How to Improve Strategic Supplier Relationship Management
By Hugo Britt | May 24, 2022
Supplier Relationship Management (SRM) programs create a competitive advantage for your business. Run intelligently, program benefits can include cost reduction, unlocking savings beyond cost, improved efficiency, reduced waste, minimized price volatility, and continuity of supply.
But, just like any relationship, supplier relationship management takes some effort if you intend to unlock any value beyond transactional purchasing.
Strategic Supplier Relationship Management
Below, we explore several ways to get the most out of supplier relationships.
Choose your preferred suppliers carefully
While SRM programs are a fantastic way to extract additional value from supplier relationships, it is important to avoid stretching yourself too thin. Segment suppliers to identify which are most important to current business goals, be realistic about how many vendors you can manage in your preferred supplier program, then handle the rest through digitization and automation.
How easy a customer are you?
Is your organization difficult to work with? Perhaps you have a complex and lengthy supplier onboarding process, or a lack of system alignment that creates an administrative burden for suppliers.
Automate the transactional elements of the relationship and save the hands-on, human element for strategic conversations.
Share your strategic goals
One of the keys to getting the most out of preferred suppliers is to invite them into the room in terms of medium to long-term strategic business objectives.
This will help shift the conversation from transactional, short-term thinking to a “how can we help” discussion that encourages suppliers to bring innovative ideas to the table.
Poor communication can derail supplier relationships and lead to lost value. Some of the problems include crucial information being missed, information failing to reach the right person, or poor communication leading to misunderstandings.
Improve communication by:
- Assign a dedicated Supplier Relationship Manager to ensure there is ongoing human automation to avoid a set-and-forget approach.
- Ensure there is a clear point of contact, and avoid a situation where vendors receive conflicting messages from multiple points of cont act.
- Having a central information system that captures all communications with suppliers, including emails and notes from phone calls.
- Establishing regular meetings, calls and performance reviews.
Even if payments are not procurement’s job, it will very quickly become procurement’s problem if payments are regularly overdue or negotiated payment terms are not respected. Work with the payments team and communicate to them that late payments erode the value of supplier relationships.
Be careful not to overpromise when talking with suppliers. Thoughtlessly doing so can lead to an expectation gap that doesn’t meet reality, and may even cause suppliers to make large investments in production or staff in expectation of higher purchasing volumes.
Be aware that maverick spend can lead to a breach of contract and damage supplier relationships.
Set meaningful KPIs
Procurement teams use key performance indicators (KPIs) to ensure vendors comply with (and hopefully exceed) the obligations outlined in a contract. They help us better understand suppliers’ performance, measure their output over a long period of time, and identify areas where improvement is needed.
Gather supplier feedback
Use regular “voice of the supplier” surveys to track, measure, and improve everything from strategic alignment to communication, payments, process efficiencies, and opportunities for additional value.
Related content: 29 Questions to ask in a Voice of Supplier Survey
Cut costs without hammering suppliers on price
Procurement experts often point to supplier relationship management as a way to cut costs, yet warn at the same time not to squeeze strategic suppliers on unit price.
Consider other ways to find savings with suppliers. Discussion point may include altering the contract length, caps on future price rises, discounts through volume purchasing, lower delivery costs, and more advantageous payment terms.
Want to learn more about managing suppliers and getting the most out of your supplier relationships? Contact Una for more information.
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