Supplier relationship management seems—at first blush, anyway—to be straightforward: Define what you want and need from suppliers, and then manage the company-to-company interactions to ensure your organization receives the goods and services it needs. The problem, however, is that with global supply chains, there can be thousands of suppliers, potentially making supplier management cumbersome.
“Studies show that when procurement teams successfully align with key suppliers, the result is improved innovation, quality and reliability, as well as cost/price reductions and better risk reduction agility,” says Mickey North Rizza, a vice president at analyst firm IDC.
Writing recently in Inside Supply Management magazine from the Institute for Supply Management, she offered several suggestions to help improve SRM. The first is to remember that the relationship is the focus. Indeed, earning your suppliers’ trust with honest communication, listening to concerns and involving them in your processes ultimately makes them a vested partner in your business, Rizza writes. The problem, she adds, is that too many organizations subscribe to the “do as I say” approach when working with their suppliers, and continuously ask for more without engaging the supplier’s own viewpoints. That naturally leads to relationship challenges, she explains.
The second principle is to remember a relationship should be mutually beneficial. Key to SRM success is making sure there is alignment between buyer and seller, Rizza writes. That includes working to ensure suppliers have the same definition of performance that you do; reconciling data used by a buyer and a supplier; and making sure suppliers support your business drivers, she explains.
It’s also important to remember that trust is critical for relationship success. That means the buyer and supplier should share ideas without being compromised, and mutually work toward the betterment of the relationship, Rizza notes. Trust is earned over a period of time, across multiple individuals and departments, and it must be constantly nurtured, she explains.
It’s also vital to make transparency and openness key characteristics. The openness must work so that both parties benefit from the relationship, Rizza says. “Opening up about the vulnerable portions of your respective businesses allows the flow of communication to evolve from simply solving problems to designing and enhancing partnerships to deliver great value,” she observes.
Another key principle to remember is that compatibility delivers the greatest opportunities. Of course, not all buyer-seller relationships will really be highly compatible—and some relationships are destined to flounder or even fail, Rizza writes.
“Compatibility needs a common ground, typically found in each partner’s corporate objectives, ethics, mission statements and governance models,” Rizza writes. “Working hard to find that compatibility can yield big benefits for both parties.”
Finally, keep in mind that spend management is only half the technology equation. The technology needed to support SRM is more than the standard procurement software for spend analysis, sourcing, contract management, procurement and performance management, Rizza writes. The other half of the technology equation involves tools that make it easy to view and analyze suppliers.
“It’s about risk management and mitigating delivery, compliance or financial issues, as well as managing critical pathways to a successful partnership,” Rizza writes, adding that procurement related technology vendors are finally starting to invest in these SRM capabilities.
“Managing a great relationship is the art of maintaining a successful supplier relationship through the supplier’s full life cycle with your business,” Rizza concludes. “Remember: Suppliers can’t grow their own businesses without successful clients.”
What are your thoughts on supplier relationship management? What do you see as the biggest challenge?