What is a supplier relationship management?
Effectively, supplier relationship management (SRM) is a systematic, enterprise-wide process, analysing supplier’s assets and capabilities against the company’s business strategy. This process assesses and determines what activities a business wants to take part in with different suppliers. It allows them to plan and instigate communication and interaction with suppliers. This interaction is artfully organised for the entirety of the relationship life cycle. It is planned this way to get the most value out of these interactions and ensure relationships that benefit both parties.
SRM focuses on crafting strategic relationships that can not only benefit the primary company, but the third party organisations that they are doing business with. These relationships can give both sides a competitive edge and foster innovation. By working synergistically, both sides can achieve greater targets and see tangible benefit, far greater than traditional purchasing relationships.
These relationships have come about as suppliers across numerous industries are becoming subject to increasing costs. These increasing costs cause pressure and suppliers are unable to reduce costs alone. Instead, this has led to companies to working even closer with suppliers to fuse relationships that yield a stream of two-way benefits. So, even if ordering costs do not change from the supplier, other savings in non-traditional forms may be experienced by a business down the line. By growing strong relationships, efficiency between the two parties can improve and supply chains can become leaner. As a result, these relationships often promote innovation.
Maintaining Healthy Relationships
The key objectives of SRM promote a strong alliance between parties. It is important for develop a mechanism to make sure that the relationship stays healthy and dynamic. Moreover, if problems arise, it is necessary to have a platform to resolve these problems. Working together, you can develop continuous improvement goals with the aim of gaining value for both sides. In addition, it’s healthy to have performance measurement objectives and track achievements.
SRM can be very beneficial in industries with fluctuating and inconsistent demand. If you think about fresh food industry, ordering costs vary substantially by season, with weather conditions and general customer preference and demand. Since these products are at the whim of customer demand and buying habits, ordering costs can be impacted and passed on to the business. With strong SRM, both parties can support each other during these times to make arrangements that manage such complexities.
During peak demand times, such as holidays, food suppliers and companies can work together to cope with the surge in demand. If the relationship between the parties is good, a supplier might agree to work more, flexible hours to package goods and help the business meet demands. The impact of this relationship can lead to millions of dollars for a business in the form of sales or savings. It is very advantageous at peak times of the year when they make the majority of their profit.
SRM can play a critical part in shaping innovative relationships that yield great success. As discussed, in many industries, margins are too tight for suppliers to continually reduce ordering costs. Therefore, SRM opens a ream of opportunities for suppliers and companies to build relationships that cultivate mutual benefits.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.