All about Supplier Relationship Management (SRM)

Professional relationships are essential to running a successful business. Good relationships with your suppliers can lead to everything from better prices to lower risk of supply chain disruptions – and that’s why Supplier Relationship Management is so important.

Supplier Relationship Management (SRM) is about streamlining the relationships between your business and its suppliers. It’s about improving your processes, establishing better collaboration and increasing efficiency to benefit both parties. We’re here to walk you through how it’s done.

In this article, we’ll cover what Supplier Relationship Management is, why it’s important and the 5 key components of effectively managing supplier relationships.

What is Supplier Relationship Management (SRM)?

Supplier Relationship Management (SRM) is a comprehensive approach to managing a company’s interactions with its suppliers.

The purpose of SRM is to determine the value each supplier provides to your company so you know exactly which suppliers are most critical to your operations.

Among other things, the SRM process involves:

• Assessing how well your suppliers are able to meet your needs
• Continually measuring supplier performance
• Working with suppliers to identify challenges and opportunities for improvement
• Establishing end-to-end communication with your suppliers to keep the relationship on track

SRM is about making better choices about how to engage with both current and potential suppliers. In short, it helps you cultivate strong, lasting relationships with your suppliers that’ll benefit everyone involved.

The benefits: Why effective SRM is so important

It probably goes without saying that good professional relationships come with benefits – and when it comes to Supplier Relationship Management, there are plenty of them.

Here are some of the benefits that make effective SRM so important:

• Stronger relationships: This one’s a given. Building strong, lasting relationships with your suppliers can lead to better collaboration – and that benefits both parties.
• Cost savings: With better negotiation and collaboration, you’re more likely to be offered reduced costs and more favourable terms. Who’d say no to that?
• Improved quality: Through performance monitoring and enhanced communication, SRM helps ensure your suppliers don’t just meet your standards, but continuously work to improve their quality – and that benefits everyone involved.
• Increased efficiency: SRM helps streamline your processes – and the smoother your processes, the better your operational efficiency.
• Risk mitigation: SRM helps you stay on top of supplier risks, making it less likely that you’ll experience supply chain disruptions.
• Innovation: Closer relationships with your suppliers come with closer collaboration – and that can foster innovation and provide new, improved processes.

How it works: 5 key components of Supplier Relationship Management

Now that you have a better idea of what Supplier Relationship Management is, it’s time to take a closer look at how it works in practice.

There are five primary components to SRM. Let’s get into them.

1. Supplier segmentation

The first step of SRM is supplier segmentation – the process of classifying suppliers according to their importance to your company.

The segmentation is done based on predefined criteria, such as:

• Spend volume: How much money do you spend with the supplier?
• Criticality of supply: How important is the supplier to your operations?
• Risk: How likely is it for problems or disruptions to occur with the supplier?
• Collaboration potential: How well can you work with the supplier to improve or innovate?

Which criteria you focus on entirely depends on what’s most valuable to your business. Determine which suppliers are purely transactional and which make great strategic partners for you – this’ll show you how to focus your efforts and resources.

2. Strategy development

All your suppliers are important for your success. Some, however, are more critical than others – and your segmentation should show you which ones are most integral to your business.

With the insights you’ve gained from the segmentation process, it’s time to craft a strategy for how your Supplier Relationship Management will work in practice.

When developing your strategy, you should:

• Align with your business strategy: Make sure your SRM strategy supports your overall business objectives and priorities – after all, they’re all meant to work together to boost your success.
• Set clear goals: Are you looking to improve supplier performance, reduce risk or foster innovation? Set clear goals for your SRM strategy.
• Define KPIs and set benchmarks: KPIs and benchmarks will help you measure supplier performance, track your progress towards your goals and compare suppliers against industry standards or best practices. We recommend using a supplier scorecard for this process.

3. Relationship building

Once you’ve finalised your strategy, it’s time to communicate your SRM plans and initiatives to your key suppliers. This step is about deepening your connection with your most important suppliers to foster a professional relationship that’s more than just transactional.

To do this, you need to establish end-to-end communication with your suppliers to ensure that everyone is kept in the loop about important developments such as promotions, price changes and potential shortages.

Essentially, you’re working to ensure that your suppliers know you and your business needs.

This’ll help you avoid miscommunications and misunderstandings and build strong, lasting relationships with your suppliers.

4. Strategy execution

It’s time to put your strategy into action. Your strategy should aim to enhance performance and drive value for your business.

Executing your strategy involves several steps, including:

• Communicating your strategy to internal stakeholders and suppliers
• Allocating resources to support the execution of your strategy
• Communicating regularly with your suppliers to develop and maintain strong relationships
• Offering constructive feedback to suppliers to encourage continuous improvement
• Encouraging collaboration with suppliers to drive innovation and improvement

Remember – it’s not enough to send your strategy into the world and leave it to fend for itself. You need to make sure it continues to remain relevant. Regularly review your SRM strategy and keep adapting it to your business needs and relevant market conditions.

5. Performance monitoring

Your suppliers may meet or exceed your expectations now, but there’s no guarantee they will in a month. To make sure they do, you need to keep monitoring supplier performance.

This involves monitoring a variety of factors, including:

• Timeliness and accuracy of deliveries
• Product quality
• Cost efficiency
• Lead time
• Responsiveness

The data you collect will inform your next round of segmentation and strategy development – and that way, you’re all set to continue your Supplier Relationship Management efforts with an even stronger foundation than before.

Conclusion

Supplier Relationship Management is about streamlining the relationships between your business and its suppliers. It comes with a wide range of benefits, including better prices and terms and greater innovation potential.

With the components above, you’re all set to get your SRM initiatives off the ground and start building strong, mutually beneficial professional relationships that will last.