Almost 68%1 of CPOs state that supplier management will be their top priority going forward for achieving strategic business outcomes. This makes most sense, as effective supplier relationship management (SRM) enables businesses to get deeper insights into pricing trends, raise profitability, and improve their cost baselines—at times, by 5–10%2—by innovatively collaborating with their suppliers.
Yet, nearly 49%3 of procurement managers have failed at transforming their supplier relationships. So, how can you avoid their fate and gain greater visibility into your suppliers’ relationships to ensure long-term success?
The Problem With Supplier Relationships
Regrettably, supplier relationships are often marred by an over-emphasis on cost-cutting and a lack of trust. To add fuel to the fire, communication gaps and misalignment of goals worsen this relationship further.
So to effectively deal with these challenges and ensure greater supply chain continuity, firms must focus on building strategic and value-based ties with their suppliers.
5 Strategies for Building a Resilient Supplier Management Framework
Strong supplier relationship management (SRM) entails a structured approach to evaluating diverse vendors and their strategic importance to the firm. Firms can configure successful supplier relationship management by adopting the following strategies:
Segment Your Suppliers Per Their Relative Importance
- Supplier segmentation, i.e., the practice of classifying suppliers into different categories based on their strategic importance to the firm is the most fundamental step of effective supplier management.
- Generally, managers default to the Kraljic Matrix for undertaking supplier segmentation. It assesses suppliers on their profitability and risk, classifying dealers with a high-profit impact and higher risk as strategic and relegating others as transactional.
- Alternatively, you can also opt for the Pareto principle, which necessitates that 20% of suppliers must account for 80% of buyers’ spending.
- Essentially, the goal is to direct your resources to the suppliers with the highest impact.
Create A Supplier Management Framework
- To foster solid collaborative relationships, firms must design a governance framework, which clearly defines the goals, objectives, and responsibilities of both the suppliers and the buyers.
- Clear communication lines should also be established to ensure all parties are on the same page at all times.
- Moreover, you must develop detailed contracts that clearly outline your expectations about quality parameters, lead times, and payment terms.
- Finally, you should have a risk management plan in place to help tide over unforeseen circumstances, such as supply chain obstructions (like COVID-19) or supplier failures.
Establish KPIs for Monitoring Supplier Performance
- The key to efficacious supplier performance management lies in establishing key performance indicators (KPIs), such as defect rates, order accuracy, cost savings, etc.
- These KPIs can vary per segment and must be continuously monitored to remain cognizant of any supply chain risk (cue-Suez canal crisis).
- You can, additionally, arrange periodic meetings at various executive levels to discuss strategy and goals, track performance, and clear roadblocks.
Be A Good Customer, Pay Your Suppliers on Time
- Supplier relationship management is not exclusively restricted to what suppliers can and should do for you.
- It also entails buyers keeping their end of the bargain by making payments as per the agreed terms.
- Firms must strive to pay on time unless constrained by exigencies—in which case, effectively communicating your limitations is the path to tread.
Leverage Technology for Better SRM
- Tech-driven solutions, like SRM software, aid supplier management by offering a comprehensive overview of suppliers and their risks.
- They can further augment your supply chain and digitize procurement by automating daily operations, simplifying onboarding, and providing extensive inventory management visibility.
Unlock the Potential of Your Supplier Relationships with Moglix
Effective supplier relationship management is indispensable for firms looking to cut costs, improve bottom lines, and add value to their supplier relationships. And Moglix is the perfect go-to collaborator that can help you achieve this and more—as it has done already for an automotive OEM.
Moglix’s supplier consolidation solution assisted the OEM in resolving the difficulties of a fragmented supplier base, bad credit terms, and working capital blockages, resulting in a colossal 2% cost savings! Download the case study to learn the finer details.