Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Supplier Relationship Management — The Ultimate Guide for 2024
Key take-aways
- Supplier relationship management is the process of handling your suppliers to maintain a healthy working relationship.
- Supplier relationship management aims to develop and manage risks and optimize the value chain for mutual benefit.
- Finding and categorizing the right suppliers, creating tailored strategies, and monitoring performances are keys to success.
For this year, supplier relationship management will be a very important factor among procurement managers. So important that we at Procurement Tactics believe that we need to talk about it through this article.
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.
I have created a free-to-download editable supplier relationship management scorecard template. It’s a PowerPoint file that can help you assess and manage your supplier’s performance effectively. I even created a video where I’ll explain how you can use this template.
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 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:
1. 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.
2. 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 to maintain value and continuity through hard times.
3. 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.
How to Build Great Supplier Relationship Management?
There are several ways to build a great supplier relationship.
First off is to find a great supplier. There are many 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.
Conclusion
There are several ways to build a great supplier relationship management (SRM) which is a crucial factor for procurement managers in the current global landscape marked by supply chain challenges.
SRM plays a pivotal role in determining a company’s success or failure. Defining SRM and exploring its goals equips procurement professionals with a comprehensive understanding of this multifaceted practice.
As procurement managers navigate the complexities of supplier relationships, creating a supplier strategy and diligent monitoring and execution serve as a roadmap for fostering successful partnerships.
Ultimately, a well-crafted SRM approach is a necessity and a strategic imperative for navigating the challenges of the contemporary business environment.
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 Management Important?
A company that has a good supplier relationship is able to maintain a stable flow of raw materials for the production of products.
Why do you need Supplier Relationship Management in procurement?
Supplier Relationship Management in procurement involves strategically managing interactions with suppliers for mutual benefit which helps in strengthening the supply chain.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
