Supplier relationship management (SRM) is an integrated approach to managing an enterprise’s interactions with the organizations that supply the goods and services it uses. It is a set of principles, processes, and tools that can assist organizations to maximize relationship value with suppliers and minimize risk and management of overhead through the entire supplier relationship life cycle.
With an increasing dependency on a complex supplier base, there is a need to drive cost and performance improvements further, manage supply risk, and streamline costs. To do this, you need to develop supplier relationship management (SRM) capabilities that include processes, governance mechanisms, and systems to manage suppliers on a day-to-day basis over the full relationship life-cycle.
Supplier relationship management covers two perspectives:
One, a clear commitment between suppliers and buyers. The other, is to understand, agree, and whenever possible, log the interactions between them.
Why is a good supplier relationship management required?
It’s an effective practice that allows organizations to:
- Identify strategic suppliers based on their importance and stratify them
- Define operational expectations and establish a governance structure and process for internal and supplier interactions across the life cycle of the supplier relationship
- Clarify internal roles and responsibilities
- Establish processes to effectively manage performances
- Groom supplier capabilities to constantly enhance their value to the organization
- Outline the involvement of management in the relationship
Organizations are increasingly introducing and implementing SRM for an effective working solution for supply chain and procurement. So what are the essential principles to develop a reliable and successful supplier relationship management process? Listed here are a few:
Suppliers should be treated without discrimination; they should not be imposed with unnecessary constraints on the competitive market. Best practices for the organization would include fairness and impartiality in all its processes.
Owing to various suppliers catering to various requirements, before a strategy can be determined, specific supplier relationship would require detailed analysis on the basis of performance and importance.
Companies should try to manage and develop suppliers in a manner similar to departments. This would include specifying roles and responsibilities and defining targets, responsibilities, and reporting lines. The SRM competency framework should cover technical, relational and developmental competencies.
Governance and Organization:
Define the team structure that will be required to manage the supplier on a day-to-day basis as well as the knowledge that team members would need to possess. Then, formalize the ongoing governance process to make supplier management repeatable, transparent to management and consistent throughout the organization.
The management of supplier needs to be completely integrated with strategic sourcing / category management processes. Align SRM goals to overall business goals, with SRM’s contribution to those goals tracked and measured quantitatively and qualitatively.
Organizations should maintain consistency throughout all processes, events, and actions. To ensure a smooth relationship, avoid any unethical or improper transactions.
Organizations are quickly expanding to focus on strategic sourcing, outsourcing, and low-cost-country sourcing due to which there is a dramatic change in the supplier environment. Critical business processes and value-chain activities will thus depend on creating new major supplier relationships often vital to operational continuity.
Amy Jackson is a lead technology writer and she has an array of experience in Technology and software industry. Currently, she has been writing about Supply chain optimization solutions, Predictive Analytics Solutions and procurement solutions. Follow her on Google+ and learn more about the latest tech trends.