The State of Supplier Relationship Management: A Vital Guide to SRM & Top Tactics for Improving Yours
Decision makers and procurement teams recognize the important role that the management of supplier relationships plays in reducing costs and creating value for their business. Yet, the adoption and administration of SRM is still fraught with problems and it often isn’t supporting fundamental business objectives as much as it could.
The current state of Supplier Relationship Management (SRM) leaves a lot to be desired. But focusing on tactical partnering with key suppliers is a vital part of a value-driven strategic sourcing approach. And when conducted with excellence, it can ensure an organization’s ongoing profitability, sustainability, and market competitiveness.
In this detailed guide and accompanying infographic, we’ll be covering various facets of Supplier Relationship Management, including:
What it is and why it’s important.
Specific challenges businesses are facing
6 goals and benefits of implementing
What you can expect to gain from striving for a superior approach.
What’s involved in an SRM lifecycle
7 best practices you can employ to level up your relationship management performance.
We’ll also consider the role that top class sourcing software can play in upgrading your supplier management experience, bringing more value to your business and helping you build sturdier, strategic relationships both inside and outside of your company.
Let’s start with this nifty infographic that provides a bird’s-eye view of some stats, challenges, and solutions of Supplier Relationship Management.
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What is Supplier Relationship Management & Why is it Important?
Supplier relationship management (SRM) is a standardized approach to evaluating vendors that supply goods, materials and services, understanding their contribution to success, and working to improve their performance.
Also known as supply chain relationship management, SRM is a key element of managing your supply chain and is used in the procurement, project management and operations areas of your business.
Supplier relationship management straddles both sourcing and procurement. You need to manage your suppliers and contracts with them, both as part of your initial supplier selection phase, and when later purchasing the goods or services that they provide.
So SRM typically needs to be managed by cross-functional teams within your business.
It involves strategic relationship building, nurturing deeper partnerships with specific, indispensable vendors in your supply chain to create sustainable long-term value for your business.
Developing robust relationships with key suppliers can be a competitive advantage as well-orchestrated SRM fuels business profitability. It’s also an opportunity to:
ensure supplier reliability
monitor their capability
manage their performance
reduce your exposure to risk
Supplier relationship management has the potential to create immense value and differentiation for your business. However, according to global reports and surveys conducted by Deloitte, Kodiak Hub, TechTarget and PWC, the current state of managing key vendor partnerships is not in the best shape it could be.
50% of relationships with key suppliers lacks trust
23% of companies have no SRM
64% of businesses are still exploring SRM
Only 39% are pushing suppliers to innovate
44% don’t use technology to reduce risk
The fundamental challenges to adopting Supplier Relationship Management include a lack of skills and resources, processes that are too complex, and cultural resistance to change.
The reasons implementations fail range from limited engagement and backing from leadership to a lack of open communication and information sharing. Other factors include poor alignment between business goals and procurement goals or too much focus on cost over value.
An absence of clarity is another barrier, which can stem from insufficient analytics, murky KPIs, or a lack of transparency in monitoring and reporting. Challenges also arise because of a shortfall in SRM competencies and poor leadership skills.
6 Goals & Benefits of SRM
A competitive global market, supply chain challenges, and escalating corporate social responsibility (CSR) and sustainability requirements are among the reasons companies are becoming more reliant on procurement and supplier relationship management to navigate our ever changing business landscape.
Businesses typically undertake strategic SRM with only the most critical relationships in their supply chain.
Making SRM a core focus provides you with the scope to strengthen relationships with your vendors, gaining their allegiance. The aim is to build long-standing collaborations, where they can provide you with the best value, insights and ideas, and you can offer them consistent opportunities to keep working with you.
The principal objectives and benefits of managing supplier relationships superbly include:
1. Mutually Beneficial Relationships
Establishing collaborative, mutually beneficial, trusted partnerships with your priority suppliers helps to secure their loyalty over the long term.
Nurturing trusted associations, stimulating open communication and leveraging supplier capabilities optimizes the value chain and maximizes the value your suppliers can give you.
2. Cost Savings
Cost-cutting endeavors that benefit both suppliers and buyers, such as quality improvements from sourcing better materials, and managing inventory or avoiding production errors, lead to reasonable costs while retaining quality.
Software automation, streamlined processes, and waste management contribute to financial savings.
3. Minimizing & Eliminating Supply Risks
Confirming the security and reliability of supply ensures uninterrupted production and timely delivery of goods and services.
Up-to-date supplier data and a 360 degree view of the supply chain help you enhance transparency, maintain compliance and monitor, analyze and mitigate risk.
4. Improving Efficiencies
Optimizing workflows, reducing workloads, and automating tasks helps to streamline process elements and creates operational improvements.
Speeding up the onboarding of suppliers accelerates the timeline from sourcing to supply, improving agility and time to market.
5. Driving Innovation
Fostering a culture of innovation with your suppliers leads to new market opportunities with more innovative ideas and products.
Outsourcing provides access to fresh capabilities, resources, skills, knowledge, and solutions.
6. Building Brand Reputation
Supply chain transparency, remarkable compliance track records, and sustainable procurement practices create a positive brand image.
Developing authority as a company that adheres to industry standards and respects their role (and their suppliers’ role) in supporting a triple bottom line focus are key differentiators that can set you above your competitors.
Improving how you manage your supplier relationships is an opportunity to track service levels and compliance, ensure supplier reliability, elevate performance, streamline and simplify processes, and introduce cost, time and labor efficiencies.
The Superior Supplier Relationship Management Process: 7 Stages
There are 7 critical stages in the supplier relationship management lifecycle. Developing these elements in a thoughtful way is a critical step in creating a world-class process. You want to be strategic in developing an SRM that supports your value-oriented approach to procurement, supply chain management and your business’s bottom line.
