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Strategic Supplier Relationship Management Benefits

vijay

Vijay Kumar

Senior Specialist - Marketing @ Shiprocket

December 29, 2023

10 min read

A critical function that involves building a network with vendors and suppliers to ensure better planning of resources and their management is called supplier relationship management (SRM). It leads to better operation of the supply chain processes and fewer disruptions. Supplier relationship management is not simple; you do not just get to follow a set of rules to handle it. It requires some work, planning, and imagination. 

SRM is often termed supply chain relationship management as well. It is one of the many disciplines of supply chain management (SCM) that contributes to its smooth functioning. Like vendor management and the procurement process, SRM has a few notable features. 

Supplier Relationship Management

Procuring products for your target customers is the key to your business’s success. This is nearly impossible without always having a steady source of raw materials and other necessary supplies. Hence, SRM becomes crucial to ensure your business’s manufacturing is viable. 

This blog details everything you must know about supplier relation management, its benefits, challenges, and more. 

What Exactly is Supplier Relationship Management?

A method to manage work with vendors and suppliers who supply raw materials for manufacturing is known as Supplier Relationship Management (SRM). It entails evaluating all those relationships and understanding how to plan and improve their performance concerning a manufacturing unit.

This approach to evaluation is collaborative, considering every vendor’s particulars and determining their importance to your business in terms of both quality and continuity. You can foster stronger, more productive relationships through evaluation and open interaction with these vendors. 

The SRM strategy is a collective effort used by all professionals involved in supply chain management. Every member included in the SCM processes collaborates with vendors and the product design team to finalise procurement, operations, and management. This unity makes SRM very similar to vendor management and material procurement. 

Although all of these divisions are very similar, distinct features make SCM, SRM, procurement,  and vendor management different. The cost service agreements and the cost incurred between the suppliers and the businesses are what vendor management stands for. The purchases made are the goal of procurement, which deals with ordering, tendering, invoicing, and payment processing. 

The  Ultimate Aim of SRM

Every industry has its list of critical suppliers and vendors and every organisation has its unique combination of suppliers. The ultimate and overarching aim of supplier relationship management always remains the same. To optimise and enhance the processes between a business and a vendor, SRM techniques are deployed.

SRM is not just about managing supplier relationships, it’s about fostering a mutually beneficial partnership that drives efficiency, quality, and innovation in your business. Just as consumer relationship management strategies enhance buyer-seller relationships, SRM aims to create a symbiotic relationship between your business and its suppliers. This is particularly important for suppliers who are key in your business’s supply chain management processes. A well-strategised SRM process doesn’t just focus on cost savings, it seeks to maximise the value suppliers bring to your business, giving you a competitive edge. 

As supplier-buyer relationships are becoming increasingly global and interdependent, the role of SRM in navigating these complexities is becoming more crucial than ever. It’s not just about managing suppliers, but strategically aligning with them to navigate the complexities of the global business landscape. SRM provides a robust framework for identifying strategic supply partners and managing the lifecycle of these relationships, making it an indispensable tool in your interconnected business world. 

Distinction Between Reactive and Strategic Supplier Relationship Management

The table below highlights the differences between reactive and strategic supplier relationship management.

FactorReactive SRMStrategic SRM
Primary ObjectiveSupplier and vendor deficiency correction, where the improvements are made for short-term efficiencyImprovement of supply base where continuous improvement strategies are made for long-term advantages
RangeStrategies are deployed on a single supplier or vendor and it is a part of the supplier development projectStrategies are deployed on the entire supplier base and it does for the analysis of the vendor portfolio
ProcessIt follows a problem-driven approachIt follows an evaluation and analysis of the portfolio approach
ExamplesMissed delivery dates, defects in procured items, negative feedback from buyers, etc.Supply chain streamlining, technology development, value-added collaboration, etc.

How to Execute Supplier Relationship Management?

Executing a supplier relationship management process can vary based on the type of business, its size, and the kind of product being manufactured. The following steps depict a general idea of how supplier relationship management processes are implemented:

  • Segmentation of suppliers: Recognise that categorising all your suppliers and vendors is a pivotal first step. Your major suppliers warrant a category such as tactical, strategic, and tail vendors. Each group deserves their unique management strategy and their own set of resources. 
  • Prioritising: The suppliers that add the most value to your business must be given greater priority. Your tactical suppliers are those from whom you will need to purchase more frequently. The tail suppliers must stand at the lowest of your priority chart. 
  • Setting up a list of objectives: Understand that objectives are the clear road map to your ultimate goal. They must be defined in a way that aligns seamlessly with your company’s goals. The objectives can be related to innovation, savings, gains, etc.
  • Performance measurement of suppliers: Your goals will be hard to achieve if you do not keep a check on your progress and performance. Evaluating the performance of your most essential suppliers will help you keep track of the metrics with your strategic and tactical vendors. Tactical vendors are less significant than head suppliers. 
  • Creation of a supplier management strategy: Strategy creation helps with a plan to stay in touch with your suppliers. It will assist with the betterment of your company’s competitive edge as well. It can also help create useful collaborations that can benefit both parties.
  • Continuous improvement strategies: Realise that your SRM process must be continuously updated with reviews and evaluations to maintain high levels of creativity, innovation, and efficiency. By scheduling meetings with your vendors and focusing on rapid delivery, performance, and quality, you can optimise your SCM and SRM processes.

