What is Supplier Relationship Management?

Supplier relationship management (SRM) is the process of identifying the suppliers that are critical to a business and implementing a system of managing relationships with those key suppliers. As supply chains become more complicated, the need to develop clear, measurable ways to evaluate how every supplier either contributes to or detracts from the success of a business is more important than ever before.

SRM is part of an overall supply chain management strategy focused on optimizing efficiencies in a way that is beneficial to all parties. SRM is often referred to as the business-to-business equivalent of customer relationship management, or CRM because many of the principles used in CRM are transferable to the relationship between suppliers and purchasers.

Identifying key suppliers often means creating a supply scorecard — an in-depth analysis of every supplier affiliated with your business. Supplier scorecards are used in a wide range of industries to develop, and maintain, a profitable, metrics-based supply chain.

Benefits of Supplier Relationship Management

The goal of SRM is to leverage relationships with suppliers in order to build value and profitability for a business. Done right, supplier relationship management can reduce wholesale costs, improve efficiency and eliminate redundancies in the supply chain.

Reduced Costs

Optimizing supply chain management practices can dramatically reduce the costs associated with establishing relationships with new suppliers. Sourcing new suppliers, sampling products and negotiating contracts is a costly, time-consuming process and mistakes made can undermine the growth of a company.

Pinpointing existing suppliers who have the capacity to meet the current and future needs of a company can mean stable costs and a reliable supply chain — two critical factors in the profitability and sustainability of any business.

Increased Efficiency

Identifying supplier relationships that align with corporate goals can also lead to increased efficiency. As with every type of healthy, mutually-beneficial relationship, communication improves over time. Suppliers gain a clearer understanding of the specific needs of the businesses they work closely with, and that helps eliminate supply chain delays. If issues should arise, having an established relationship can make troubleshooting a relatively pain-free process.

Stable Pricing

Using a supplier scorecard is a key part of supplier relationship management because it quickly highlights the various pricing strategies used by each supplier.

SRM helps companies spot the suppliers who offer fixed pricing, which eliminates concerns over cost fluctuations. Analyzing supplier relationships, and focusing on the ones that are most beneficial, can also give companies the leverage to negotiate lower costs in exchange for a longer contract term, higher minimum order levels and other negotiable points.

Supply Team Consolidation

When a company and its suppliers focus on building relationships in a way that works for all parties, companies often decide to shorten their supplier list. Working with fewer suppliers can result in significant, lasting cost savings realized by eliminating the variables and extra processes involved with maintaining a large roster of suppliers.

Examples of Supplier Relationship Management

Supply chain management practices vary widely across all industries. In general, large industries such as automotive manufacturing maintain a rigid set of tools and guiding principles that dictate their approach to suppliers. Given that supplier relationship management is fundamental to the success of the automotive industry, it's easy to understand the critical role SRM has in this context.

Other industries such as retail and food service are equally as dependent on a solid supply chain, but there are far more options when it comes to choosing suppliers. In most markets, companies have a number of suppliers available, all of which offer similar products, pricing and services. While it's easy to dismiss SRM as a practice that's only applicable to big industry, SRM is just as important to the success of small and medium-sized enterprises.

TradeGecko's Free Supplier Relationship Management Tools

Navigating the multiple data streams related to supply chain management can be time-consuming and counter-productive without the right supply scorecard.

TradeGecko's Supplier Scorecard is optimized to provide wholesale and retail companies with real-time information on their suppliers. This free cloud-based tool helps businesses master supplier relationship management by highlighting supplier capabilities, ranking transactions and weighing critical factors to achieve a clear, real-time snapshot of each affiliated supplier.

The TradeGecko supply scorecard lets companies collect and compile critical metrics that can be leveraged to negotiate contracts, leading to lower operating costs. Supplier Scorecard even enables users to set up an early-warning system that provides automated alerts when supplier performance issues arise, helping companies address emerging issues as required.

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