Supplier Relationship Management (SRM): Overview & Important Changes to Make
What is supplier relationship management?
Supplier relationship management (SRM) is the process of evaluating your organization’s third-party vendors, determining which ones are critical to your operations, and strategically managing those relationships to create the most value.
Suppliers provide the services, goods, and materials for a company to conduct its day to day business. Companies rely heavily on suppliers for their growth and success. Of course, some suppliers are more critical (key suppliers) than others to a business’ survival. For example, a clothing brand is probably more concerned about its fabric supplier than its business card supplier. If something were to go wrong with the fabric supplier, the continuity and profitability of the company would be at risk, where if something prevented the business cards from being produced, it wouldn’t be the end of the world.
That being said, SRM is used to execute an in-depth analysis of suppliers and categorize them by importance so that the proper attention can be given to each. It involves identifying strategic supply partners and building strategies around them to optimize these relationships. However, keep in mind that while pinpointing key suppliers is important, it doesn’t mean that other suppliers are ignored. All supplier performance, no matter who the vendor is, plays a role in the success of a business. The goal of SRM is to leverage supplier relationships in order to build stronger ones which in turn lowers costs and risks, drives innovation, and gives businesses a competitive edge.
Strategies for improving supplier relationships and operations
Whether you’re struggling to establish and maintain supplier relationships, or you have a process in place for supplier relationship management, there’s always room for improvement. Let’s take a look at some strategies for supplier relationship management processes that can lead to reduced supplier risk, procurement agility, and increased value across the entire organization.
1. Build Strategic Supplier Relationships
When you think of suppliers, think beyond the idea that they’re just a means to cost savings. Suppliers are your partners and should be treated the way you’d like to be treated. Take the time to build mutually beneficial relationships with suppliers by establishing open forms of communication to share information, concerns, ideas, and future goals. Trust and respect between both parties are essential to a successful supplier relationship management program.
2. Use Automation to Streamline Supplier Relationships
Source-to-pay software that incorporates automation like Corcentric Supplier Management can give you actionable insights into supplier performance by documenting and monitoring suppliers at all stages. Automating procurement processes takes your supplier relationships beyond just pricing; it streamlines them and improves overall business processes.
3. Ensure Timely Payments
Paying suppliers on time and consistently is an essential part of an SRM strategy and crucial to retaining quality suppliers. If for some reason there will be potential delays in payment, keep the supplier in the loop and communicate what is going on as soon as possible. The timeliness of payments has a direct impact on both parties’ profitability and success.
4. Manage Risks
Before you enter a relationship with a supplier, it’s imperative to look at the risks associated with dealing new suppliers. Treat it as you would when hiring an employee – ask for references and examples of how the supplier has dealt with a crisis. Conduct a full evaluation that determines whether the supplier has the right pricing, experience, and bandwidth to work with your company. Gathering supplier information up front and before onboarding will mitigate supply chain risk and the possibility of something going wrong down the line.
5. Map Value Drivers
The concept of value mapping goes back to the idea of looking beyond just minimizing costs and focusing on value drivers like revenue growth, asset utilization, optimizing workflows, and improving the bottom line. Doing so allows organizations to recognize where involvement is necessary or will add value. As previously mentioned, establishing trust and respect through open communication makes it possible to derive value from these partnerships.
6. Make Detailed and Mutual Agreements
Supplier Relationship Agreements are necessary if your company is consistently purchasing from a vendor. Detailed mutual agreements that clearly establish payment terms, delivery terms, pricing, and other expectations will help avoid any confusion or potential disputes in the future. Making sure you have an ongoing view of your supplier base through contract management and performance management will boost supplier relationships.
Streamline your supplier relationship management
Mastering the art of Supplier Relationship Management requires dedication but can ultimately lead to success. Both parties need to abandon the notion that their partnership is merely transactional and instead adopt the mindset that their partnership is strategic, complex, and has the potential to generate a competitive edge.
Corcentric can help you unlock the hidden value in your supplier relationships with its Supplier Management solution. The software offers end-to-end modularity that can be customized to your needs. Some of its capabilities include:
- Natively integrated across our Source-to-Pay solutions for better control of sourcing, procurement, and invoice processes
- Multi-stream automation through integrated approval workflows
- Comprehensive monitoring of all supplier activity and verification against contracts
- Alerts and notifications for missing credentials, expiring documents and new supplier data
Your relationship with suppliers is like a marriage, it needs nurturing, communication, and trust. Give it the love it deserves and contact Corcentric today.