What is Supplier Relationship Management?
Supplier relationship management is the systematic process where organizations segment their suppliers and determine supply categories that are important to create strategies that manage all their suppliers and supplies efficiently.
It differs from Vendor Relationship Management because, in vendor management, the focus is on deepening the buyer-supplier relationship to achieve a mutually beneficial goal and establish trust.
Furthermore, Supplier Relationship Management’s objective is to create closer, more collaborative relationships with key suppliers so that risk is reduced and more value can be generated.
Three steps for Supplier Relationship Management
1. Supplier Segmentation: To find key suppliers so as to identify opportunities, profitability, and risk exposure.
2. Supplier Strategy Development: At this stage, you develop a plan to interact with suppliers based on business needs.
3. Supplier Strategy Execution- In this step, you execute the strategies and plans designed for suppliers.
Benefits of Supplier Relationship Management
Supplier relationship management is a controlled and systematic approach to sourcing goods and materials an organization needs. It is important to create a trusted and meaningful relationship with suppliers.
Supplier Relationship Management can minimize the costs involved in finding, competing, negotiating, and finalizing a new supplier. With its help, you can evaluate the supply chain for pricing deltas and identify extra logistical cost savings.
Improved Operational Efficiency
Regularly reviewing suppliers leads to a better understanding of the supply chain. Particularly, consolidation of items, reducing vendors, and developing strong and mutually beneficial relationships with suppliers increase the organization’s operational efficiency.
For instance, your business is having a large number of backorders. A productive working process with suppliers will ensure timely order fulfillment.
Boosts Supplier-Led Innovation
Innovation for any organization is important. Supplier Relationship Management focuses on developing strong relationships with suppliers, which encourages suppliers to provide innovative solutions and add value. As a result, open communication channels also allow suppliers to share ideas on product improvement and innovation of the supply chain process.
Consolidation of Supply Chain
When buyers and suppliers work together, they are better able to understand each other’s business processes. Hence, a good relationship between suppliers and the organization makes them adapt to and increase inter-operation, leading to reduced suppliers and lower costs.
Three Key Rules to Profitable Supplier Relationships
Specific Contractual Terms
A relationship with a supplier is monitored on the basis of the contractual agreement. The agreement states the terms each party has agreed to in the contract. Particularly, the contract states what work should be done and includes the prices, quantity, and delivery terms, and the supplier’s performance is evaluated based on it. Effective communication keeps the agreement on track.
Effective communication is the key to healthy supplier and buyer relationships. A strong and open communication channel helps the organization and the suppliers develop a better understanding and build trust. Additionally, open communication helps to resolve any issues between supplier and buyer quickly.
Label and Place Inventory Strategically
Proper labeling and placing the inventory strategically helps in increasing the efficiency of the warehouse. With this in mind, make sure to maximize your order picking speed even in peak season.
In summary, Supplier Relationship Management focuses on developing a two-way and mutually beneficial partnership with strategic suppliers.