Managing relationships with suppliers is one of the most challenging parts of the procurement and supply chain process. If not done correctly it can be costly and risky. However, these risks and inefficiencies can be avoided by applying best practices and technologies. Here we provide some tips to help businesses get this right.
Let’s look into the key factors that an organisation needs to focus on for an effective supplier relationship strategy.
First, companies should incorporate Supplier Relationship Management (SRM)
guidelines into the procurement policy, especially around key aspects of supplier segmentation, assessment and auditing. The critical point here is to have standardised definitions and processes. While different category managers can have differing performance indicators and even different SRM ideologies, a lack of consistency can be a major roadblock to benchmarking and developing future-proofed strategies.
Technology can support companies in their supplier relationship management approach.
The most frequently cited barriers to SRM are poor internal data and systems, and teams lacking the time and resources to implement the strategy. Hence, you should place as much focus on the ‘inputs’ – combining information from multiple sources:
- External third-party sources – e.g., financial or analyst reports in the public domain
- The business – ERP or procurement systems and stakeholder surveys
- The supplier’s business – both from systems and feedback/survey forms
Having a standard platform is critical for organisations to be able to collate information and data and enable visualisation across all suppliers, and this doesn’t necessarily have to be a dedicated SRM software
What is worth remembering is that technology is no silver bullet – while it may facilitate better decision-making, it will not provide the complete answer to a plethora of supplier problems. By engaging more closely with business stakeholders and discussing their objectives and view of high spend and critical suppliers, companies may be able to explore and pin down the requirements and possibilities for a truly 360-degree view, leading to transformation in supplier relationships.
A supplier relationship management system should be able to provide a consolidated view and effective benchmarking of suppliers.
SRM software should fulfil the following functions:
- Supply base structuring: Have an optimised number of suppliers and a clear relationship strategy per supplier segment; suppliers can be segmented on the basis of spend analysis, classification-driven commodity/service profiling or any other organisation-related supplier segmentation methodology.
- Supplier assessment: Develop and define consistent criteria and processes for assessing suppliers of a particular segment.
- Supplier auditing: Monitor and quantify the effectiveness of SRM programs; the guidelines can define KPIs, and standard metrics and tools (such as supplier scorecards) for an effective supplier auditing process.
- Supplier integration: Classify certain suppliers as ‘preferred vendors’ or ‘supplier partners.’ Typically, the vendors in this segment are preferred for certain products/services and are often involved in co-development or co-branding activities; collaborating with these vendors can potentially yield both top- and bottom-line growth for an organisation.
How to measure the benefits of the SRM system.
The most useful measure is: “Do you have a single view of your supplier landscape?” Having complete visibility across your defined metrics enables you to benchmark, measure and formulate future supplier strategies.
A commonly undervalued measurement is around resource utilisation, which should decline on the supplier side: buyers spending less time with suppliers, alongside maintaining delivery quality, is a positive sign of an effective supplier relationship strategy.
Get the most out of your supplier relationships.
Supplier Relationship Management is a complex dynamic...and one that plays a critical role within any business procurement and supply chain process. Adopting best practices can help manage external relationships more efficiently. And although technology plays an important role in enabling better decision-making, it is by combining this with other resources and systems that you can truly gain a consolidated view of your suppliers and hence get the full benefits of improved supplier relationships.
Today we are seeing a growing shift in the dynamic between the buyer and supplier, with relationships moving to a more modern structure in which the role of a supplier is that of a business partner that brings innovation to the firm. Approaching relationships in this way will help you ‘move the dial from Supplier Relationship Management to Supplier Engagement’ and we see this as a growing trend.