Strategic supplier relationship management (SRM) is a key factor for driving competitive advantage for multi-national organizations. In fact, it’s as important to get the best value from key partners as it is to get the best contribution from employees. Toyota is an example of a company that has excelled in supplier management, giving them a competitive edge that enabled them to transform from a small regional manufacturer into the largest automotive company in the world.
There are various models for supplier relationship management and it’s a complex function involving assessment, advanced evaluation, and subsequent action planning to continuously optimize long-term relationships. These models require both parties to have the following characteristics: mutual respect, an understanding of the mutual benefits of the relationship, trust, fairness, and honesty. We’ve highlighted the most important elements to help improve supplier relationship management:
Foster the right behaviors
It’s both the responsibility of the supplier and the buyer to foster good behaviors that will ensure a positive relationship, resulting in win-win situations. Opportunistic activities and slow delivery may indicate that the supplier is not sufficiently invested in the relationship, or maybe held up within their own supply chain and haven’t communicated this effectively as the relationship has not encouraged them to do so.
Get the most out of strategic suppliers
It’s important to understand that suppliers are not like conventional vendors. They cannot be managed on mass in eAuctions systems or be subjected to blanket demands for price reductions. Effective relationships require time investment for trust to be earned on both sides. When buyers invest in their relationships they are typically reciprocated by the supplier, and with a diverse array of benefits. Product innovation, risk reduction projects, and even re-engineering supply systems can be outputs for successful strategic supplier relationships.
Keeping channels of communication open and strong will help to keep you and your suppliers on the same page. There needs to be transparency in each others’ operations to build trust and understanding in the partnership. Moreover, it also helps to understand their language and culture to avoid any communication breakdown.
A solid agreement
One of the most essential steps in supplier relationship management is to always ensure that you and your suppliers agree on a clearly crafted contract where terms and responsibilities are defined. This should be done pre or during contracting, which will allow you to eliminate any conflict or disagreement if problems occur.
A supplier relationship management program
Similar to any other aspect of your business, strategies are required for a structured relationship with your suppliers. The key is to treat them fairly and not to abuse your power as a buyer. It’s important to determine the supplier relationship management goals which are measurable and achievable within a time frame. Start this by listing the activities and processes required to attain goals and establish roles that need to be assigned for goals to be met.
An effective supplier relationship management program should include defined processes to manage performance. For instance: involvement at the highest executive level is key to the ongoing success of the relationship. Executives may only meet quarterly to discuss strategy while other levels are involved in tactical operations and may interface with suppliers on a daily or weekly basis as appropriate to manage business. Therefore, obtaining inputs from different management levels will ensure that the relationship will work successfully on a day-to-day basis while continuing to evolve and address the long-term goals of both parties.
Training is necessary to educate the organization on effective supplier relationship management and its role in optimizing business operations. Every employee involved in the relationship should be effectively trained on the impact they can have on improving supplier relations, as well as how to ensure a successful SRM program execution.
Address any roadblocks
It’s essential to discuss any potential barriers with your suppliers. For example: communication issues between your sales managers and your supplier’s sales department, incompatible software, relationships with new managers or personnel, etc. This is an important step because anything that hinders your supplier relationship has the potential to slow or stop production. Hence, you want to avoid this as much as possible by addressing any and all roadblocks up front.
Realize that timely payments are crucial
Paying your suppliers on time will ensure that you don’t lose them. In this way, you will prove that you are a reliable customer and that you’re easy to work with. If it happens that you cannot make the payment on an agreed date, inform the supplier as soon as possible with the date on which they can expect the payment. It helps to keep in mind that suppliers will appreciate timely payments in the same way that you appreciate (and likely expect) timely actions from them.
There is no doubt that technology can simplify the whole process of supplier relationship management. Having a system in place will make it easy to view your suppliers and analyze all the risk factors. Hence, using SRM technology provides you with full and unparalleled visibility into your supplier base, giving you a detailed picture of what is impacting your supply chain and making it easy to mitigate the risk.
Effective supplier relationship management allows you to save and leads to big opportunities. The key is to follow the essential strategies which will allow you to develop long-lasting relationships with your suppliers. Having a strategic SRM program in place, can help you eliminate supply chain risk, improve supplier services, and even increase organization revenue growth.