Supplier Relationship Management – The Ultimate Guide for 2023
For this piece, we will discuss why supplier relationships will determine the failure or success of a company and you as Procurement Manager. We will define what it is and discuss how to improve supplier relationship management in your procurement team.
Once you’re done reading this article, you should have a good idea already of how supplier relationship works and how you are going to lead your procurement team to make sure that it’ll be smooth sailing between your team and your suppliers.
Defining Supplier Relationship Management
For a procurement team, supplier relationship management is very important. How are you going to get your much-needed supplies if you don’t have an amicable working relationship with your suppliers? You might as well tell the company where you’re working to halt operations because there is no way any supplier would want to work with your company if you don’t treat them right.
Suppliers nowadays happen to be scarce. While this statement is hardly ever heard a few years ago, things are changing rapidly thanks to the worldwide COVID pandemic. The health crisis has made it possible for several businesses and industries to close down. In fact, COVID alone is responsible for another worldwide crisis; the Container Crisis is especially making things very difficult for shipping companies to deliver much-needed supplies and raw materials to every part of the world. The lack of huge containers to store massive numbers of supplies is currently a nightmare not just for procurement teams, but for businesses of all sizes as well.
Supplier relationship management is the process of handling your suppliers in order to maintain a healthy working relationship. In order to maintain a great working relationship with your suppliers, you need to have the following goals in mind:
Develop Supplier Relationships
Figuring out which suppliers are critical to business success and which aren’t, and then managing based on that scorecard is essential.
For instance, an electronic company’s supplier of microprocessors is much more critical—and therefore strategic—than their supplier for paint.
To that end, a manager has to create a mutually beneficial relationship for both sides to create value.
Risk Management
Supplier risk is one of the largest that any business has to deal with. There will be times when suppliers can’t deliver on time because of quality issues, compliance issues, ethical concerns, geographic hurdles, natural disasters, and many other variables. These have to be considered.
Having real-time visibility into supplier data and performance, having plans in place to deal with disruptions, and being able to lean on a diverse supply base is key in order to maintain value and continuity through hard times.
Optimizing the Value Chain
After the relationships have been developed with strategic suppliers, it falls upon the manager to come up with new and creative ways to leverage that relationship. Are there innovations you can work on together? Are there different routes or packaging options to explore? What about sourcing alliances?
A good SRM will think outside of the box and always be looking for ways to optimize the entire business value chain, beyond just the immediate supplier impact.
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How to Build Great Supplier Relationship Management?
There are a number of ways to build a great supplier relationship.
First off is to find a great supplier. There are a number of ways to do that. You can find them yourself, have someone check the area for reliable suppliers, or find those suppliers through the power of the Internet and check whether these guys are up to the task of supplying and completing your project.
One of the most helpful tools in finding the right supplier for your company is the Supplier Questionnaire. This will help in finding the right one for your company through a series of questions and research.
Fortunately for you, we have a link to the best Supplier Questionnaire in existence on our Procurement Tactics website. If you want the full experience though and have some questions in mind, feel free to join our Negotiation Course For Procurement Professionals and we’ll make sure to get you up to speed at once!
Once you found what you think is the best supplier for your company, here are more tips on how to create a good working relationship with these people:
1. Segmenting your Suppliers
The first step in the process is to look at your supply base and come up with categories. This will look different for every company, but you may segment based on item, quantity, location, price, etc. Once you’ve established your supply base, it’s up to you to go in and figure out which suppliers are most strategic and important to your business’s success. It’s one of the simple rules of supplier plotting.
This is a basic but important step that often gets overlooked. Without it, there is no easy way to view your suppliers and come up with a strategy that’s tailored to them.
There are so many factors that can go into supplier management and it’s important to segment in a way that makes sense for your business strategy and that will give you the most visibility and control.
2. Creating a Supplier Strategy
Next up is to come up with strategies based on your segments and strategic suppliers. Not every segment should be managed the same way, and not every supplier within a segment should be managed the same way.
It falls on the SRM to develop a strategy that works for both parties and creates a mutually beneficial relationship to drive value.
3. Monitoring and Executing the Strategy
Someone has to be held accountable for each strategic relationship and driving value, so it’s up to the SRM to own the execution of the strategy. Not only that but you need to find a way to monitor each supplier’s performance and the performance of each strategy you enact so that adjustments can be made in real-time.
Establish what your KPIs and metrics of success look like so you can benchmark and continuously improve performance. A supplier management dashboard is particularly useful here.
Frequentlyasked questions
+ What is supplier relationship management?
Supplier relationship management is the system where the procurement manager takes care of a company’s relationship with its suppliers.
+ Why is supplier relationship important?
A company that has a good supplier relationship is able to maintain a stable flow of raw materials for the production of products.
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