Supplier relationship management: Process, tips, and benefits

August 22, 2023


Establishing relationships with external suppliers and vendors can be challenging. It’s common to face differing priorities, miscommunications, limited information sharing, and supply chain disruptions, among other things.

However, there are ways to improve vendor engagement, and one of them is through strategic supplier relationship management (SRM). With SRM, your company can improve performance and relate better to your suppliers.

Below, we’ll explore the benefits of SRM, including the goals, process, and valuable insights that will help strengthen your internal and external relationships.

What is supplier relationship management (SRM)?

SRM is a strategic approach to fostering a mutually beneficial relationship with your suppliers in order to develop and then maintaining the relationship over the long term. It helps organizations streamline their supply chain, enhance supplier performance, reduce costs and manage risks. Additionally, SRM promotes continuous improvement within the supply network — ultimately, improving your bottom line.

Key elements of SRM include:

  • Supplier evaluation and selection
  • Contract negotiation and management
  • Performance monitoring and measurement
  • Risk assessment and mitigation initiatives
  • Ongoing communication and collaboration with suppliers

Understanding the SRM process

Now that we’ve defined SRM as a whole and the goals that should shape your SRM program, you may be wondering, “How exactly can I form better relationships with suppliers?”

While needs will vary between organizations, standardizing the process into the following steps is a great way to start.

1. Supplier segmentation

Before you start planning your SRM process, it’s a good idea to look at the types of suppliers you’re working with and segment them into groups based on their strategic role and importance. For example, you may have groups of electrical versus mechanical suppliers, preferred suppliers, and local suppliers.

Creating and maintaining lasting relationships is a long-term commitment that promises to bear fruit for both of you, so it should be something you’re dedicated to. Start with your key suppliers and work your way down.

For example, hardware development requires relationships with numerous part suppliers, so you can more easily create your bill of materials (BOM) and streamline your operations.

2. Determine relationship objectives

Once you have segmented your relationships and identified any new suppliers, start with your most important suppliers and determine the relationship’s objectives.

Before you determine your goals, identify the current state of your relationship. After that, you can choose the primary objective for each relationship: cost savings, quality improvement, innovation, or risk mitigation.

It may come to light that your relationships with your most essential suppliers are lacking, but you have more collaborative partnerships with smaller (or infrequently used) suppliers.

3. Establish a supplier strategy

Once you have adequately identified all existing and new suppliers, trimmed down your list, and prioritized it, it’s time to involve your team members in implementing a strategy.

This will include defining:

  • the resources required to build your products
  • the approach to take with each supplier
  • who is responsible for each connection, and
  • the key benchmarks for success to track progress.

As you develop your strategy, remember it must be dynamic, as things will change. Change management is integral to a well-documented strategy and should outline what to do and who to contact to deal with the challenge. However, being prepared for change is almost as important as how you respond to it.

4. Execute the strategy

Ask for your suppliers for feedback and support to bring your strategy to life. For new suppliers, this will include conducting a supplier onboarding process, establishing a comprehensive scorecard to evaluate performance, and aligning expectations for both parties.

5. Collaborate and communicate with suppliers

Once you have effectively implemented your strategy and engaged all key suppliers, establish regular touchpoints. In these meetings you’ll communicate milestones and goals and evaluate any concerns they may have.

You might share market insights, conduct regular business reviews, and collectively problem-solve which will develop into a mutually beneficial relationship.

6. Regularly monitor and refine the strategy

Regular performance and relationship reviews are essential, but a review should also occur when a disruptive or meaningful event occurs. Changing market conditions — for better or worse — is an excellent test of your associations and how (and if) your partnership can weather the storm or take advantage of an opportunity.

Benefits of effective supplier relationship management

Once you successfully implement your SRM program, you may realize the following benefits:

Improves supplier collaboration

When you involve suppliers in strategic discussions, innovation initiatives, and process improvement efforts, it cultivates a stronger partnership. You’ll benefit from enhanced collaboration, shared success, and a stronger working relationship.

In this way, SRM also encourages joint problem-solving, collaborative decision-making, and knowledge sharing. It emphasizes building long-term relationships based on trust, fairness, and mutual benefits.

Reduces risk

Supply chain issues are common and can completely overturn your strategic sourcing process or damage your brand reputation. Establishing relationships with your suppliers will help you mitigate risk. Better communication will enable you to learn about risks, supply chain shortages, and inefficiencies earlier in order to react.

With an effective supplier relationship management process, you can determine contingencies, disaster recovery, and alternative channels in the event of a roadblock or challenge.

Boosts supplier performance

Establishing consistent, regular touchpoints with your suppliers will give them the feedback necessary to improve their performance.

The best way to do this is to ensure they know what’s expected of them. Review your metrics and scorecards for potential opportunities for improvement, then use those insights to help set expectations and align with your suppliers.

Emphasizing quality, timely delivery, and encouraging clear and open communication channels will foster an environment full of problem-solving attitudes. Let your suppliers know that you are on their side and support them. Doing so will instill the confidence necessary to progress and meet (or exceed) your standards.

Remember that the exchange of ideas is a two-way street, which will foster collaboration and improve resource allocation.

Increases supply chain efficiency

Working closely with your suppliers can help reduce lead times and address issues that can arise from disruptions. Of course, relationships are great when things are running smoothly — but they can be taxing during hard times.

During supply shortages or industry-wide disruptions, you can work with your suppliers to determine how you will move forward together. Staying as close to order fulfillment can help maintain high customer satisfaction and give you an edge over your competition.

Reduces costs

Exploring cost reduction opportunities can increase profitability and sustainability, giving you a greater competitive edge.

SRM reduces costs by fostering collaboration with suppliers, streamlining processes, negotiating favorable pricing, optimizing the supply chain, and identifying and eliminating inefficiencies.

Often, negotiating favorable terms is a win-win situation, and your supplier may also be able to reduce costs and increase product/service quality with exclusive deals, bulk orders, and other value engineering methods.

Results in higher-quality product development

Tapping into your supplier’s view of the industry can give you a unique competitive advantage by leveraging their expertise.

Involving your suppliers early on in the product development process will not only improve the quality of your parts and end product. Still, it may also reduce your time to market (TTM) with fast delivery and lead times.

Fosters ongoing improvement

SRM fosters ongoing improvement by monitoring supplier performance, promoting proactive, open communication and feedback, and facilitating collaborative problem-solving.

Because it also promotes conducting regular performance reviews, it can help you align your expectations to ensure both parties are meeting the predetermined metrics for success. This allows your organization and its suppliers to consistently improve performance, drive efficiency, and stay responsive to changing market demands.

Maintain strong supplier relations with Duro

In a dynamic world of challenges, supplier relationships are often left on the backburner if they’re considered transactional relationships.

Through successful SRM management, you can benefit from cost savings, improved efficiency, profitability, faster TTM, and a clear objective: enhancing excellence and reducing risk.

Duro’s product lifecycle management (PLM) software is specifically designed to streamline operations and optimize your supply chain. With integrations with off-the-shelf parts distributors and robust collaboration capabilities, Duro makes it easy to coordinate your efforts and ensure everyone is on the same page — whether internally or externally.

If you’re ready to take the first step toward better supplier relationship managementrequest a free demo today to see how Duro can streamline your processes.

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