Supplier relationship management (SRM) refers to the process of interacting with and managing third-party vendors that provide goods, materials, and services to your business. On the surface, you choose suppliers that are cost-effective, easy to work with, and allow you to maximize the value you bring to your customers. However, like many aspects of business, supplier relations are much more complicated.
Supply management has become more complex over the years due to the growth of technology, the globalization of the supply chain, and events and disruptions like the COVID-19 pandemic. All these layers of complexity can make things harder when it comes to the procurement and sourcing of your vendors. Thankfully, you can manage your bottom line, business objectives, and providers with strong supplier relationship management strategies.
What Is Supplier Relationship Management?
Supplier relationship management, or SRM, is a process that takes a systematic approach to managing, supporting, and evaluating vendors in your supply chain. Your vendors are the suppliers of goods, materials, and services throughout your supply chain. Knowing how to interact and engage with these entities is essential to your business’s success and growth.
To manage your supply chain effectively, you need to have a strong supplier relationship management process in place. Being able to streamline your supply management system and including SRM in your business strategy helps you build two-way communication between you and your supply base while also ensuring that you lower your supply risk management.
For example, imagine that you are a shoe manufacturer. You receive canvas material from a supplier, but recently orders from that supplier have been late, missing items, or lower quality than expected.
In order to keep your own business functioning and delivering your product to customers, you need to manage the supplier. This could mean having a conversation with your liaison from the supplier company or searching to see if you can find a more efficient and cost-effective supplier that will help you achieve your goals instead of slowing you down.
Understanding Different Approaches to Supplier Relationship Management
To properly manage your suppliers, you need to have a strategy for your approach to SRM. There are two main approaches you can take when you address your suppliers: one is ideal, and one isn’t the best option for businesses that want to take control of their supplier management.
Reactive Approach
The reactive approach refers to companies that start managing supplier relationships only when unpleasant situations arise. Companies that take a reactive approach only act to improve the performance of unreliable suppliers. This takes up a lot of time and resources that could be better spent on optimizing your supply chain as a whole.
Strategic Approach
A better technique for strengthening your supply chain is the strategic approach. This approach involves beginning supplier relationship management before an agreement with a supplier is signed. This forward approach leads to successful supplier relationships in the early stages of the relationship, and sets the foundation for successful supplier relationships down the line.
Types of Suppliers in Your Supply Chain
The word “suppliers” in relation to the supply chain refers to multiple types of entities that play a role in the supply chain. Not every business will have the same types of suppliers, and some businesses will be involved with all of them. Let’s take a closer look at the types of suppliers you may come across and need to build relationships with.
Wholesalers and Distributors
The first group of suppliers is wholesalers and distributors. These suppliers purchase goods in bulk and then resell them for a higher unit price. They offer the lowest prices but only sell in large quantities and are generally unwilling to work with smaller orders (or smaller businesses).
Manufacturers and Vendors
The next group of suppliers is manufacturers and vendors. These suppliers handle goods from several different companies. They might have higher prices than wholesalers and distributors, but they will often accept smaller orders from a wider range of manufacturers and different-sized businesses.
Import Sources
The final group of suppliers is import sources. These are domestic importers that operate very similarly to wholesalers and distributors. However, they sell foreign goods to businesses and take care of importing and transporting foreign products and materials before they become domestic supplies.
Objectives of Supplier Relationship Management
All aspects of supply chain management have objectives and goals that help benefit your business. Supplier relationship management is an integral part of managing your supply chain, and as technology continues to develop and the supply chain becomes more global, the goals and objectives of your strategies become even more important and valuable to your organization. Let’s explore some of the main objectives of a supplier relationship management strategy.
Cultivating Supplier Relationships
The primary goal of SRM is to strengthen buyer and supplier relationships. Your goal with supplier relationship management is to have that important relationship and connection with your suppliers. You need to begin by figuring out which of your suppliers are critical to your business’s growth and success, and which aren’t as valuable in the long term. You then need to focus on managing those suppliers based on that scorecard.
A supplier relationship manager is often responsible for determining which of the many suppliers of the business are the most valuable and the most important to manage. They also need to make sure that your business is providing value to the suppliers so that a mutually beneficial relationship develops.
Evaluating Supplier Performance
Supplier performance is an essential component of SRM. Supplier risk is one of the many challenges that businesses face, and one of the most detrimental if things go wrong. Your suppliers are an important part of the supply chain, and any issues with your suppliers can greatly affect your ability to deliver to customers on time, provide quality products, and keep up revenue flows. This includes:
- Quality issues
- Don’t deliver their orders and shipments on time
- Ethical complications
- Compliance issues
- Located far away
- Affected by natural or political disasters
If your supplier checks one or more of the boxes above, you might need to look elsewhere for your material and goods sourcing.
