As supply chains experience unprecedented disruption and businesses are tasked with driving continued efficiencies and growth, the importance of effective Supplier Relationship Management only increases. SRM is a must-have for organisations looking to align their suppliers to their corporate goals, whether that’s mitigating risk, finding new efficiencies, or achieving customer of choice status with key suppliers. Read on to learn more about its origins, how to implement a successful SRM strategy, and how Vizibl supports Supplier Relationship Management and much more.
Supplier Relationship Management (SRM) is an approach to systematically aligning and managing the performance of suppliers in order to drive down risk, find cost and quality efficiencies, and ensure supply of the materials and services that the buyer requires. SRM helps to ensure procurement is maximising the potential of its existing supplier relationships to support the function’s goals and the goals of the business more broadly.
It is a critical discipline in procurement and supply chain management, and is a crucial contributor to business success when deployed effectively.
The modern idea of Supplier Relationship Management finds its origins in 1983, when Peter Kraljic, a director at McKinsey, penned an article in the Harvard Business Review titled ‘Purchasing Must Become Supply Management’.
Kraljic outlined a four box matrix framework for segmenting suppliers according to their strategic importance to the business, along joint axes of: 1) the risk inherent to their supply market, and 2) their impact on profitability. He suggested that different relationship management techniques should be employed depending on which ‘box’ a given supplier fell under:
Over time, as technology has matured and the challenges facing procurement have changed, Kraljic’s original framework has been built upon to give us the version of SRM we understand today.
Modern Supplier Relationship Management comes with proven benefits for reducing costs, improving efficiency of operations, and consolidating the supply chain. A well-managed supplier relationship is a relationship that is more efficient, in addition to being more agile and resilient in times of disruption.
Despite the importance of SRM to not only the procurement function but to the business at large, many procurement teams frequently lack the information and processes required to make the most efficient, informed, and effective decisions about their supplier relationships.
Much of this difficulty in accessing information stems from siloed, offline ways of working. Supplier contact touchpoints live in various tools and email threads with no overarching source of master data. This in turn leads to a lack of visibility within the procurement team and between the buyer and supplier, undermining communication efforts and the team’s ability to become Customer of Choice with key suppliers.
Coupled with lack of transparency around org charts, contract terms, escalation processes, and historic performance, managing and aligning relationships becomes a slow, incomplete, friction-filled process.
In addition to being friction-filled, this process is characterised by its one-sidedness, with supplier relationships being managed by the procurement team as opposed to a joint relationship being managed by both the parties that comprise it. There is no standardised process to mutually set the terms of the relationship or agree upon its measure of success.
The combination of inefficiency, one-directionality, and lack of transparency harms the relationship and in doing so undermines and erodes the benefits sought through SRM.
The key function of any SRM strategy is, at its basis, to deepen relationships with supply chain stakeholders in order to mitigate risk, find new efficiencies, and become Customer of Choice.
This is the key goal for any organisation utilising an SRM function.
Segmenting your supply chain is crucial in order to identify which of your suppliers are strategic to your business. Based on this criteria, you can then manage your suppliers differently based on their segment to mitigate risk and drive mutual value.
For example, an FMCG company's supplier for ingredients and packaging materials is far more strategically important to the productivity and value of the business than their supplier for pens and office stationery.
Once strategic suppliers are identified, a supplier relationship manager must look to nurture and maintain a mutually beneficial relationship for both parties to create value and mitigate any supply chain disruption.
A supplier relationship manager, when all is said and done, is tasked with optimising cost and quality.
Upon the development of a relationship with a strategic supplier, gaining visibility over spend and performance data and establishing shared KPIs and mutual goals should be a priority. These steps are vitally important to ensure that the relationship is continuing to provide good value for the organisation’s spend.
Consolidating supplier information and performance data finds new time and resource efficiencies which can also free up capacity in the team. Improved supplier relationships frequently negate the need for costly re-sourcing, and bring cost savings under the ethos of mutual benefit.
