What is Supplier Relationship Management (SRM)?

The relations of the companies with their suppliers are as critical as the customer relations, as they affect the smooth and fast operation of all other processes after the purchase. It has become a necessity for companies to be able to manage supplier relations in real-time and interactively through a central system.

A Complete Guide to Supplier Relationship Management

Supplier relationship management (SRM) encompasses the process of systematically evaluating the strengths and capabilities of suppliers in relation to the overall business strategy, determining which activities to take with different suppliers, and planning and executing all interactions with suppliers.

SRM's focus is to develop mutually beneficial relationships with strategic supply partners to drive greater innovation and competitive advantage.

The purpose of SRM is to maximize the interaction values of the relationships developed. In practice, when we look at the SRM system creates new value requires building closer, more collaborative relationships with key suppliers to realize this and reduce the risk of failure.

Components of SRM

SRM requires consistency of approach and a defined set of behaviors that build trust over time.

Effective SRM seeks new ways to collaborate with key suppliers, making it necessary to avoid existing policies and practices that could hinder collaboration and limit the potential value that can be derived from key supplier relationships. At the same time, the SRM process of companies varies according to the sector, business process, size and many criteria.

Organizational Structure

While there is no single right model for deploying SRM at the enterprise level, there is a set of structural elements that are relevant in most contexts.

1. A formal corporate-grade SRM team or office: The purpose of such a group is to facilitate and coordinate SRM activities across functions and business units. SRM is cross-functional in nature and requires a good combination of business, technical and interpersonal skills. These “softer” skills of communicating, listening, influencing and managing change are critical to developing strong and trusting working relationships.
2. A formal Relationship Manager or Supplier Account Manager role: Such persons are typically found in the business unit that interacts with the supplier the most or may be filled by a category manager in the procurement function. This role may be a full-time, specialized position, but relationship management responsibilities may be part of broader roles depending on the complexity and importance of the supplier relationship (see Supplier Segmentation). By understanding their suppliers' business and strategic goals, SRM managers balance their organization's needs and priorities and can see issues from the supplier's perspective.
3. An executive sponsor and a cross-functional steering committee for complex, strategic supplier relationships: They serve as a dispute resolution body and serve to determine the relative prioritization between a company's changing objectives as they influence suppliers, creating a clear link between SRM strategies and overall business strategies.

Administration

SRM office and supply chain function are responsible for defining the SRM governance model, which typically includes a clear and jointly agreed governance framework for some top strategic suppliers.

Effective governance should include not only identifying senior executive sponsors and special relationship managers at both customer and supplier, but also a face-to-face model that connects staff in engineering, purchasing, operations, quality and logistics with supplier colleagues; Well-defined escalation procedures should be implemented to ensure prompt resolution of operational, strategic planning, regular rhythm of review meetings, and prompt resolution of problems or conflicts at the appropriate organizational level.

Effective supplier relationship management requires an organization-wide analysis of what activities to engage with each supplier.

The common practice of applying a "one size fits all" approach to managing suppliers can stretch resources and limit the potential value that can be derived from strategic supplier relationships.

When we look at supplier segmentation, on the contrary, it is determining what kind of interactions should be with various suppliers and how best to manage these interactions; it must act not only as a disconnected series of transactions, but also in a coordinated manner across the enterprise. Suppliers are not only based on expenditure; can be partitioned according to the total potential value (measured in multiple dimensions) that can be realized through interactions with them. In addition, suppliers can be segmented according to the degree of risk to which realization of this value is subject.

Joint Activities

Joint activities with suppliers may include;

• Provides feedback on the strategic supplier relationship management program, such as supplier summits that bring together all strategic suppliers to share the company's strategy, and solicit feedback and recommendations from key suppliers.
• Organizing meetings between executives
• Strategic business planning meetings should be organized where relationship leaders and technical experts meet to discuss joint opportunities, potential barriers to collaboration, required activities and resources, and share strategies and relevant market trends. Joint business planning meetings should generally be held in a clear process to capture supplier ideas and innovations, direct them to relevant stakeholders, and ensure that they are evaluated for commercial suitability and developed and implemented if deemed commercially viable.

Value Measurement

SRM gains a competitive advantage by leveraging talent and ideas from key supply partners and transforms this into product and service offerings for end customers. One tool for monitoring performance and identifying areas for improvement is the common, two-way performance scorecard. It includes a mix of quantitative and qualitative measures, including how key participants perceive the quality of the relationship, along with a balanced scorecard. These KPIs are shared and reviewed together between customer and supplier, reflecting the fact that the relationship is bidirectional and collaborative and requires strong performance on both sides to be successful. Advanced organizations run 360-degree scorecards with results built into the scorecard, which also review strategic suppliers for feedback on their performance.

One practice of leading organizations is to track specific SRM savings generated at an individual supplier level, as well as at an aggregated SRM program level, through existing purchasing benefit measurement systems. Part of the difficulty in measuring the financial impact of SRM is that there are many ways SRM can contribute to financial performance. These include cost savings (for example, best customer pricing, joint efforts to improve design, manufacturing and service delivery for greater efficiency); increased revenue opportunities (for example, gaining early or exclusive access to innovative supplier technology; joint efforts to develop innovative products, features, packaging, etc., avoiding depletion through joint demand forecasting); and improved risk management. In the 2004 Vantage Partners survey, respondents reported that, on average, they could save just over $43 million by implementing supplier relationship management best practices. 

Technology And Systems for SRM

There are many technological solutions that claim to enable SRM. These systems can be used to collect and monitor supplier performance data across sites, business units or regions. The benefit is a more comprehensive and objective picture of supplier performance; This picture can be used to make better sourcing decisions and to identify and address systematic supplier performance problems.

It is important to note that while SRM software is valuable, it cannot be implemented in the absence of other proposed business structures and process changes as part of implementing SRM as a strategy.

SRM and Supplier Performance Management

Finally, if we look at supplier performance management;

There may be some confusion over the difference between supplier performance management (SPM) and SRM. SPM is a subset of SRM. A simple way to tell the difference between SPM and SRM is that the former is about getting the supplier to deliver what is promised in the contract, suggesting a narrow, one-way process.

In contrast, SRM is about creating collaborative value for both parties, resulting in lower costs, less risk, greater efficiency, better quality and access to innovation.

This makes it necessary to focus both on negotiating the contract and managing the relationship that emerges throughout implementation, as well as systematic efforts to discover common values.

JetSRM Supplier Portal

JetSRM Supplier Portal is an MDP Group solution that enables fast and easy business processes between companies and suppliers on a single platform. Our solution is used with great pleasure by companies operating in different sectors. Do not hesitate to contact us to digitize your supplier processes with the difference of MDP Group!