How Supplier Relationship Management Can Pay off during Uncertain Times
In recent times, two uncertain situations have been an eye-opener for procurement companies across the globe. One of them is the outbreak of the Covid-19 pandemic in 2020, and the other one is the ongoing war between Russia and Ukraine which began a couple of months ago. Both these events have ruthlessly exposed the existing shortcomings or loopholes in the supply chain.
Just as suppliers look for reliable procurement client companies, the latter also look for suppliers on which they can bank. This is precisely where the concept of supply chain management comes to the fore. Both the aforementioned events in recent times have made one thing crystal clear: supplier relationship management (SRM) is the key to the stability of a procurement company during uncertain times.
Read on to know more about supplier relationship management, the reason for its importance, and the ways in which it benefits companies in the supply chain.
What is supplier relationship management?
In a nutshell, supplier relationship management (SRM) refers to integrating the right tools, resources, processes, and technology solutions to create loyal and robust business relationships. Its processes relate to the monitoring of the key performance indicators (KPIs) of a company’s suppliers.
Why is supplier relationship management so important for the supply chain?
The significance of supplier relationship management becomes evident from the definition of a supply chain. A supply chain is an extensive network that exists between suppliers and their client organizations.
Supplier relationship management is a vital component of supply chain management which, apart from procurement, is also related to project management and operations. In a general sense, companies that depend on timely delivery of supplies attach importance to supplier relationship management as it indirectly influences the supply of materials for manufacturing. The yearly turnover of a company depends on the manufacturing output. To achieve their targeted business outcomes, procurement firms look for ways to improve their performance based on supplier relationship management.
How supplier relationship management benefits a procurement firm during uncertain times
In a business sense, uncertain times refer to sodden situations that land procurement companies into a challenging situation. Intense competition and changing market dynamics push procurement firms into such a situation.
At the outset, SRM looks like a tricky concept. However, there are ways to manage supplier relationship management successfully. All it takes is the formulation of a far-sighted and long-term strategy by considering all ends. To do so, a company needs elaborate planning with attention to detail across all operational segments.
Leveraging supplier relationship management proves to be beneficial for a company in difficult situations. Here’s how it benefits a procurement company and its professionals during uncertain times.
- Improves cost management
In general, the budget of a business organization influences its decisions. It is all the more important for companies that seek supplies. Procurement professionals look for sourcing solutions at a lesser cost. This move helps a company exercise control over its expenses.
After saving a certain amount of money this way, a business organization can use it for other purposes. Cost management is crucial for meeting profit targets annually. Excessive spending can sometimes cancel out the effect of profits over a certain duration. An effective supplier relationship management strategy minimizes the cost of competition and also leads to logistical cost savings.
Efficient cost management in the procurement of supplies ultimately boosts a company’s operational efficiency.
- Streamlines operational efficiency
The effort and time a procurement company puts into obtaining supplies from its vendor set the benchmark for its operational efficiency. It plays a vital role in developing mutually beneficial business relationships with a fixed number of suppliers, which eventually culminates in excellent supplier relationship management. Also, it leads to the consolidation of items. Better consolidation optimizes the use of time and effort, which is a precondition for streamlining the operational efficiency of a procurement firm.
As a business organization grows with time, it collaborates with a wide range of suppliers. The continuation of this process for a long time widens the supplier base of a company. While it can make supplier relationship management look a bit complex, it also maximizes a company’s engagement with its suppliers.
In the hour of need, a company feels the need to segregate its high-performing buyers from the ones that are less competent. SRM gives a supply-seeking company an opportunity to interact with suppliers and find out how the latter can benefit the former.
When there is a huge demand for specific supplies, business organizations tend to narrow down the list of suppliers and rely on the ones that are the most reliable. A good understanding of reliable suppliers enables a procurement firm to pick and choose the best suppliers in a quick time. Receiving on-time supplies is the little secret behind maximum output based on operational efficiency.
- Consolidates the supply chain
Price volatility is one of the major factors that affect the stability of the supply chain. It helps minimize price fluctuations which enable the prices to remain more or less fixed at the subsequent stages without too many alterations. Sometimes suppliers may feel the compulsion to increase costs for supplies from their end due to the market dynamics. Under such circumstances, knowing the financial situation of a loyal customer enables a supplier to offer the best deal.
As a measure to mitigate price-related risks, a procurement firm can share its SRM reviews with its suppliers. Such reviews encourage suppliers to formulate the best deal to help their procurement clients overcome price-related challenges. In addition, such reviews also encourage suppliers to enter into long-term agreements with their clients.
Oftentimes, an abrupt situation creates complications for procurement firms in two ways. Aside from price fluctuations, it may also put a procurement firm in a situation involving stiff competition from its competitors. A long-term agreement with suppliers saves time, money, and hassles for procurement companies in the hour of need. Not only does it reduce the price-related competition, but it also keeps suppliers aligned with their customers, thereby allowing procurement companies to stay afloat even when they have a hard time.
- Fosters strong and long-term business relationships
Nine out of ten times, suppliers and customers have differences regarding how they operate. More often than not, the difference in the work culture of both parties gives rise to disputes or differences. Not settling the differences or disputes or keeping them pending can affect the partnership between customers and suppliers in the future.
A strong supplier-customer relationship based on the foundation of SRM can help address this problem. It enables both suppliers and customers to understand the work culture of each other. The more they get acquainted with the work culture and operational practices of one another, the better. A continuation of this process for a long time reinforces the foundation of a strong business relationship based on mutual trust and respect for each other.
In unfavorable situations, a strong supplier-customer bonding prevents misunderstandings and distrust from making their way into their relationship. As a result, they are likely to stand by one another and face challenging situations together as business partners.
- Maximizes outsourcing potential
Just as suppliers do their best to maintain a good relationship with their customers, the latter also try to do the same with the former. When it comes to procurement, firms look for ways to strengthen their relationship with suppliers for a good reason. As a major benefit, a healthy relationship with suppliers boosts the outsourcing potential of procurement firms which maximizes the scope of what a supplier can do for their customers.
For instance, a supplier can hold the inventory of their customers at no additional cost. Multiple instances of holding the inventory of procurement firms help the companies save money from both logistics and warehousing. In the long term, it can prove to be a smart cost-cutting measure for such firms, which becomes all the more important in critical situations.
Use the Automation Technology to Manage the Relationship with Suppliers
Supply chain operations involve multiple processes and applications. Streamlining them is essential for achieving targeted goals. Automation technology proves to be helpful in this regard. It boosts the efficiency of a procurement firm by connecting different applications with one another and syncing their data. In addition, it also helps streamline various processes.
The supply chain uses digital technologies to enhance the efficiency of the operations linked with it. From automating manual and menial tasks to ensuring transparency, automation has multiple benefits from the standpoint of supplier relationship management.
Automation helps a procurement firm exercise control over supplier relationship management which pays dividends in uncertain times. The best way to deploy automation solutions is to use a dedicated software program.
From the above, it stands out that supplier relationship management bails a procurement company out of trouble in many ways during uncertainties. Deploying automation solutions is the best way to reap the benefits of SRM for such a company.