Supplier Relationship Management?

Supplier relationship management is the structured process of evaluating the vendors that provide goods and services to an organization, measuring their contribution, and working closely with them to improve their performance.

The discipline of SRM is practiced by supply chain and procurement professionals who regularly deal with suppliers in various capacities, such as purchasing, project management, logistics or operations. It is deeply intertwined with strategic sourcing processes, yet is also a distinct practice in itself. SRM is focused on providing visibility into supplier capabilities, encouraging collaboration between teams and suppliers, and tracking supplier performance beyond the duration of a single transaction. Strategic Sourcing, on the other hand, is generally more focused on the initial engagement with suppliers, ensuring the best deal for an organization through research and comparison of potential providers, as well as market research to optimize pricing on future renewals.

Successful SRM creates a deep partnership between an organization and its suppliers. The goal of SRM is to provide mutual value for both the organization and its suppliers in order to facilitate positive, long-term business relationships.

SRM can help an organization align specific supplier engagements with their strategic objectives. It helps identify when it makes sense to either look for alternative suppliers or negotiate more aggressively because performance isn't quite aligned with cost and risk. It also helps identify when the customer should invest in improving an underperforming supplier rather than jettisoning them. Organizations are able to use SRM as part of their overall supply chain framework to capitalize on supplier opportunities based on data rather than instinct.

The Key Activities of Supplier Relationship Management

There are five key elements to successful supplier relationship management:

1. Segment the Supply Base
2. Establish clear communication channels
3. Measure & Improve Supplier Performance
4. Become a "Customer of Choice"
5. Collaborate with Suppliers

Segment

Segmenting the supply base is a crucial part of successful supplier relationship management. It involves grouping suppliers according to their capabilities, obligations, and potential risks. This process enables organizations to identify which suppliers are best suited for different types of procurement activities and allows them to quickly react to changes in market conditions. If nothing else you should classify critical vs. non-critical suppliers. However, you really should go deeper. By segmenting the supply base, organizations can properly manage costs, optimize incentives for preferred suppliers, and reduce supply chain risk.

Communicate

Establishing clear communication channels between an organization and its suppliers is essential for successful supplier relationship management. This includes setting up formal communication procedures that are easily understood by both parties, such as regular meetings and sustained email communication. By establishing a clear line of communication with suppliers, organizations can build trust and ensure that matters such as delivery schedules, product quality specifications and contractual terms and conditions are properly conveyed so there will be no misunderstanding or disputes.

Measure

Organizations must continuously monitor and measure supplier performance in order to maintain sustainable relationships in the long run. This can involve performing periodic evaluations on factors such as cost, quality, delivery timeframes as well as customer service capabilities. Organizations must also take feedback from all key stakeholders into account when assessing supplier performance in order to gain a comprehensive understanding of the situation before taking any corrective action if needed. By regularly monitoring supplier performance, organizations can identify areas which need improvement and subsequently enact plans for continuous improvement over time.


Customer of Choice

Organizations should strive to become a “customer of choice” through demonstrating excellent customer service practices towards its suppliers in order to build strong relationships with them over time. This involves providing accurate information about product specifications at all times; responding promptly to questions raised by its suppliers; minimizing paperwork; ensuring payments are made on-time; providing access to resources where appropriate; providing constructive feedback when needed; following through on commitments made during negotiations; addressing grievances promptly; treating suppliers fairly; offering rewards or recognition where appropriate;and investing in joint development opportunities when beneficial for both parties involved (e.g., co-branding/marketing initiatives).

Collaborate

In today’s competitive business landscape, collaboration between companies has become more important than ever before. Organizations should strive to collaborate with their suppliers by engaging in joint problem solving activities on an ongoing basis instead of relying solely on contract negotiation tactics during sourcing processes. This allows both parties to work together towards mutually beneficial outcomes which increases efficiency within the supply chain while creating stronger partnerships over time due to deeper mutual understanding between each other’s capabilities, needs and expectations within the context of the project at hand

The Benefits of Effective SRM

There are numerous advantages to effective supplier relationship management. By establishing mutually beneficial partnerships with key suppliers, organizations can drastically improve their own operations and increase their competitive advantage in the market.

The Benefits of SRM

The main benefits of supplier relationship management are:

1. Improved operational efficiency
2. Increased quality control
3. Lower total cost of operation
4. More reliable sources of supply
5. Greater supply chain visibility

SRM Benefits in More Depth

Let's examine each of those benefits in more detail.

