Supplier relationship management or SRM

Supplier relationship management (SRM) is the systematic approach to evaluating suppliers who supply goods, materials and services to an organization, determining each supplier’s contribution to success and developing strategies to improve their performance.

SRM discipline helps determine the value that each vendor provides and which ones are most critical to business continuity and performance. It also enables managers to cultivate better supplier relationships based on the importance of each supplier.

Supplier relationship management is used by supply chain professionals who deal regularly with suppliers in areas such as procurement, project management, and operations.

Sometimes called supply chain relationship management, SRM is one of the many disciplines of supply chain management (SCM) . It is similar to supplier management and procurement processes, but there are key differences. Vendor management generally focuses on establishing costs and service level agreements between the organization and its vendors, while procurement focuses on purchasing itself (i.e., ordering, contracting, billing, and paying).

Objectives of supplier relationship management

Although different industries have different categories of critical suppliers and each organization has its own unique combination, the overall objective of SRM remains the same: to streamline and improve the processes that take place between the organization as a buyer of products and services, and the companies. that supply them.

Similar to the way that customer relationship management (CRM) is intended to streamline and improve processes between a company and its customers, SRM aims to develop a mutually beneficial relationship between the organization and its suppliers, especially those that are considered more strategic to the organization’s brand. It is also intended to promote quality, efficiency and innovation. A successful SRM discipline seeks not only to save costs, but also to maximize the value of suppliers to obtain a competitive advantage in the market.

Managing supplier relationships has become increasingly important as buyer and supplier networks become more global and interdependent and companies rely more on strategic suppliers. SRM creates a framework to identify strategic supply partners and organize the life cycle of the relationship. Their practices create a common frame of reference to enable effective communication between a company and suppliers and to measure supplier performance.

Some vendors are more critical to business continuity, operational excellence, scalability, and ultimately profitability. For example, a smartphone manufacturer’s stationery supplier has little influence on profitability, but its main electronics supplier has a big impact, making it a key strategic partner. Any risk to the electronics manufacturer’s operations is a significant risk to the smartphone company.

Supplier relationship management tasks

To achieve its goals, an organization’s SRM program must have a strategic focus – articulating objectives and devising a plan before addressing providers – rather than being reactive and engaging providers in an ad hoc way or in response to problems. individuals.

Business leaders who take a strategic approach, for example, may determine that long-term commitments with specific suppliers are preferable to ensure continuity of supplies, while short-term relationships with other suppliers can better ensure business agility and flexible pricing.

An effective SRM strategy also requires cultivating personal relationships with suppliers and working to build trust and mutually beneficial partnerships where appropriate. That could mean involving them in planning key initiatives or jointly developing innovations.

Leaders involved in SRM must also work to align everyone in their organization with the goals of the SRM program and ensure that its objectives are met. They must also have a process to determine the value that the SRM program returns to the organization.

Supplier relationship management process

SRM-related strategic sourcing processes can vary from organization to organization. However, SRM generally involves three broad steps:

• Segment providers. In this critical first step, the organization identifies all of its suppliers and categorizes them by their importance to the business, thus ensuring that the suppliers most critical to success receive the appropriate amount of attention.
• Develop a supplier strategy. In this step, the organization develops a tactical plan for how it will work with each vendor or vendor category to ensure that relationships are successful and mutually beneficial. Organizations should start with the vendor category that is considered most critical, but recognize that all vendors play a role in success and therefore also deserve a strategic approach that involves governance and performance management models to align. business processes and assign stakeholders according to business objectives.
• Execute the supplier strategy. Executives who have the discipline of SRM in the organization must ensure that the strategy is put into action and that they or the managers take on the daily tasks to implement the SRM plans. They must also devise ways to monitor and measure the success of SRM, as well as identify gaps and points of failure in the SRM strategy or its execution.

SRM use cases

Organizations have reported numerous use cases for implementing SRM, noting that discipline helps them to:

• make better use of the capabilities of providers;
• reduce costs;
• ensure the continuity of the supply chain;
• limit supply chain risks;
• increase the response capacity of providers; Y

gain visibility into future prices and guard against price volatility.
Consider the findings in a case study published by State of Flux, a management consulting firm that specializes in global procurement and supply chains. The United States Postal Service decided to update its SRM governance model in 2018, although its SRM was already considered mature. The USPS optimized its vendor rating system from nine to four standard metrics for timeliness, quality, cost, and innovation that apply to each vendor. However, relationship managers assigned to individual vendors have the flexibility to add optional metrics for factors such as corporate social responsibility (CSR).or the quality of specific product categories like software. Providers participate in the SRM process through various mechanisms, including membership in a provider council.

SRM challenges

A 2020 survey of 715 supply chain decision makers for a report, ” Supply Chain Resilience in a Post-Pandemic World ,” conducted by Jabil, a manufacturing services company, and Dimensional Research found that 70% of those surveyed experienced outages due to the COVID-19 pandemic, while 44% indicated supply restrictions and 35% faced global trade and tariff issues. Additionally, 95% of those surveyed said their business was affected by a shortage of components.

Such findings speak to the importance of having a strong SRM program, yet other research also points to the many challenges in achieving that goal.

Challenges that can hamper supplier relationship management include the following:

• overemphasizing their use to reduce costs rather than cultivate value and strategic links;
• lack of visibility of suppliers, their importance to the organization and the value they can offer; Y
• Insufficient commitment to develop clear objectives for the program, assign and train staff to execute it, and align business units with objectives.

Software SRM

SRM software offers a variety of features that enable a robust vendor management operation, including the following key features and capabilities:

• contact and communication management;
• invoices and requisitions;
• order histories;
• planning;
• performance analysis;
• procurement intelligence, including supplier risk management;
• product life cycle management , such as portfolio strategy management;
• catering;
• vendor data management, including vendor request validation;
• supplier performance management;
• contract management;
• catalog management;
• operational acquisitions, such as purchase order processing; Y
• external resources, such as product specifications.

SRM software vendors include Coupa, GEP Software, Intelex, SAP (including SAP Ariba), and Taulia.

SRM history

The emergence of supplier relationship management is attributed to Peter Kraljic, director of consulting firm McKinsey & Company. In an article titled ” Purchasing Must Become Supply Management”, published in the September 1983 Harvard Business Review, discussed vendor base segmentation and mapping into two key dimensions: risk and return. Kraljic wrote that for organizations to deal with risks, complexities, and possible disruptions in supply and prices, “management must learn to make things happen for its own benefit. This requires nothing less than a total shift in perspective: from purchasing (an operational function) to supply management (a strategic one). ”Others built on Kraljic’s core idea to develop SRM, and the discipline has continued to evolve to as technologies and processes change and mature.