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.
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.
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.
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.
The table below highlights the differences between reactive and strategic supplier relationship management.
Factor | Reactive SRM | Strategic SRM |
Primary Objective | Supplier and vendor deficiency correction, where the improvements are made for short-term efficiency | Improvement of supply base where continuous improvement strategies are made for long-term advantages |
Range | Strategies are deployed on a single supplier or vendor and it is a part of the supplier development project | Strategies are deployed on the entire supplier base and it does for the analysis of the vendor portfolio |
Process | It follows a problem-driven approach | It follows an evaluation and analysis of the portfolio approach |
Examples | Missed delivery dates, defects in procured items, negative feedback from buyers, etc. | Supply chain streamlining, technology development, value-added collaboration, etc. |
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:
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:
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.
Here are a list of different SRM strategies that can help you overcome the obstacles discussed above:
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.
Depending on the supplier’s position in the supply chain, there are two types of supplier relationship management, including horizontal and vertical relationships.
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.
Some factors impacting your relationship with your suppliers include pricing, quality, stability, communication, location, collaboration, supplier performance, and more.
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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