The Importance of Supplier Relationship Management (SRM)

The actions taken by suppliers and other trading partners are one of retailers’ most common supply chain blind spots. A supplier’s decisions create a ripple effect throughout the supply chain, making supplier relationship management (SRM) vital for maximizing the partnership’s value.

Supplier management is the process of interacting with the third-party vendors that supply your company’s goods and products. Optimizing these relationships can be challenging because of the growth of the global economy and increasing customer demand for faster response times.

Managing supplier relationships is crucial to your retail company’s success; therefore, it’s beneficial to have an efficient supplier management system in place. By managing your supplier relationships effectively, your company can grow, optimize its workflows, and deliver high-quality, reliable service to its customers.

Here are a few ways your relationships with suppliers impact your operations:

1. Streamlining Operations

Delivering orders correctly and as efficiently as possible is essential for boosting your company’s productivity and satisfying its customers. The more efficient your operations are at each point in the supply chain, the faster you can get orders to their destination, which reflects well on your company’s brand.

Improving supplier relationships may help your retail company determine opportunities for streamlining its processes and driving efficiency. Leaning on your suppliers’ expertise in manufacturing and shipping can help your company reduce product waste, forecast more effectively, and save money. Enhancing your supplier relationships could also make suppliers more willing to help you find solutions tailored to your company’s needs.

2. Strengthening Your Supply Chain

Issues like production shortages, shifts in customer demand, and poor supply chain optimization can affect a company’s supply chain, leading to slower fulfillment and dissatisfied customers. A 2021 survey found that supply chain disruptions and shortages were the biggest challenges facing companies’ supply chain management. With these difficulties at the forefront of business concerns, strengthening supplier relationships and building long-term partnerships with your company’s vendors are vital.

Making suppliers an integral part of your supply chain strategy mitigates challenges like poor communication, inaccurate forecasting, and bottlenecks. By collaborating with your suppliers on supply chain management best practices, your company can reduce the disruptions that could affect its ability to meet customer orders.

3. Reducing Expenses and Maintaining Revenue

Limiting expenses while delivering high-quality products is essential for improving your company’s value chain. An ineffective supply chain often creates unnecessary overstock and storage expenses. Supplier inefficiencies can also create stockouts, leaving dissatisfied customers to decide if another company can meet their needs better, and resulting in potential revenue loss.

A closer relationship and more effective communication with your suppliers can help your company improve its forecasting and reduce unnecessary costs. By partnering with your suppliers to reduce lead times and enhance forecasting, you can improve inventory visibility across the supply chain. Long-term supplier relationships may also provide your company with discounts.

4. Driving Innovation

Companies can approach supplier management in one of two ways:

• Reactively: A reactive approach only tackles challenges when they occur, often playing catch-up after a complication negatively impacts the supply chain.
• Proactively: Being proactive when managing your supplier relationships gives your company more power to prevent disruptions and maintain a competitive edge.

Thinking proactively enables your team to predict potential challenges before they occur, like seasonal shifts in demand, and partner with suppliers to develop solutions, like adjusting order volume. A stronger supplier relationship allows you to cultivate effective supply chain strategies and create new efficiencies.

5. Managing Supplier Risk

The supply chain is always vulnerable to risks outside of your control. Natural disasters, world events, recessions, and disruptions at other points along your supply chain sometimes happen. Suppliers may also pose financial, cyber, or security risks to your company.

Continuously monitoring risk is essential for mitigating challenges as best you can before they impact your customers. Improving supplier management makes monitoring risk easier. Enhancing communication with suppliers allows your company to predict and reduce risks and develop solutions.

The Supplier Relationship Management Process

The details of vendor relationship management differ between companies and relationships, but the steps overlap. You can start to build long-term relationships with suppliers by following these steps:

Analyze Supplier Value

The first step in managing your supplier relationships is determining the value each one brings to your partnership. Some suppliers may be more strategic for your business objectives than others. The suppliers that significantly impact your company’s profits include those that provide your best-selling, highest-quality products and those that offer inventory at the lowest cost.

There may not be one perfect supplier for your company — one might provide the best lead times, while another offers the products you need at the lowest price. To gain more flexibility and risk protection in their operations, many retailers implement a supplier diversification strategy.

Implement Collaboration Practices

Collaborating enables retailers and suppliers to synchronize their operations and streamline the supply chain. Retailers develop collaborative practices to increase the flow of information with suppliers and gain the most value from their trading partnerships.

During this stage of the supplier management process, retailers generate strategies for increasing the quality and quantity of communication with suppliers. An effective method for collaborating with suppliers is implementing integrated electronic data interchange (EDI) software, which allows retailers to transmit order documents to suppliers seamlessly.

If your company sources from a wide variety of suppliers, you may find that not all your suppliers are, or are able to become EDI capable. In this case, you can choose to mandate EDI or you can invest in a supplier enablement platform that offers features like a web-EDI portal and PDF and email transformation, in addition to EDI support. By choosing a platform that lets your suppliers communicate via their preferred method and translates incoming documents to meet your needs, you can protect supplier diversity without losing productivity.

Design a Supplier Relationship Management Strategy

Whether you need to manage supplier or vendor relationships, strategy is vital. Having a plan for how you will work with the companies that supply your products helps you take the best approach in each situation.

When creating a supplier management strategy, the key points to remember are integrity and value. Communicating genuinely and honestly with your suppliers is crucial, whether about disruptions in the supply chain or new ideas that benefit both companies. Searching for ways to help your suppliers grow and add value demonstrates your genuine interest in helping them flourish.

Monitor Progress

As you implement SRM strategies with each supplier and improve your collaboration, continue monitoring supplier performance to determine which practices are working. Improving your supplier relationships takes time. Continual reevaluation — and response to any concerns — is the best way to promote success.

Many companies use key performance indicators (KPIs) to confirm whether suppliers meet their delivery and quality goals. Your company’s KPIs may look different for each supplier, though you should always communicate them at the beginning of your relationship.

Get Started with SRM

The best time to develop a supplier relationship management strategy is right now. Plus, when you combine your strategy with supportive technology like EDI and supplier enablement, you can take SRM to the next level. For help finding the right technology partner, check out our Supplier Enablement Buyer’s Guide and Vendor Evaluation Checklist. You can also reach out to one of our supply chain experts for a no-risk consultation.

About the Author: Brian Lindner is the Director of Field Marketing at TrueCommerce. He has spent the last 15 years in B2B project management and marketing. His focus is on Vendor Managed Inventory and related eCommerce solutions that help companies save time through automation. Brian enjoys spending time with his wife and 2 kids and in his spare time brews delicious craft beer with his friends.