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Written by Skill Dynamics

How To Achieve Maximum Value With Supplier Relationship Management

Supplier relationship management is a business strategy utilized by organizations to strategically build relationships with their suppliers that are mutually beneficial. When implemented and managed correctly, it’s a strategy that can lead to large-scale operational improvements, cost optimization, and reduced risks across the supply chain. 

The entire concept of supplier relationship management aims to help organizations shift their mindset around dealing with vendors from a merely transactional one — purchasing goods or services as a purely operational function — to more of a strategic function. The entire relationship needs to be considered from the point of view of growth.

Supplier relationship management can typically be summarised across three key areas, each with its key steps and best practices:

  • Supplier segmentation
  • Supplier strategy development
  • Supplier strategy execution

Segmentation will involve trying to differentiate a host of suppliers based on defined risks and opportunities. Strategy development considers how best to communicate with the chosen suppliers around specific needs and solutions. Strategy execution puts everything into action to achieve the outcomes discussed in the previous steps.

Below you will find two key forms of supplier relationship management that your business should be aware of:

1. Strategic supplier relationship management

Strategic supplier relationship management takes a long-term view of the relationship with the vendor, utilizing ideas such as the joint development of new products or services to deepen the ties and create big-picture situations where all parties can prosper. This type of management takes longer to implement, but should always be considered as a means to create longstanding ties that will benefit both the organization and its suppliers.

2. Operational supplier relationship management

Operational supplier relationship management typically looks to make efficiency improvements that can be quite quick to implement. Often it involves attempting to streamline the procurement process and minimise waste within the supply chain. This will ultimately reduce total costs and lead to a more sustainable supply chain moving forward.

Key Pillars of Supplier Relationship Management

Recent global events, including the COVID-19 pandemic and the current geopolitical tensions around the world, have served to highlight the true importance of developing and maintaining strong relationships with your suppliers. Your organization can’t function optimally if you can’t source your raw materials or services, so you must put a strategic focus on growing your relationships with your suppliers in a way that benefits you both.

The three pillars that are key to SRM are as follows:

1. Building a structured framework for SRM

One important aspect of effective supplier relationship management is having a structured framework. You’ll need to identify your goals and objectives for your strategy before you can begin to think about implementing it. Is your main goal overall cost reduction, or are you more focused on reducing supply chain risk? Each goal will bring with it its considerations further down the line, so these should act as the foundation of your framework.

2. Diversify your supplier range

It’s also important for your organization to do its best to embrace supplier diversity within your supply chain. Not only is this an important aspect of operating as an ethical and sustainable business, but developing a diverse range of suppliers also exposes your company to innovation you might otherwise have missed. 

Business is becoming increasingly more global, with accessibility continuing to increase at a rapid rate. Take advantage of this and explore a wider range of suppliers to take advantage of the aforementioned innovation, while also cementing your organization as one with inclusion at the core of its strategy.

3. Listen to your suppliers 

Finally, it’s important to remember that engaging in supplier relationship management is a collaborative process. While your organization may lead the strategy and reap many of the benefits, you need to ensure your suppliers’ voices are heard. This is what will deepen relationships and ultimately lead to even better outcomes for your business. Try to treat your suppliers as if they’re partners in your business — when they succeed, you do too.

Implementing Supplier Relationship Management 

Tailoring Supplier Relationship Management to Specific Business Needs

Your supplier relationship management strategy should ideally be tailored to your own specific business needs. As mentioned already, an important aspect of developing a customized strategy is outlining your specific goals and objectives. For example, if your company supplies urgent and vital healthcare products to hospitals, a key objective for strategy may be to prioritize suppliers who can guarantee a consistent and unbroken supply of materials.

Alternatively, if your company has a significant environmental, social, and governance (ESG) focus, you may prioritize engaging with suppliers with pre-existing codes of conduct or ethical practices that mirror your own organization’s values. Getting this organizational alignment is key to ensuring there’s a mutual benefit to deepening the relationship with your suppliers.

Effective Supplier Collaboration 

Collaboration is vital when dealing with your suppliers. Your suppliers should trust your organization implicitly, and vice versa. Contractual trust can be built through the development of an agreement or series of contractual agreements between both parties — this is often one of the earliest ways to begin building trust. From here, it’s important to develop a deeper level of trust that goes beyond merely contractual obligations. 

Emphasise strategies that will lead to wins on both sides. Encourage active and transparent communication so that your suppliers always feel well-informed on what’s going on in your business. Collaborate with the suppliers in your business and your relationship will remain equally meaningful. 

Supplier Diversity for Inclusive Value 

Committing to developing relationships with a more diverse range of suppliers not only has clear ESG-related advantages for your organization but also comes with a host of other benefits. You can gain immediate access to new markets, foster innovation, develop previously unidentified solutions, and even find more cost-effective methods of operation.

One way to expose your business to this more is to establish supplier diversity programs. This is where your organization establishes a means to mentor, develop, and ultimately integrate diverse suppliers into your supply chain and wider business practices. This can help your business diversify its supply chain, while also providing significant opportunities to suppliers who may not otherwise have had similar access.

Maximising Value through Strategic SRM

Strategic supplier relationship management, while relatively simple in theory, can take a considerable effort to get right. However, the relationships that can be built through effective supplier collaboration, negotiation, and management can lead to huge benefits for your organization. Reduced costs, increased risk mitigation, and a more sustainable and efficient supply chain are just some of the potential outcomes for your business.

Effective supplier relationship management requires a blend of strategic negotiation, transparent communication, and a truly collaborative partnership to work. Ultimately, supplier relationship management is a long-term investment in your organization. Operational changes may bring about some rapid changes, but the true benefit is in the more resilient and adaptable supply chain that only comes once solid relationships have been built across the entire chain.

To find out more about the new Skill Dynamics ‘Future Skills’ program, including a topic on operational supplier relationship management, get in touch with us and we’ll answer any questions.

Skill Dynamics