Lishi International

An industrial supply company



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What is Supplier Relationship Management?
Source:Thomas Insights | Author:Sanshi | Publish time: 2019-09-09 | 49 Views | Share:
Supply management is about more than tactical cost reductions. In today’s environment, strategic supplier management is also about relationship management.

In supplier relationship management (SRM), organizations define their supplier partnerships and develop meaningful relationships. This focused approach supports future success through mutually beneficial outcomes with suppliers.

SRM sees an organization taking a more proactive approach to supply management. Beyond cost savings, the buyer would also look at risk categories, possible profitability impacts, and opportunities for cross-planning and new partnerships.
Setting SRM Up for Success

For SRM to be successful, the organization first must map or segment its suppliers based on importance and risk. For example, a widget manufacturer needs its raw metal supplies on time, but it’s not as important that its office coffee delivery be punctual. Requiring jittery execs to get their caffeine on the way into the office isn’t as damaging as the same 48 hours without the materials needed to make the one product that the company sells.

Having identified which suppliers are mission-critical, the SRM buyer will establish business procedures customized to each of its suppliers. These strategies can help the SRM buyer better gauge supplier performance and drive process improvements. For instance, in the two-way SRM relationship, buyer and supplier could agree to performance objectives and metrics.

Along with determining how to ensure the buyer’s business needs are met, an SRM partnership also identifies ways the customer can improve. To this end, the purchasing organization might want to share a long-term strategy with its partner to help it plan its own activities to avoid any disruption in supply delivery; this demonstrates company values to the supplier and helps minimize impediments to success.

SRM, of course, requires trust. The purchasing organization sharing its future plans has to trust its partner won’t abuse its access to that proprietary information. Sharing information can also seem to undercut the buyers’ negotiating power. Yet, that’s where the risk determination comes in to play.

Your key players will need to decide: Is this particular supplier so important to your business’s success that you want to cultivate a more open exchange? Will developing a deeper relationship with this supplier help open up a dialogue about process improvements or drive innovation that can improve your bottom line?

SRM Benefits

Buyer and supplier collaboration is highly regarded, but as SDI explains, proactively working via SRM to determine shared goals and mutual objectives can: 
•Support improvements in overall inventory management
•Improve customer financials
•Lead to identification, review, and approval of alternative parts that reduce replacement costs
•Enhance productivity
•Drive total cost of ownership reductions and improve overall equipment effectiveness

The Institute for Supply Management also identifies several reasons to embrace SRM:
•Improved quality and consistency
•Enhanced delivery consistency and predictability
•Reduced costs
•Added value
•Greater transaction efficiency
•Better supply assurance

SRM also helps with managing risk. This, again, is why SRM is applied to the highest value suppliers or those that provide the highest quantities of a necessary supply chain component or mission-critical supplier.

With this in mind, the coffee vendor cited in the earlier example might be kept at arm’s length; the relationship with the buyer would be purely transactional. On the other hand, the metal supplier might be invited into a collaborative strategic alliance.

Establishing this relationship takes time and resource commitment but can pay off in reduced uncertainty, increased loyalty, and improved communication.

Selecting SRM Partners

Selecting an SRM partner requires careful strategic analysis. Conscious of supply chain and logistics needs, the buyer will weigh business goals and objectives, environment factors, and industry trends, and explore any gaps between actual and desired supplier performance to find candidates likely to engage successfully in a collaborative relationship.

The coffee/widget material example is an example of a vertical collaboration (between buyers and sellers in the supply chain). SRM can also be applied in horizontal collaborations (buyer to buyer, seller to seller, distributor to distributor, and so on) or in full collaboration (dramatic efficiency gains from developing a relationship among suppliers, manufacturers, distributors, and retailers).

Ultimately, SRM success rests on a few important factors:
•Identifying the relevant parties for relationship management
•Fostering a mutually beneficial relationship
•Creating and managing a relationship that can evolve flexibly

Technology has evolved to make SRM easier, but strong and regular communication is still key to successful collaboration and relationship management.