The Pro’s Guide to Supplier Relationship Management
January 10th, 2019 • Procurement Process • Vendor Management
Supplier relationship management is not a new concept anymore. In a recent CPO survey, nearly 31% of CPOs made a clear commitment to restructure their supplier relationships.
Without a proper supplier management process, suppliers might start seeing their buyers as just negotiators who are not interested in mutual growth opportunities.They may not invest their best efforts in fulfilling your expectations.
Corporate buyers suffer significant harm as a result: disrupted supply chain, delayed product launch, damaged brand image, penalties by regulatory authorities, and more.
Here’s all you need to level up your supplier relationship management and tackle it before your organization sinks into a bad supplier relationship.
What Is Supplier Relationship Management?
Supplier relationship management is a part of vendor management where organizations segment their suppliers and determine important supply categories to devise a strategy that manages all their suppliers and supplies efficiently. Supplier relationship management comprises of three important steps: supplier segmentation, supplier strategy development, and supplier strategy execution.
- Supplier segmentation: Differentiate suppliers to identify opportunities and risks.
- Supplier strategy development: Devise an optimal way to interact with suppliers based on business needs.
- Supplier strategy execution: Execute the designed strategy in an effective way to obtain desired results.
Supplier Relationship Management Strategies
Although most businesses have a process in place to manage their supplier relationships, most often there is still room for improvement. Here are three steps to develop and establish a solid supplier management strategy:
1. Value Mapping
Most organizations still focus primarily on cost-cutting initiatives when it comes to SRM. Through value mapping, businesses can think beyond cost-cutting initiatives and focus on value drivers such as revenue growth, asset utilization, and risk reduction. Value mapping enables organizations to identify where intervention is necessary or beneficial.
Establishing a minimum amount of mutual trust, understanding, and respect with suppliers through open communication is a minimum requirement to derive tangible business values. A structured and strong supplier relationship management strategy will extract the best value for everyone.
2. Top-Down Approach
Often, the responsibility of supplier relationship management falls on the shoulders of procurement teams alone. Supplier relationship management strategy is all about craftsmanship; it can never be achieved without onboarding internal stakeholders. Just one rogue individual can collapse the whole process.
Implementation starts at the top and moves down through the ranks of managers and staff. This top-down approach ensures that every stakeholder has a clear understanding of potential benefits that can be derived. An effective SRM strategy aligns seamlessly with process, people, paperwork, and the overall business strategy.
3. Spend Optimization
Strategic sourcing has reached a saturation point where the returns are diminishing steadily for specific categories. Nearly, all ‘low-hanging fruits’ have been picked and so extracting value through consolidation and bidding is becoming challenging.
Supplier relationship management practices like collaborative supply chain analysis, process re-engineering, joint demand management, reduced inventory, and total cost modeling delivers cost savings and optimizes organizational spend.
4. Risk Mitigation
Organizations of all sizes experience supply chain disruption of some magnitude due to product or service quality issues, dependency, price volatility, and more. However, businesses that have an adequate SRM program in place can better predict and manage those disruptions.
The types of supply risks that an organization faces depends on the corporate and procurement frameworks used. Supplier risk segmentation can help organizations identify risk and mitigate them effectively. Strategic tools like Kraljic Matrix and Deloitte Priority Model can be used to segment supplier based on risks they pose and profitability they offer.
5. Positive ROI
Most procurement teams face difficulties in securing the commitment and funding for their SRM strategy. The major reason is that they have trouble in building a business case that establishes the financial benefits of SRM.
Procurement teams can start calculating benefits by estimating the impact of risk mitigation, value leakage due to non-compliant contracts, and narrating compelling customer stories through case studies. By involving the finance team from day one, procurement teams can capture the impact SRM makes on the organization’s balance sheet.
How to Improve Your Supplier Relationship Management Workflow with Automation?
More and more corporate buyers are discarding their existing manual and time-consuming approaches to manage SRM. These organizations are moving towards an automated supplier management system that streamlines the process, improves consistency, and saves valuable human hours.
The future of supplier relationships relies heavily on how well businesses track a supplier’s performance and communicate with them. Supplier management tools have become intelligent over the years. A dynamic supplier relationship management workflow will spot process bottlenecks, track vendor performance, improve supplier engagement, and reduce risks.
Here’s how an automated procurement management tool can improve your SRM process in 6 simple steps:
- Build an supplier relationship management workflow
- Set targets (in benefits) for each relationship
- Captures all targeted and delivered benefits
- Track adverse events
- Analyze reported savings
- Redefine and improve supplier relationship goals
Automate Supplier Management Process in
15 Minutes with
Used by Pepsi, Motorola, Domino's and 10,000+ Businesses. No coding required.
Take Your Supplier Relationship Management to the Next Level
Whether you are just stepping into supplier relationship management, or looking to improve your existing process, having a great supplier relationship management system is essential. Automated procurement management tools like KiSSFLOW allow procurement leaders to roll out a supplier relationship management process in minutes.
KiSSFLOW integrates the supplier relationship management process with other aspects of procurement effortlessly. By establishing a good supplier management workflow, organizations can address pressing issues like high supply risk, low engagement, less transparency, and a low overall ROI.
Try KiSSFLOW for free and use it as a benchmark against other supplier management tools to see what it’s like to have a fully automated system to manage your supplier relationships!
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