Without the supplier relationship, costs could be high, efficiency could be difficult to maintain, and pricing structures could fluctuate.
Supplier relationship management can help companies drive efficiency and sustain a good level of profitability
According to TechTarget, “Supplier relationship management (SRM) is the systematic approach of assessing suppliers’ contributions and influence on success, determining tactics to maximize suppliers’ performance and developing the strategic approach for executing on these determinations. It helps to create positive buyer-supplier relationships and determines which activities to engage in with each supplier.
“The typical goal of SRM is to streamline and improve processes between a buyer and its suppliers — the organizations that supply the goods and services — just as customer relationship management (CRM) is intended to streamline and improve the processes between an enterprise and its customers. Underlying SRM is the focus on developing a mutually beneficially relationship with suppliers, especially those deemed as most strategic to the brand, to promote quality, efficiency, innovation and other benefits.”
What are some of the benefits of supplier relationship management?
- SRM allows for making quick and informed decisions.
According to Koble, “With quantitative and qualitative supplier data, procurement can quickly identify risks, vulnerabilities and opportunities in the supply chain. This knowledge can help them improve their strategies and methods for managing their suppliers.”
- SRM leads to reduced costs.
Setting up contracts with new suppliers usually comes with serious financial outlay. However, by developing a mutually beneficial relationship, businesses can avoid high costs that could come from renegotiating or ending contracts early.
- SRM boosts supplier-led innovation.
Creating innovation is a high priority among organizations. According to the IBM IBV Chief Procurement Officer Study, innovation was second only to reducing costs and increasing profitability for top-performing procurement organizations. Relationships developed through SRM encourages suppliers to innovate on their own and bring extra value to the table. Open lines of communication mean suppliers can share ideas for product improvement, supply chain process innovation, and service innovation.
- SRM typically leads to consolidation of the supply team.
When the company and supplier understand each other’s business, they’ll be better prepared to help each other. A good relationship between parties leads to adaptation and increased inter operation. Often this leads to a reduced number of suppliers, something that can drastically lower costs.
- SRM leads to ongoing process improvement.
Most processes, no matter how well-oiled, can usually be improved in some way. A positive supplier relationship leads to the sharing of ideas and feedback that can then lead to improved operations, improved go-to-market times, improved customer services, and—yes, we’re saying it again—lowered costs.
Jonathan Davies said, “The areas of product development, instigating new ordering processes and inventory control can become a joint venture, and that can deliver a range of financial and operational benefits to both parties. An integral component of many ERP software solutions is supplier relationship management. Working together with its suppliers, a company can tailor its supply chain to meet its individual needs. Processes can be consolidated, costs can be reduced, and the end product for the consumer can be improved. Through a combination savings and efficiencies, companies can create a healthier bottom line despite underlying weakness in their sector.”
SRM leads to better outsourcing. By building up trust with its best suppliers, organizations can outsource non-critical tasks to them. This lightens the load internally, but it also allows buyers to get service or industry expertise and become better able to serve your company.
Supplier relationship management is important because, over time, a long-term relationship between your company and its suppliers allows for the free-flow of feedback and ideas. Over time, this will create a more streamlined, effective supply chain that will have a positive impact on costs and customer service.