One of the main priorities of many businesses is to build long-lasting supplier relationship based on trust and loyalty. However, this can be achieved only through a well-structured Supplier Relationship Management (SRM) process, which will establish a win-win relationship for both sides.
What is Supplier Relationship Management?
SRM is a strategically planned discipline for managing the interactions with third-party organizations, supplying goods and services to your business, with the aim to increase the value of the interactions. To have a prosperous business and build deep-rooted and positive relationships with vendors, you should ponder over improving your supplier relationship management process. In this post, we have already outlined 5 of the most functional and up-to-date ways to improve your SRM process in a reasonable time period. Let’s check them out one by one.
1. Segment Your Suppliers
You may wonder why supplier segmentation is so important? The suppliers vary depending on their level of engagement. By classifying suppliers into segments according to pre-agreed criteria, you will be able to provide the required attention to each of them. It’s a smart way to understand the appropriate level of attention that you need to provide superior goods and services.
Furthermore, supplier segmentation will allow you to decide upon the vendors who would be able to create a competitive edge for your company. The absence of a properly planned segmentation may result in a supplier approach that is not differentiated. This means that all suppliers would be managed using the same approach wasting resources on small and non-strategic suppliers, and not spending enough time and focus on the strategic suppliers that give your company a competitive edge.
Supplier segmentation can be done in many different ways using many different segmentation groups, such as strategic, important or transactional. The key is how you approach and manage different suppliers in different groups, and not the grouping itself.
Furthermore, you should have your SRM process documented for each supplier segment. This should serve as a direction and a helping guide for both the supplier category manager and the team, who is responsible for the SRM process.
2. Set the Right Team
Different supplier segments require different supplier approaches and therefore different competencies. A commodity supplier/category requires a strong negotiator while a strategic non-commodity supplier may require a stronger relationship builder. The Report on Global SRM Research shows that the core of SRM are people and their soft skills. Having responsible people with relevant skills working for your business is vital for a successful SRM.
Moreover, according to the same report, 37% of supplier relationship specialists are highly engaged with suppliers. This means that both sides share an interest in boosting the value and profits, and they have created a strong bond with each other. Thereby, having relevant people with the right relationship building skills and a solid business understanding is important.
These relationship-building competencies are typically not found among the strong negotiators, so it makes sense to recruit different people for different supplier segments. Building stronger relationships with strategic suppliers will enhance the improvement of your cooperation, thus improving your business’s competitiveness.
3. Build Strong Relationships with Suppliers
Proper communication is the most essential point in the supplier management process when working with strategic suppliers. Hence, it’s highly recommended to build strong and trustworthy relationships with suppliers and treat them as your trusted partners.
You should show that your interaction with them is not limited to cost-saving initiatives, deadlines and support to you only. There should also be discussions and agreements on how to jointly improve the cooperation for both parties, potentially making the joint business and value creation greater for both parties.
The best and most effective way to build constructive communication with suppliers is sharing your plans, strategies or goals. Show that you are willing to be transparent. Transparency will not only strengthen the trust but it will also open new opportunities for suppliers to understand where they fit in your greater plans. Thus, they will be able to proactively suggest how they can help your business be even more competitive in the market.
4. Embrace Technology to Ease the Process
Another way to improve your supplier relationship management is enabling technology to ease the overall SRM processes. With technology built for CPOs, procurement directors, category managers, and supplier managers, you can automate a significant number of processes that would require a lot of time and efforts if implemented without the help of technology. At the same time, technology can enable a much more fact-based approach to the supplier relationship by having key facts related to the suppliers in one solution.
With the help of a properly chosen software, you will be able to reduce supplier risk, supplier cost and improve supplier performance, quality and service. In a good SRM solution you would have solutions for:
- Supplier delivery performance management
- Supplier quality performance management
- Supplier spending development
- Supplier data management
- Supplier task management
- Stakeholder feedback loops, so you know stakeholders’ experience regarding suppliers
- Supplier sharing and collaboration, so suppliers can see how they are measured and how they perform on the selected criteria.
There are a number of companies that offer SRM software that will keep you ahead of the game, such as LeanLinking.
5. Analyze the Data and Facts
Most companies have relevant data on suppliers that can give different indications on how the relationship is. This can be data regarding the spendings, delivery, quality or service development on suppliers. In many companies, such data are scattered and not utilized to the fullest potential.
To avoid any unwanted risks related to the lack of supplier compliance or performance, you should identify what relevant data you can have available and then start tracking and analyzing these data. Such data can be valuable in the discussions with suppliers about the performance of your cooperation. It can help you and your suppliers identify areas and processes with challenges that need attention to develop joint cooperation.
With relevant software, you will be able to easily analyze the history of each supplier and mitigate any risks regarding their performance. By analyzing the data and facts, you will be armed with plenty of information that will allow you to build stronger supplier relationship and improve the joint performance in the supply chain.
Thanks to proper software, you will be able to leverage the supplier information and consequently negotiate better contracts.