1. SRM Strategy & Governance
To employ supplier relationship management successfully, your goals need to align with your company’s overarching vision and objectives. It is preferable to develop and document your strategy before you dive into engaging with suppliers about establishing strategic partnerships to help set the direction of those conversations.
What are your objectives for using SRM?
How will you implement, monitor and report on your strategy?
Managing supplier relationships requires specialist training to help your people develop the core strengths required for exceptional SRM. This could include instruction to develop their leadership, negotiation, collaboration, and technical skills. All team members who engage in the process should have access to tailored training.
Which distinctive skills and competencies do you need to implement and manage your SRM and what training is required?
Who needs to engage with, oversee, and report on things?
In the early stages of your supplier management, you may coordinate your initiatives through existing relationships driven by a cross-functional team. Striving for an elite process requires a more of a structured approach, with activities handled by a dedicated, centralized team with specific roles and responsibilities.
How do you structure your SRM - is it cross functionally or centrally managed?
Do you have a standard toolkit that supports these activities?
4. Supplier Performance Management
Partnership performance measures should be developed, tracked, and reported. Optimizing performance management in supplier relationship management requires two-way reporting that covers all aspects of the supplier relationship. There are opportunities for suppliers and buying organizations to develop measures jointly.
How should your company measure partnership performance?
How can your key suppliers contribute to developing this review process?
Fully integrating technology into your relationship management activities enhances the ability for the real-time exchange of information sharing and reporting. Centralized systems improve accuracy and accountability across operational, strategic, and tactical undertakings. Superior technology can support your entire process across sourcing, procurement and supply chain management.
Which software systems do you use and how do they connect SRM to the rest of the business?
Do they adequately support your goals and activities?
6. Risk Management
Reducing risk requires more than just mapping out potential risks. You also need to identify the concrete actions you can take should they arise. To improve your ability to manage those, it’s preferable to develop your mitigation approach with your key partners, to improve risk visibility and management.
How can your company identify, manage, and mitigate risk (especially larger ones) with preferred suppliers?
What information can your suppliers provide to collaborate on creating your action plan?
7. SRM Process
This involves documenting the tasks that support your sourcing and procurement processes. Your process covers the operational side of things, from planning, strategic sourcing, contract management, and accounting activities, to data gathering and reporting. Delivering outstanding supplier relationship management requires a documented process toolkit with advanced supplier partnership strategies.
Which standard activities and workflows does your business perform and how do they help you conduct your SRM?
What processes need to be in place to assist you, and how can your suppliers help develop them?
7 Strategies to Improve Supplier Relationship Management
There’s a lot to think about and do when developing and improving your approach, but here are 7 steps that you can implement straight away to take things to the next level.
1. Engage strategically/proactively rather than reactively
Develop your workflows and procedures, so that they can support you in the day-to-day, but also for future plans and potential outcomes. You want to stay ahead of the game (proactively) rather than fighting fires (reactively).
2. Cultivate personal relationships to build trust
Human connection is the number one way to create trust. And trust builds loyalty. If you get to know and like the people you need to work with over the long term, both you and your suppliers will benefit from it. These are your collaboration partners, not just your vendors.
3. Align leadership, procurement and supplier interests
Through value mapping, determine your most important strategies and objectives to help you calibrate your business and supplier management goals. Internal alignment needs to precede external alignment.
4. Get team training to level up supplier relationship management skills
Help your people develop deeper core competencies with tailored training to improve their empathy, leadership, management, collaboration and tech skills. Give them the tools they need to communicate better and work more efficiently and effectively.
5. Segment suppliers into groupings to help manage them appropriately
You need to track and quantify the benefits and costs of your SRM. Classifying your key partnerships based on variables such as spend size, product/service importance, and risk exposure, are essential segmentation categories. You can have different supplier strategies for each segment.
6. Create and implement your ideal supplier strategy
Contemplate which sourcing business models are best for you and your key partners. Where do your supplier relationships fall on the sourcing continuum, and how can you make them more investment focused?
7. Monitor performance and regularly give feedback
Clarify your KPIs so you can track performance and profitability. These could include cost, production, delivery time, environmental impact, sustainability and/or corporate social responsibility elements. Leverage performance metrics, risk reporting, compliance procedures and feedback cycles to ensure your relationships stay on track.
How Software Can Improve Workflow, Data Gathering & Performance for Your Supplier Relationship Management
Automation is a critical factor in creating efficiencies in other parts of your business, and the same applies for supplier relationship management. But substantial digital transformation is still required for procurement teams to get up to speed.
However, Mordor Intelligence predicts that the Supplier Management Software market segment (aka ProcureTech) will grow by 14% between 2021 and 2026. So companies are recognizing the opportunities that technology can bring to their SRM.
You can use sourcing and procurement platforms to manage supplier performance and monitor supply chain stability. Centralized databases support capturing supplier data and compliance tracking, increasing visibility within the supplier management ecosystem. Streamlined processes also reduce your workload and save you time.
Here’s some of the most important capabilities you should look out for when considering which software to choose and use:
Contact & communication management
Performance management & analytics
Product lifecycle management
Validating supplier requests
Contract & catalog management
Documented product specs
Strategic sourcing, performance management and risk management are all influenced by Supplier Relationship Management activities and vice versa. Agile ProcureTech software solutions can help you stay on top of all of them.
DeepStream is the #1 cloud-based RFx software empowering businesses with seamless, automated, and visible RFx communication and negotiation. The technology streamlines how you manage your SRM and revolutionizes interactions between buyers and suppliers, without copious and laborious emails.
Leverage software to amplify your data gathering and communication performance, for nurturing those important strategic partnerships that bring the most value to your business.