You need to make sure that you have real-time data and visibility into your supplier performance. It’s also important that you have contingency plans in place for when disruptions occur so that you can diversify your supply base and find alternative solutions if needed. This will allow you to keep consistent in your own orders and deliveries without needing to come to a halt or have serious delays.
Ensuring Sustained Improvement
Another important step in SRM is to drive accountability and efficiency. All relationships are two-way streets. In order to make sure that there is continual improvement in your relationships, you want to make sure that you continue to provide value to your suppliers. Whoever is in charge of SRM in your organization needs to find new, strategic ways to develop supplier relationships.
Try to think of ways that you can work together towards common goals. For example, you could brainstorm different ways you can innovate your processes, or see if there are more efficient and cost-effective ways of shipping and routing your deliveries. You could also see if there are new sourcing opportunities that can benefit both businesses in the long run.
Improving Risk Management
Another important part of supplier relationship management is improving your risk management. Part of having a strategic approach to SRM is to make sure that you are working to identify problems before they occur. This means that you keep an eye on trends with your suppliers, note changing laws or regulations that might affect your suppliers, and plan to find an alternative in the case of a natural disaster or other emergencies.
By being proactive with your risk management approach, you can avoid major delays or even shutdowns of your business due to supplier issues. This means that you can also be prepared for different scenarios and use cases that might otherwise prove to be an issue for your business. This can also give you a competitive advantage if you can source a new supplier before your competition.
3 Key Steps in the Supplier Relationship Management Process
The process of supplier relationship management is an important procedure that has clear steps for success. In order to get the most out of your strategy, you need to follow the steps in the process to make sure you are covering all aspects of SRM.
1) Segment Suppliers
As we discussed earlier, there are three main categories of suppliers. Wholesalers and distributors, manufacturers and vendors, and import sources. But you can segment your supplier even further by location, item, quantity, price, and more. By breaking down your suppliers into segments, you can take a strategic approach to managing them and figure out which are the most valuable to your business practices.
When you don’t segment your suppliers, it can lead to complications in your strategy. For example, if you treat a supplier located in the same city and a supplier located across the globe with the same strategy, you aren’t going to get the best results. You need to find out how to categorize your suppliers in a way that makes sense with your management strategy.
2) Build Supplier Strategy
After you determine how to segment your suppliers into categories that make sense, you can start to come up with the specific strategies you can implement in those segments. The supplier relationship manager and team will need to think about the right processes and approaches for each segment and the best plans to make sure that the relationship is moving in the right direction.
It’s critical to remember during this step that your relationships with suppliers should be mutually beneficial. Think about ways you can address innovation and growth with your supplier segments, and use that in your planning to make sure that you are providing value and giving your supplier an incentive to work hard for you and your business.
3) Execute and Manage Strategy
The final step of your supplier relationship management strategy is to execute and manage your plan. You need to establish accountability with your supply chain. Make sure that you have clearly assigned responsibility internally for your strategies and that your team members know what their daily tasks and assignments are. You also need to plan out the steps of execution for your plan so that you won’t have to worry about missing sections in your plan.
It’s also important to closely monitor your strategy and measure to see if it succeeds or still needs work. Think about what key performance indicators or KPIs your team can use to track your SRM program’s success. These metrics will help ensure that you are benchmarking, improving your performance over time, and not falling into bad patterns. This will help make sure that you can adjust your strategy when needed and find alternative sources for materials if a supplier isn’t working out for your business.
How Supply Chain Management Software Benefits Supplier Relationship Management
Trying to manage supplier relationships manually is virtually impossible. As the supply chain has become more complicated over time and has expanded globally, technology and tools that support your strategies are essential. You can use software to improve your supply chain management process and create a process and strategy that lasts.
Supply chain management software can help you track the important metrics of your strategy and keep up to date on your communication and relationships with suppliers. The right technology will ensure that you are getting real-time information from your suppliers and that communications and messages can be sent instantly, so there are no unnecessary delays in the supply chain.
When you and your suppliers are on the same page and using the same software and technology to communicate, you can create a better system and build accountability with your suppliers to benefit both of you.
Improve Supplier Relationships With Anvyl
Having strategic supplier relationships in place is essential to your business’s success. Your supplier information and contract management need to be taken into consideration, as well as your strategic sourcing of suppliers and vendors. With a strong supplier relationship process, you can get better forecasting into your supply chain, create mutually beneficial relationships, and optimize your SRM program.
To help improve your supply chain management and supplier relationships, partner with Anvyl. Our platform was designed to help support teams and stakeholders so you can monitor supplier performance, get a competitive advantage, and create a powerful SRM process. We connect you to your supplier data so you can create better supplier relationship initiatives. Get a demo to see firsthand how we can make production more efficient than ever.
