Supplier relationship management (SRM) : leveraging your vendors
Supplier Relationship Management (SRM) is a vital part of providing that service and can help boost your productivity to give you a competitive advantage. What is meant by supplier relationship management? What are the basic components of supplier relationship management? How do you build effective supplier relationships? Let's find out…
What is meant by supplier relationship management?
Supplier relationship management (SRM) is the process of maintaining and enhancing the relationships between your business and its suppliers. It includes a variety of activities, including:
- Identifying and managing key suppliers.
- Managing supplier performance.
- Building mutually beneficial relationships with suppliers.
- Developing an effective supplier management strategy.
The goal of supplier relationship management is similar to the goal of customer relationship management (CRM): to improve efficiency, reduce costs and increase profit by eliminating waste and improving communication between two groups that are critical to your business.
Supplier relationships are about more than just cost. Supplier relationship management is a vital part of any organization’s success, particularly on strategic sourcing, procurement and supplier management processes.
What are the three basic components of supplier relationship management?
Supplier relationship management comprises of three important steps:
- Supplier segmentation: Differentiate suppliers to identify opportunities and risks.
- Supplier strategy development: Devise an optimal way to interact with suppliers based on business needs.
- Supplier strategy execution: Execute the designed strategy in an effective way to obtain desired results.
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How to set up a supplier relationship management process?
Supplier relationship management isn't something you can do once and then check off your list. It's an ongoing process that requires constant attention and care. If you want to create an effective SRM strategy, it's important to understand how your supplier relationships affect your business from a variety of perspectives.
Let's take a look at five tips for developing an effective SRM strategy:
- Set clear expectations for suppliers
- Pay your invoices on time
- Measure Results and Adjust as Necessary
- Manage Risk and Quality
- Let Communication Flow Both Ways
1/ Set clear expectations for suppliers
You need to be clear with your suppliers about what you expect from them. This includes:
- Communicating clearly with you and your team. If a supplier doesn't respond to emails or phone calls in a timely manner, it can cause problems for your business.
- Providing the right level of service. Some suppliers are great with high-level customer service but not so good at getting orders shipped quickly. Others can deliver fast turnaround times but lack customer service skills and may not reply quickly to requests for information or clarification.
- Fulfilling their commitments on time and within budget. If a supplier doesn't deliver on schedule or has cost overruns, this could impact your ability to fulfil customer orders on time (if at all).
If you have a problem with a supplier, it’s important that they understand what they did wrong and how they can fix it next time around. Set clear expectations so that everyone knows exactly how things should go down and there won’t be any confusion or frustration later on.
The following steps will help you get started:
- Monitor the quality of their work.
- Document the process and keep records of communication with suppliers.
- Meet regularly with suppliers to discuss how well they're doing their jobs and how they can improve their performance or provide better service.
2/ Make sure you pay your invoices on time
it might seems obvious, but it isn't. Three in five UK businesses are owed money from late payments, study from Barclays shows. If you don't have the cash flow to pay your suppliers quickly, talk to them about layaway schemes or other arrangements so that they can still get paid on time without having to wait for the entire invoice amount upfront or chasing you for payment later down the line.
Automated invoice processing solutions can automate payment processes so that they're easier for small businesses to manage. This will ensure that invoices are paid on time and allow you to track when payments are made, as well as providing cost savings through automation, which leads to fewer headaches down the line when it comes to chasing up payments.
An automated invoice processing solution like Libeo can be set up in minutes and easily integrated with your accounting software or ERP system, so it's easy to use with minimal disruption to your business' workflow.
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3/ Measure Results and Adjust as Necessary
Your goal must be to find suppliers who meet all of your needs while also providing excellent service at an affordable price point.
This means that you need to keep track of how well each supplier is doing at meeting their contractual obligations and providing good quality work. ou can do this by asking your employees for feedback, or by using surveys.
The second step is to create a list of five or six key performance indicators (KPIs). These are metrics that you use to measure the health of your supplier relationships and determine whether they’re working well or not. KPIs could include things like:
- How long it takes for your suppliers to respond to your requests
- Whether they meet delivery deadlines
- How many times they deliver products late
- The quality of their products
You should also keep track of how well they communicate with you. If there are issues, it's important to address them right away so that they don't get out of hand or become an ongoing problem.
4/ Manage Risk and Quality
Your business relies on its suppliers for goods and services. Failing to control the quality of these items can lead to costly mistakes and damaged relationships. Therefore, it's essential that you have a process in place to manage risk and quality.
There are two main ways of managing your supplier relationships:
- Supplier risk management. This involves determining where there is potential for risk in your supply chain — such as deficiencies in quality control or delivery issues — so that you can take action before they become problems.
- Quality assurance (QA). This refers to processes that ensure that goods or services meet standards set by customers (also known as "quality audits"). QA is often done by third parties who are hired by businesses who don't have enough internal resources available
5/ Let Communication Flow Both Ways
Supplier relationships are often managed by purchasing departments or procurement teams within organizations, which means there may be little overlap between you and your suppliers.
If you find something wrong with their product or service, don't hesitate to speak up right away -- this will save both parties time and money in the long run. The same goes if they do something particularly well; let them know how much it means to your organization.
If you're looking for something specific from your supplier, don't be afraid to say so upfront -- this will allow them to deliver exactly what you need instead of guessing at what's needed and potentially missing the mark entirely.
Similarly, if there's something that doesn't work well enough in their product or service, again let them know as soon as possible so they can address the issue before it becomes too big of a problem later on down the line
It improves communication between buyer and seller, which leads to better collaboration between them. This collaboration increases their ability to work together effectively towards common goals, which ultimately benefits both sides by improving their overall performance.