Benefits of Employing Supplier Relationship Management

Increasing efficiency is an integral part of having a successful business. Although it’s easier to preach than practice, it is even more important in a manufacturing setting where the suppliers are responsible for supplying any organisation with the materials they need for product creation. SRM techniques enhance efficiency, stabilise prices, and foster continuous improvement in manufacturing.

Here is a list of benefits of SRM:

  • Cost savings: One of the fundamental advantages of SRM lies in its potential for financial savings. Establishing a new vendor relationship can be costly, But SRM offers a solution. It promotes mutual benefits, leading to long-term cost reductions. This saves money and mitigates issues like delays and quality concerns. 
  • Enhanced efficiency: SRM techniques can be a game-changer in improving communication and eliminating related issues. By fostering trust and facilitating effective communication, SRM paves the way for a smoother supply chain. This results in fewer disruptions and stronger relationships with suppliers.
  • Stability in prices: Commodities can be extremely volatile, and consumers do not like increased prices. When a manufacturer uses SRM, they often set a price for their raw materials such that their production costs are not elevated in cases of fluctuation. When you agree to sign a long-term contract, vendors offer fixed prices.
  • Continuous improvement: Making mutually beneficial connections between suppliers and manufacturers builds trust, open feedback, and a free flow of ideas and thoughts. This type of communication leads to greater efficiency, optimisation, and enhanced consumer services. 

Challenges in Establishing an Effective Supplier Relationship Management

SRM faces challenges like investment insufficiency, weak short-term ROI, and poor clarity. These issues stem from geographical size, supplier numbers, complex buyer-vendor relationships, and cultural differences. A clear understanding, investment, and long-term view can enhance SRM’s effectiveness. Cultural differences also play a role in the inefficiencies of SRM.

  • Investment insufficiency: The success of SRM programmes is critically dependent on the willingness of businesses to invest in them. The considerable time and effort required to establish these programmes often relegates them to a lower priority. Yet, the urgency to address this issue is paramount, as the long-term benefits far surpass the initial investment.
  • Weak short-term ROI: While SRM may not guarantee immediate returns, its long-term benefits for businesses are undeniable. This fact, however, often goes unnoticed as many organisations prioritise short-term ROI. It’s vital to spark curiosity about the potential and long-term impact of SRM programmes on business success.
  • Poor clarity: The implementation of SRM programmes often occurs without a clear understanding of their objectives and potential benefits. A well-structured one, with specific goals and objectives, can enhance various SCM capabilities and unify the entire manufacturing unit. Encouraging a deeper understanding of these benefits is crucial for the success of SRM programmes.
  • Low skill base: Organisations tend not to value this unit department; hence, SRM leaders fail to acquire the support they need. SRM requires group efforts, time, resources, and planning, which most organisations do not provide.
  • Lack of understanding: Alignment throughout the organisation’s hierarchy is needed for an SRM strategy to work. The lack of clarity on the subject and its inability to give immediate results make it an ineffective plan to pitch in, resulting in its failure. 

Strategies to Overcome the Obstacles in Establishing SRM  

Here are a list of different SRM strategies that can help you overcome the obstacles discussed above:

  • Clearly defining every resource’s roles and responsibilities: This brings clarity and definition to the process. You will gain greater momentum in establishing the SRM strategies by outlining individual responsibilities. Also, it makes it easier for the resources to understand their role and responsibility.
  • Creation of a communication plan: Communication is the key to bringing clarity to a plan. By effectively and continuously communicating with your team, you can collaborate easily and bring their SRM strategies to their greatest potential. 
  • Setting performance expectations: understanding what you are fighting for is another important aspect to consider while setting your SRM strategies. When you know what you want to achieve, you can work towards them with your vendors. 
  • Adopting the collaboration culture: Creating a collaborative environment can help you encourage your vendors and resources to be more open, and this helps them build trust as well. You can easily work toward a common goal when open to their ideas and methods.

Conclusion

Supplier relationship management (SRM) is an initiative organisations take to build better supplier relationships. An effective plan allows manufacturing industries to build long-term relationships with their vendors. Healthy relationships with your suppliers can help you even during bottlenecks. It is essential to understand that SRM is the key component of business growth. Strong supplier partnerships act as your safety net during disruptions, and nurturing them is vital for business success. These partnerships fuel your competitive edge. The challenge with SRM is that it is a concept specific to every organisation, and its clarity and visibility are shaky. Its inability to give you immediate results also causes frustration and failure to gain the traction required. 

What are the types of supplier relationships?

Depending on the supplier’s position in the supply chain, there are two types of supplier relationship management, including horizontal and vertical relationships. 

What is the process of supplier relationship management?

There are five main steps in a supplier relationship management process. These include segmenting your suppliers, creating a strategy, implementing your strategy, monitoring and tracking performance, and improving collaboration and performance. 

What are the factors impacting business-supplier relationships?

Some factors impacting your relationship with your suppliers include pricing, quality, stability, communication, location, collaboration, supplier performance, and more.

What are the factors influencing supplier relationship management?

There are several factors influencing supplier relationship management. These include supplier risk and flexibility, collaboration, relationship and network building, supplier availability, and more.

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