• Improved operational efficiency – By having better access to reliable resources, organizations are able to streamline their operations and gain a competitive edge over rivals who do not have such access.
• Increased quality control – With established policies for quality assurance, organizations can ensure that all components used in production meet their specifications and standards before going into production. This eliminates delays and helps maintain consistency across multiple projects.
• Lower total cost of operation – By negotiating advantageous prices from key suppliers, organizations can reduce their overall spending on products or services while still getting high-quality goods or services.
• More reliable sources of supply – With good supplier relationships comes increased dependability from those same suppliers when needed in times of crisis or emergency situations where orders need to be filled quickly at short notice.
• Greater supply chain visibility – Good SRM gives the organization greater insight into the performance of each supplier which allows them to recognize areas where processes need improvement in order to maximize efficiency.

Nurturing supplier relationships helps organizations anticipate potential risks that might come up in the future, so they can proactively address those risks before they interrupt operations down the road.

Overall, SRM provides multiple benefits including being able to reduce operational costs while still providing quality goods and services. Strong supplier relationships - not just cordial but deep - can be a major source of competitive advantage. And for less solid relationships, understanding how far you’re willing to push becomes critical when balancing cost savings versus overall satisfaction - or lack thereof - with product and service offerings.

The goals of Supplier Relationship Management

Good SRM aims to maximize the effectiveness of an organization's interactions with its suppliers. The ultimate goal of supplier relationship management is to consolidate and optimize processes between buyers and suppliers in order to foster better communication, transparency, and collaboration.

Across industries, organizations, and even across direct and indirect spend, SRM targets the same objective - to streamline and improve the processes between buyers and sellers.

A strong SRM program should aim to turn the management of supplier relationships into a competitive edge in the market. It should create mutually beneficial and collaborative partnerships between buyers and suppliers by optimizing processes, improving communication, and encouraging innovation. This promotes quality, efficiency, innovation and cost savings.

Supplier Relationship Management ROI

Studies show that there is a substantial ROI from Supplier Relationship Management. The SRM ROI of best-in-class programs is 1100%.

And there are significant gains available just from expanding an existing SRM program. Organizations that apply SRM principles to 90%+ of their suppliers see 35% more value vs. just focusing on their "strategic" suppliers.

The ROI of SRM

The SRM Process in Practice

Strategic Sourcing and Supplier Relationship Management (SRM) involve three distinct steps that must be taken in order to ensure successful and mutually beneficial relationships with suppliers.

The first step is to segment suppliers, evaluating their importance to the organization’s success. This helps set priorities and allocate resources accordingly.

The second step is to develop a supplier strategy that outlines how the organization will interact with each individual supplier or category of suppliers, including governance and performance management models.

Finally, executives must execute this supplier strategy, taking on day-to-day tasks to operationalize the SRM plans and monitor their success. They should also look for any potential points of failure in both the plan and its execution.

SRM use cases

The use cases of SRM include:

• Taking better advantage of supplier capabilities
• Reducing costs
• Ensuring supply chain continuity
• Limiting risks
• Increasing supplier responsiveness. 
• Gaining visibility into future prices
• Hedging against price volatility.

Implementing an Effective Supplier Relationship Management Program

Developing a successful SRM system involves several different steps which should be followed carefully and thoroughly:

• Identify key suppliers – First, determine which suppliers are essential to your organization’s success by evaluating their quality and reliability as well as whether they are able to meet your specific requirements under any circumstances or contingencies. Once you have identified these key partners, prioritize them above all other suppliers who may not be as important or vital for your operations.
• Establish communication channels – It’s important that there are good lines of communication between you and your key suppliers so that any issues that arise can be dealt with swiftly and efficiently without having either party wasting time trying to track down information from the opposite side of the partnership. This could lead to delays that ultimately damage both sides financially as well as potentially create a strained working relationship if left unresolved for too long .
• Monitor performance metrics – After establishing channels of communication between both parties, it’s important that there are measurable performance metrics set up in order to accurately evaluate whether or not objectives are being met on both ends consistently over time - these measurements should include 
  1. Prices paid and discounts offered
  2. Delivery times (including shipping incidents)
  3. Responsiveness
  4. Quality control
  5. Customer satisfaction
• Periodic reviews and updates – Regular updates should also take place between yourself & any key partners regarding policies related to pricing & payment terms/conditions, contact details, etc. Everyone should be up-to-date with any changes, and all key stakeholders should be aware of possible opportunities that may arise through these meetings. Examples of opportunities include the obvious ones like cost savings, faster shipping, etc. whose benefits primarily accrue to the buyer. But less obvious opportunities are things that improve conditions for your supplier, such as small changes to specifications that will not significantly impact the buyer while drastically reducing cost or complexity for the supplier. These opportunities must be developed collaboratively.
  
  

Interested in learning more beyond this Supplier Relationship Management guide? Check out this article on why buyer organizations must close the SRM-CRM gap.