Supplier Relationship Management, SRM is a methodical approach to evaluating vendors who supply an organization with goods, materials, and services, determining each supplier’s contribution to success, and developing strategies to improve their performance. The SRM discipline aids in determining the value that each supplier provides and which ones are most important to business continuity and performance. It also enables managers to cultivate better relationships with suppliers based on the importance of each supplier. Supply chain professionals who regularly deal with suppliers in areas such as procurement, project management, and operations use supplier relationship management.
SRM, also known as supply chain relationship management, is one of many supply chain management disciplines. There are similarities and differences between vendor management and procurement processes. Vendor management is generally concerned with establishing costs and service-level agreements between the organization and its vendors, whereas procurement is concerned with the actual purchase (i.e., ordering, contracting, invoicing, and paying).
Supplier relationship management objectives
Although different industries have different types of critical suppliers, and each organization has its own unique mix, the overarching goal of SRM remains the same: to streamline and improve the processes that occur between the organization as a buyer of products and services and the businesses that supply them.
SRM aims to develop a mutually beneficial relationship between the organization and its suppliers, particularly those deemed most strategic to the organization’s brand, in the same way, that customer relationship management (CRM) aims to streamline and improve processes between an enterprise and its customers. It is also intended to encourage quality, efficiency, and innovation. A successful SRM discipline seeks to maximize the value of suppliers in order to gain a competitive advantage in the marketplace, not just cost savings.
As buyer-supplier networks become more global and interdependent, and companies rely more heavily on strategic suppliers, supplier relationship management has become increasingly important. SRM develops a framework for identifying strategic supply partners as well as organizing the relationship lifecycle. Its practices establish a common frame of reference for effective communication between an enterprise and its suppliers, as well as for measuring supplier performance.
Some suppliers are more important than others in terms of business continuity, operational excellence, scalability, and, ultimately, profitability. A smartphone manufacturer’s stationery supplier, for example, has little influence on profitability, but its main electronics supplier has a significant impact, making it a critical strategic partner. Any risk to the operations of the electronics manufacturer is a major risk to the smartphone company.
Supplier relationship management tasks
To achieve its objectives, an organization’s SRM program must be proactive, articulating objectives and developing a plan before addressing suppliers, rather than reactive, engaging suppliers on an ad hoc basis or in response to specific issues. Strategic enterprise leaders, for example, may determine that long-term engagements with specific suppliers are preferable to ensure supply continuity, whereas short-term relationships with other suppliers can best ensure business agility and flexible pricing.
An effective SRM strategy also necessitates the development of personal relationships with suppliers, as well as the efforts to foster trust and mutually beneficial partnerships when appropriate. This could imply involving them in key initiative planning or jointly developing innovations. SRM leaders must also work to align everyone in their organization with the SRM program’s goals and ensure compliance with its objectives. They should also have a process in place to determine the value that the SRM program brings back to the organization.
