Supplier Relationship Management

The concept of Supplier Relationship Management dates back to 1983, when it was first introduced by Peter Kraljic in a Harvard Business Review article. The concept of SRM has since then gained increasing popularity within the business environment and is nowadays a must for all businesses, regardless of the industry they are in.

What is Supplier Relationship Management?

SRM is a systematic approach for assessing a supplier’s contributions to your company by determining which suppliers are performing well and which of them are adding value to your business. The primary purpose of SRM is to foster long-term, reciprocal relationships with your suppliers and therefore end up with a win-win situation.

Supplier Relationship Management Process

Although SRM may be slightly adapted among different industries, the basic principles behind SRM remain the same along different markets. With this in mind, the Supplier Relationship Management process can be broken down into three simple steps:

1. Segment Suppliers: The first step is all about categorizing suppliers according to their influence and importance to the business. The purpose of this step is to identify the key suppliers of the business so that attention can be shifted to them. Yet, that does not mean overlooking suppliers with less significance. It is important to note that different suppliers will have a different impact on your business, either big or small.

2. Develop a Supplier strategy: After identifying and ranking the suppliers according to their importance, it is then important to develop a strategy for each of them. At this stage, it is vital to craft strategies that are beneficial for both you and the supplier – otherwise it is not going to be a long-term partnership. Furthermore, make sure that you put a risk management plan in place in the case that something goes wrong. This can be as simple as having another supplier in mind in case of any issues with your current supplier.

3. Execute strategy and improve relationships: The last step of the process comes along and it is where all the magic happens. As the strategies previously developed roll-out, it is important to watch out for any issues or problems arising along the way. Moreover, it is important that you are crafting a strong relationship with your supplier that promises a long term partnership rather than a short-term exchange.

Benefits of SRM

Long-term partnerships with suppliers have proved to be incredibly effective and beneficial for organizations. Some of the most frequently noted benefits are:

  • Increased  efficiency and productivity  arising from better communication and cooperation with your suppliers
  • Supplier-led innovation through open communication and share of ideas
  • Minimization of price volatility due to less fluctuation in commodity prices from your suppliers
  • Reduction of costs due to deals with suppliers
  • Trusting partnership that allows the outsourcing of some of your operations
  • Ongoing improvement achieved by sharing feedback and ideas.
  • Risk mitigation by better managing and avoiding disruptions in supply chain
  • Increase customer satisfaction
  • Enhanced employee motivation and morale
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