04 Nov Supplier Relationship Management. Click to keep reading…
2021 has been a difficult year for the supply chain: long lead times, short supply and increased pricing has been at the forefront. Most supply chain personnel are fighting daily battles with suppliers, distributors, and manufacturers to get products in the door to keep their production lines running. Everyone is asking when will it end? I’m not sure anyone knows for certain.
Communication is the most important tool in a buyer/supplier relationship.
This article highlights SRM and why it is critical in today’s environment.
Here are some thoughts that caught my attention:
- Supplier Relationship Management (SRM) is the strategy of managing and fostering partnerships in the buyer-vendor dynamic, as opposed to quantitative, contractual obligations. The relationship that’s developed between buyer and supplier sets the overall tone for the working relationship and is fast becoming a popular industry technique to harness the benefits a healthy partnership offers in enhancing the capabilities the supply chain offers.
- Deemed a core skill for all procurement and supply managers, SRM requires a systematic approach to target and maintain supplier partnerships. Foundations should be set on efficient communication, solid levels of trust, and a degree of empathy between the involved parties, with a joint focus on growth and value creation.
- The key to adopting a successful SRM is selecting suppliers that are cost-efficient and prove themselves as easy partners, resulting in maximizing the degree of the relationship’s value. Supplier relationship management encompasses how organizations assess, select and engage with their suppliers. Historically, most enterprise-supplier relationships have been very transactional, with suppliers selected based on pricing and other factors. The relationship mostly consists of transacting against those contracts and monitoring performance.
But the nature of those relationships has been rapidly evolving, with business success increasingly dependent on supply chains. Businesses have outsourced more of their operations, so they are more dependent on suppliers. The rapid pace of innovation and specialization means suppliers are a key source of innovation. As supply chains have grown longer and more global, businesses are increasingly susceptible to risks in their supply chain. So the balance of power has shifted from buyers to suppliers. As a result, how businesses select and manage their suppliers is increasingly important. In the future, innovative suppliers will be in a position where they can pick and choose who they work with. This means moving away from supplier relationships that focus primarily on negotiating lower prices, which can financially stress suppliers and result in lower prioritization when disruptions occur. Instead, organizations must concentrate on sustainable ways to interact with suppliers to make the most out of their relationships.
- In theory, good SRM should include effective communication to avoid misunderstandings. Prioritizing listening to a supplier results in them feeling valued and seen, and allowing for their contributions to be taken into consideration encourages consistent and healthy levels of conversation.
- An environment of openness and respect between both parties is just as vital. Suppliers are keen to work with buyers who show appreciation and a willingness to work together. This evolves into an eagerness to cooperate. Building trust and honing respect increase performance quality and the chances of collaborating to innovate – which may just prove invaluable for future operations. Having clear, concise, and understandable agreements with suppliers also ensure both parties are clear on their commitments, downplaying the risk of confusion and disruption.
- While many businesses are struggling with supply shortages across several industries, building strong relationships with suppliers is paramount. Maintaining bonds with suppliers and engendering two-way trust is key to enabling seamless collaboration, helping to ensure that vendors can become the ‘customer of choice’.
- A close relationship between buyers and vendors allows them to support strategic objectives and solve problems, as well as drive down costs, yield new revenue streams, and tap into new innovations.
Lupton Associates believes in Supplier Relationship Management (SRM). Our success is based upon a true partnership with the customer and manufacturer. The relationship has to be a win-win for both parties. Communication and expectations for both our customer and manufacturer need to be a major focus for both companies.
Hope 2022 is a better year!–Commentary provided by Greg Johnson, Business Development