While the SRM acronym is often confused with supplier risk management, Supplier Relationship Management is more all-encompassing. However, it remains true that a crucially important feature of SRM is its usefulness in anticipating and avoiding risks to the business from the supply chain.
It is crucial that Supplier Relationship Managers have full visibility over interactions and activities with suppliers, allowing you to identify potential issues before they arise, make proactive course corrections to maintain good performance, and find the right person to contact instantly if something goes wrong.
An effective Supplier Relationship Management function will look to streamline procurement processes and allows for better quality communication and the sharing of feedback and ideas to optimise the workings of the relationship. Communication is key to maintaining visibility and improving supplier relationships, which in turn, will create new ideas to create efficiencies within any organisation’s supply chain.
A basic SRM function must follow these three steps in order to implement an effective and successful strategy:
To begin with, the team must segment the supply base in order to manage different types of suppliers most effectively.
Each company is different, but the general categories will be based on price, risk assessment, profit importance to the company, location, and other similar factors. Keep in mind the overall goals of the business when performing this segmentation, as opposed to purely the ease of the procurement team.
Without this crucial step, it becomes impossible to fine-tune the management strategy for different suppliers according to what they offer to the business.
Once suppliers have been segmented into categories that best serve the business, different strategies should be established for these different segments.
It’s important to note that even within strategic suppliers, for example, different management techniques might be required. Where supplier capacity is scarce, their reputation for innovation is high, or their products are of the highest importance to your business, for example, a lighter-touch approach to management will not suffice.
Finally, it is time to put these strategies in place and ensure that the processes exist to monitor and track their performance.
KPIs must be established and agreed upon prior to launch so that Supplier Relationship managers can track the performance of each supplier within their individual segmentation group.
Visibility and continuous monitoring are crucial in order to assess suppliers in real time, allowing for any discrepancies to be quickly addressed or adjustments made to further boost performance.
For truly robust relationship management, procurement needs one centralised information repository where they can get data on all relationships at the touch of a button, including viewing supplier team structure, historic performance data, and the stated goals of the relationship, all in one place.
Centralised real-time data and transparent standardised processes would lower the time and resource required to execute robust supplier relationship management, improving the procurement function’s effectiveness and efficiency, and better supporting the goals of both each individual relationship, and of the SRM project as a whole.
As supply chain disruption increases, effective SRM is becoming even more crucial for global enterprise business.
Vizibl’s SRM solution allows you to:
With Vizibl’s Circles, Teams, and Org Tree functionality, you can map organisation and team structure on both buy and supply side, providing visibility over stakeholders across multiple geographies and OpCos.
View all information about a supplier or partner in one place, from goods and services provided to contract terms, costs, or risk and performance data. Pull in data from anywhere, or request updates from the supplier directly.
Build the foundations for true collaboration by establishing a shared vision with each strategic supplier, documenting your guiding principles and intended behaviours to stay on track delivering against the goals of the relationship.
Support your shared vision with shared strategic objectives. These measurable goals can be attached to projects and reporting elsewhere in Vizibl, ensuring that the work you embark on together stays focused on achieving what you set out to do.
Remove friction from fragmented, incomplete data by consolidating everything in one place, available on desktop and mobile, from anywhere. With custom permissions and enterprise-ready security architecture, your centralised data is always safe in Vizibl.
Vizibl ends the one-sided nature of SRM, allowing suppliers to contribute to the objectives and vision of the relationship and view their own performance, strengthening the relationship and supporting your journey to becoming Customer of Choice.
In addition to Supplier Relationship Management capabilities, Vizibl provides a Collaboration Workspace and Innovation Hub so that procurement can move beyond relationship alignment and management towards actively collaborating with suppliers on projects that support key business goals. Whether it’s sourcing supplier innovation to develop new products and services, increasing business resilience, or addressing scope 3 emissions, Vizibl allows enterprise organisations to tap the true value of their supply base – all on one platform, all Vizibl.
To learn more about Vizibl’s SRM solution head on over to Vizibl Supplier Relationship Management.