When pundits declared that customer experience is the new battlefield, many industries responded by investing heavily in solutions and services that can elevate their customer relationship management (CRM). But businesses should also consider the opposite end of the spectrum – that is, the supplier end – to stay ahead in today’s dynamic marketplace.
Building stronger relationships with suppliers is as significant, as crucial, and as complex as building relationships with customers. Like customers, suppliers have unique requirements and expectations that buyers should meet to sustain the relationship. Without a positive buyer-supplier relationship, it can be difficult for buyers to ensure that they will remain their supplier’s top priority.
Surprisingly, however, a mere 16% of organizations “have a corporate strategy and process in place to manage supplier relationships” while 30% have “no process at all for supplier relationship management” according to a 2016-2017 Capgemini report. A vague understanding of what supplier management or supplier relationship management entails could be one of the reasons why it is not as widely adopted and practiced.
Supplier relationship management (SRM) is viewed by many as a relatively young discipline and a mere component of supply chain management (SCM). You can learn more about SCM in one of our earlier blog posts. But experts say that supplier management has been “explained either by ‘logistics’ and ‘joint operations’ or by similar expressions.”
The Birth of SRM
The birth of supplier relationship management can be attributed to Peter Kraljic when he encouraged businesses to be more strategic and intensify their supply management. Kraljic underscored the significance of effective supplier relationship management in achieving this goal. But according to another study, SRM adoption and use began in the 1990s to streamline businesses.
Many businesses that were ahead of the curve in realizing the benefits of SRM have developed and implemented solutions for enhancing collaboration and accelerating transactions. Walmart, for one, has employed a unified computer system that helped build integrated value chains. According to Jared Hansen, this initiative “resulted in an inter-organizational competitive advantage for both the retailer and the manufacturers.”
The Essence of Supplier Relationship Management
Supplier relationship management is a dynamic and all-embracing approach to handling interactions between buyers and suppliers, using integration and other SRM solutions, with the goal of streamlining all supply chain information flow, creating value from the relationships, reducing supply chain costs, and providing consumers with above par products and/or services.
SRM is dynamic because it evolves with ever-changing supply chain and supplier roles. According to the same Capgemini report, the global supply chain and the role of suppliers are changing due to the following “mega trends”: digitization and technological adoption, differentiated customer experience, fight for resources, and persistent threat of insecurity. These trends shifted the SRM perspective from cost management to value creation and from transaction-based relationships to collaborative supplier relationships.
SRM is all-encompassing despite being viewed as a mere element of supply chain management. It penetrates every supply chain function and process to ensure that there is no information gap that can imperil the entire value chain. It involves different tiers of supply chain stakeholders to ensure a comprehensive exchange of business propositions.
The Benefits of SRM
When implemented strategically using class-leading integration and other SRM solutions, supplier relationship management can result in the following competitive advantages:
- Although the goal of supplier relationship management is to enhance communication between buyers and suppliers, today’s SRM solutions are designed to enable a “talk less, deliver more” approach. Traditionally, buyers have to devote a significant amount of time to transact and bridge the gap between suppliers and consumers. But with integrated procurement platforms such as the Ariba Supplier Network that connects nearly 2 million suppliers and 400 buyers globally, transactions are now digitized and accelerated.
Improved spend control
- According to Chartered Institute of Purchasing and Supply, 60% of corporate spend is uncontrolled. With an effective supplier relationship management in place, businesses can centralize procurement and avoid fragmented sourcing processes that often result in higher spending. SRM allows businesses to pool the purchasing habits of every department by integrating all procurement data, which can be analyzed for smarter decision making on how to control spend. So even before buyers communicate their needs with their suppliers, they have already proactively identified all their needs and eliminated redundancy.
- Cost reduction is a key business strategy—at least that’s the consensus of 74% of surveyed Chief Procurement Officers (CPOs), according to a Deloitte report. Enhancing supplier relationships is a useful strategy for reducing supply chain costs. Using an effective SRM solution, for example, buyers can gain insights into supplier performance, processes, and best practices that directly and indirectly affect supply. By understanding how suppliers work, buyers can avoid making untimely and inappropriate requests that can lead to delays, sub par substitutions, or worse, denial of accommodation. The time and money spent on making the request could have been better spent on the supplier that can perfectly deliver. This is where supplier segmentation comes in.
- Enhanced collaboration between suppliers and buyers can spark further innovations beneficial to all supply chain players. Armed with a deeper understanding of how each player works, buyers and suppliers can work hand in hand to optimize product and service development and satisfy customer demands. Aside from this, suppliers can also contribute to innovating SRM platforms, in the same way that Walmart suppliers jointly optimize the Retail Link database.
But to fully capitalize on SRM, businesses should implement effective supplier relationship management best practices.
Maximizing the Benefits of SRM
The two most important best practices that buyers should consider are integration and supplier segmentation.
Buyers should ensure the they have full visibility into and understanding of their supply chain requirements before they build short-term and long-term supplier relationships. They can only do so if they ensure that there are no application and data silos existing anywhere in their systems. Supplier relationship management requires enterprise application and data integration that allows the unification of internal and external business processes, technologies, and data. With a fully integrated system, SRM processes can be comprehensively streamlined and buyers can be more professional in relating with their suppliers. This can also help them proficiently segment their suppliers.
According to HfS Research, supplier segmentation can allow buyers to “align engagement with targeted business results.” Supplier segmentation strategies can vary from industry to industry depending on their needs. For example, financial services firms employ risk-based segmentation, while healthcare providers base it on “alignment to the business strategy [whether it is] strategic, operational, transactional or tactical.”
Although regarded as a young discipline, supplier relationship management should be a cornerstone of supply chain strategy. With effective supplier relationship management, buyers can optimize supply management and ensure that they can optimally operate and deliver a superior customer experience.
Supplier information can be very complex to handle, which can negatively affect insights generation and decision making. This can be addressed by leveraging the OpenText ALLOY™ Platform, which is designed to help businesses address integration and data management complexities via its managed services approach.
To learn more about the OpenText ALLOY™ Platform, contact us here.