The mechanisms used to build up supplier relationship management strategies

Summary

Supplier relationship management (SRM) is a vital process for objective achievement and business survival. This blog identifies the approaches taken for supplier management and the mechanisms used to improve supplier relationship management strategies. Data has shown that supply chain disruptions normally account for a 62% loss in finances for businesses. Thus, it is important to remember that SRM strategies improve business performance. The blog also discusses the importance of supplier relationship management and how it contributes to spend optimisation, business transformation, and procurement excellence.

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70% of firms believe supply chains are a key driver for quality customer service. As such, effectively managing suppliers that deliver resources for goods, materials, and services development of a company is essential.

Firms must treat supplier interests the same way they treat consumer needs because, without suppliers, it would be impossible to meet consumer needs.

Furthermore, data has shown that 30% of firms consider improving resilience a critical goal when investing in supply chain technology. 

Approaches taken with supplier management

There are two approaches taken to nurture supplier management. These are:

1. Reactive approach

Most of the time, suppliers are only communicated with during complications and times of trouble. This tends to create an environment in which suppliers are only remembered when processes go wrong, which doesn’t deepen supplier bonds but rather can cause friction and a basis for one-sided relationships.

2. Strategic approach

This is the ideal approach for SRM. This is when a firm begins a relationship with suppliers even before an agreement with the supplier is signed, ensuring competitive advantage in the long run. This is a forward-focused approach involving strategic planning, which leads to successful supplier relationships.

Mechanisms used to build up supplier relationship management strategies

Some mechanisms that can be integrated to build supplier relationship management strategies are:

1. Be SMART (Specific, Measurable, Achievable, Relevant, and Time-bound)

Supplier bases must be specific and clear. This way, businesses can reach optimal resource allocation and make quality decisions in the long run.

2. Plan your future with stakeholders

Showing your stakeholders that they are important to you encourages support and understanding, resulting in supplier motivation and quality improvements.

3. Pay supplier invoices on time

Prioritising supplier payments deepens bonds. In the long run, it will likely offer the ability to get credit facilities as a result of developing trust.

4. Build open, two-way communication

Communication with suppliers reduces errors and minimises wastage. This can allow businesses to gain supplier insights and understand market dynamics.

5. Automate supply processes

Technology can undertake many business tasks, allowing businesses to effectively manage time, streamline operations, and lower wastage and costs.

Supplier relationship management strategies for better business performance

The supply chain is becoming increasingly complex and businesses require a range of strategies to simplify and optimise processes. 

Businesses tend to choose suppliers that are reasonable, cost-effective, provide quality, easy to work with and reliable. Thus, there is increasing pressure for supply chain costs to be kept low. This can be a challenge for businesses to overcome, which is why supplier relationships are important. 

Companies must apply a systematic approach to their sourcing and supply strategy to keep profitability and efficiency at peak levels.

These are the benefits that supplier management offers:

• Cost reduction

Valuing suppliers leads to cost savings and lowered overheads because of stimulated relationships—reducing potential delays, quality issues, and availability challenges, allowing firms to act contingently.

• Less fluctuation

Having a healthy relationship with suppliers will open avenues for negotiation on commodity pricing and allow firms to benefit from exchanging terms for fixed prices. This can enable a unique competitive edge.

• Increased efficiency

Supplier management often leads to better channels of communication. This bond of understanding and ability to work together results in the best outcomes for quality, lower wastage, and enhanced brand image.

• Supplier consolidation

Creating a bond with suppliers creates an understanding of their needs for efficiency and innovation. This streamlines supply chain processes by forgoing inefficient suppliers for better operational processes. 

Why are supplier relationships important?

Suppliers are a vital part of business procedures because they define your approach, behaviour, and response towards each of them, thus highlighting the need for supplier relationship management—which aims for better business outcomes by evaluating the suppliers your business engages with. 

Suppliers play a massively crucial role in the product life cycle because they are the source of raw materials for production. They are the first point of contact and the first step in processing and defining the outcome of the final product. 

Thus resource wastage, a lack of supply insights, large pricing gaps, vast development cycles, lost opportunities, unfavourable brand impressions, and even compliance issues can result from failure to secure a brand image—which is why proper supplier relationship management is important. 

Every company needs to have a solid relationship with its suppliers to achieve quality enhancement, brand reputation and a competitive edge. Supplier management plays a vital role in the achievement of financial, growth, and quality enhancement objectives, including spend optimisation, business transformation, and procurement excellence.

The better the relationship between the firm and suppliers, the more likely you are to receive personalised services, discounted prices, and better resource insights. Better supplier management leads to efficiency, cost-effectiveness, productivity and a healthier business form.

Get backing from a procurement consultant to adopt the ultimate supplier relationship management strategies

Supply chain disruptions normally account for a 62% loss in finances for businesses. Thus, gaining the right insights and implementing relevant initiatives can lead to optimised spending, business transformation, and procurement excellence—all of which are important for the longevity of business procedures.

Reliable, accountable, consistent, and responsive suppliers are an asset to businesses and as such, adopting effective strategies for supplier relationship management can deliver bountiful returns.