Key Strategies to Build an Effective Supplier Relationship Management

Written by Nurazyyati Jaffar, MSIPMM

Key Strategies to Build an Effective Supplier Relationship Management

Written by Nurazyyati Jaffar, MSIPMM

by Nurazyyati Jaffar, MSIPMM

Supplier Relationship Management (SRM) is an important approach used for engaging with supplier on a level that reflects the priorities of the customer organisation and how best these needs can be achieved.

SRM is an integrated approach, addressing both the buyer and seller sides, which can provide mutual benefits for both organization. True SRM cannot be achieved through the Procurement Function acting alone.

SRM uses processes, principles, communications and tools to help companies better manage their existing suppliers within all areas of the company during the entire supplier lifecycle.

Transactional to a Relationship Management

The diagram above shows the move from a Transactional to a Relationship Management

Types of Values Achieved with SRM

Supplier relationship management is a long-game strategy, which can deliver benefits as it is implemented. Organizations that practise and focus on enhancing supplier relations can expect the following results:

1. Increased Efficiency
With more and improved communications, suppliers come to better understanding of their client’s business goals more effectively. When issues or problems do arise, structure and controls in the SRM program allows both parties to identify and tackle the problems efficiently.
Suppliers apprehend and adapt to the needs more quickly which will eliminate redundancy throughout the streamlined process.

2. Revenue Growth
Both supplier and buyer can increase their revenue growth through greater and improved relationship. Working in closed collaborations or through a joint venture, both organization in an SRM program can go after new market opportunities, sharing of the market risks and potential growth.

how SRM can benefit both Buyers and Suppliers

Diagram above shows how SRM can benefit both Buyers and Suppliers.

3. Cost Savings
In the long run, SRM process and practices can help to reduce future problems, quality issues and delays.
By concentrating on establishing and developing long term relationships these costs can be offset, with both parties actively looking to avoid any unnecessary costs which may arise from re-tendering, re-negotiating or being forced to exit an existing contract early.

Better relationships and increased interaction will lead to less incidents or issues of poor performance, which in turn lead to lower costs for managing the relationship and reduced costs through failures.

Also, vendors are more confident and willing to share cost efficiencies gained through the adoption of new technologies or methodologies which mutually beneficial cost advantage from both operational and unit cost perspective.

4. Continual Improvement
Long term relationships provide the opportunity for buyers to engage suppliers in a process of continual improvement of both products and services provided and of the accompanying service levels.

This can be achieved through product development, development of new processes and procedures and through developing KPI’s and SLA’s over the course of the contract.

By taking an active approach to ensuring that contractual performance is met, buyers can ensure that suppliers continue to improve in the ways which provide the most substantial improvement to the customer organisation’s products and services.

5. Preferred Buyer Status
Constantly changing suppliers is an expensive and time-consuming process as it will take the internal resources to resource for new suitable suppliers and negotiate the contract for better cost.

Even if the new supplier may provide lower cost, the long-term relationships built with strategic partners generates more value over the short-term gains. By maintaining supplier relationships, buyer can establish a clearer cost base and provide total price visibility.

The Challenges of Implementing SRM

Even with all the potential values gain with supplier relationship management program, there is still quite many companies are not implementing SRM.

This is because moving a company to play a more strategic role in managing suppliers requires change management and a shift in perspective both internally and on the part of supplier. SRM program must be supported by the entire organization on both side.

As companies downsize and resources tighten, many employees do not have the time to handle more responsibility or attend time-consuming meeting. Furthermore, many departments believe that they are already managing their suppliers well enough that implementing new program is not required.

Key Factors for Developing Reliable Relationship with Suppliers

1. Communications
Keeping channels of communications open and robust goes a long way towards keeping you and your suppliers on the same page.

Transparency in each other’s’ operations also helps to build trust and understanding in the partnership.
Furthermore, it also helps to understand their language and culture to avoid any communication breakdown.

2. A Solid Agreement
Before agreeing into a supplier-retailer partnership, always ensure that you and your suppliers agree on a clearly crafted contract where terms are defined and responsibilities drawn our plainly. By doing so, it will eliminate on any conflict or disagreement should there be any problems occur.

3. A Supplier Relationship Management Program
Similarly, like any other aspect of your business, strategies are required for a structured relationship with your suppliers. Treat them fairly and not to abuse the power as a buyer.

Determine the supplier relationship management goals which is measurable and achievable within time frame, list our activities and process to attain goals and establish roles

Supplier Scorecard with Performance Metrics

Diagram above shows the Supplier Scorecard with Performance Metrics.

4. Performance Management
The SRM Program should include defined processes to manage performance. Involvement at the highest executive level is key to the ongoing success of the SRM program.

While lower levels are much more involved in tactical operations and may interface with suppliers on a daily or weekly basis as appropriate to manage business, executives may only meet quarterly to discuss strategy.

Obtaining inputs from different management level, an SRM program can work successfully on a day-to-day basis while continuing to evolve and address the long-term goals of both parties.

Typical Tiers of Performance Review

Diagram above shows the Typical Tiers of Performance Review.

5. Training
When rolling out an SRM program, training is necessary to educate the organization on its benefits and role in optimizing business operations.

As large-scale SRM programs require management at different level to anticipate, every employee involved must be trained on how to use tools to ensure successful program execution.

Before SRM is even rolled out, the employees should understand their role and obligations to the program for the greatest level of success.

Conclusion

Supplier Relationship Management provides ensure consistent way of interacting and managing suppliers which promotes collaboration and continuous improvement.

A strategic SRM program can eliminates supply chain risk, improved supplier services and support, and even increased organisation revenue growth.


References:

http://www.sourceoneinc.com/downloads/SRM-Insights-Report.pdf

http://www.nrs-international.com/wp-content/uploads/2015/08/SRM.jpg

https://www.procurementleaders.com/AcuCustom/Sitename/DAM/052/sample-strategy-guide-SRM-0613_1.pdf

http://www.supplychainbrain.com/content/research-analysis/apqc/single-article-page/article/ten-steps-to-designing-an-effective-supplier-relationship-management-program/

About the Author: Nurazyyati (or Yati) has several years of experience in the field of purchasing, specifically in the Oil and Gas sector. The nature of her work requires active interaction with suppliers.

Yati is a member of the Singapore Institute of Purchasing and Materials Management (MSIPMM), and is currently completing the course on Professional Diploma in Purchasing Management (PDPM) at SIPMM Academy.

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