ERP.com

supplier relationship management (SRM)

By Paul Kirvan

What is supplier relationship management?

Supplier relationship management (SRM) is a systematic approach to evaluating and partnering with vendors that supply goods, materials and services to an organization, determining each supplier's contribution to success, and developing strategies to improve their performance.

Sometimes called supply chain relationship management, SRM helps to determine the value each supplier provides and which ones are most critical to business continuity and performance. Knowing each supplier's importance can help managers cultivate better relationships with suppliers.

One of the many disciplines of supply chain management, SRM is beneficial for supply chain professionals who regularly deal with suppliers in areas such as procurement, project management and operations.

SRM, depicted in Figure 1, is similar to vendor management and procurement processes, but there are key differences. Vendor management focuses on establishing costs and service-level agreements between the organization and its vendors; procurement focuses on the purchase itself (i.e., ordering, contracting, invoicing and paying).

As shown in Figure 1, SRM can facilitate relationships with vendors and suppliers. The SRM system sometimes links to vendors to gather customer data for efficient planning and management. Suppliers may also interface directly with customers, using resources like email and voice communications. When both methods are used, efficiencies can be great and mutually beneficial.

Types of suppliers

Some suppliers are especially critical to a company's business continuity, operational excellence, scalability and profitability. For example, a smartphone manufacturer's stationery supplier has little influence on profitability, but its main electronics supplier has a huge impact, making it a key strategic partner. Any risk to the electronics maker's operations is a major concern to the smartphone company.

SRM can be useful for any of these six types of supplier relationships:

Goals and benefits of SRM

While the types of suppliers that are key to success vary by industry and organization, the overarching goal of SRM remains the same: to streamline and improve the processes that take place between the organization as buyer of products and services and the businesses that supply them. This is similar to the way customer relationship management (CRM) is intended to streamline and improve the processes between an enterprise and its customers.

As buyer-supplier networks become more global and interdependent and companies rely more heavily on strategic suppliers, SRM is increasingly important. Many organizations worldwide have implemented SRM programs, noting that the discipline helps them to do the following:

SRM aims to develop a mutually beneficial relationship between the organization and its suppliers, especially those deemed most strategic to the organization's brand. It creates a framework for both identifying strategic supply partners and organizing the relationship lifecycle and is meant to promote quality, efficiency and innovation. A successful SRM discipline seeks not just cost savings, but to maximize the value of suppliers to gain a competitive advantage and improved brand presence.

Applied properly, SRM practices create a common frame of reference to enable effective communication between an enterprise and suppliers and measure supplier performance.

How SRM helped the USPS

When the United States Postal Service (USPS) decided to update its SRM governance model in 2018, its SRM was already considered mature. The USPS streamlined its supplier rating system from nine to four standard metrics for timeliness, quality, cost and innovation. These apply to every supplier. Relationship managers assigned to individual suppliers have flexibility, however, to add optional metrics for factors such as corporate social responsibility or the quality of specific product categories like software. Suppliers have input into the SRM process through several mechanisms, including membership on a supplier council.

Tasks of supplier relationship management

To achieve its goals, an organization's SRM program must be strategic in approach -- articulating objectives and devising a plan before addressing suppliers -- rather than being reactive and engaging suppliers on an ad hoc basis or in response to particular issues.

Enterprise leaders who take a strategic, proactive approach might determine that long-term engagements with specific suppliers are preferable to ensure continuity of supplies, while short-term relationships with other suppliers can best ensure business agility, flexible pricing and alternate sources if primary suppliers cannot perform as expected.

An effective SRM strategy also requires cultivating personal relationships with suppliers and working to build trust and mutually beneficial partnerships. That could mean involving them in planning for key initiatives or developing innovations jointly.

Senior company management and business leaders involved in SRM must align everyone with SRM program goals and ensure compliance with its objectives. They should be able to determine the SRM program's value.

How supplier relationship management works

Strategic sourcing processes related to SRM can vary by organization, but SRM involves the three steps shown in Figure 2.

Supplier relationship management challenges

In the years since the COVID-19 pandemic, the importance of achieving resilience in supply chains has surfaced often. This highlights the importance of having a solid SRM program that can overcome the many challenges of achieving that objective, such as the following:

Supplier relationship management software

SRM software offers numerous functions that enable a strong supplier management operation:

SRM software vendors include SAP Ariba, Blue Yonder (formerly JDA Software), GEP Software, Intelex Technologies, Oracle, Epicor Software, Iasta, Zycus, Neocase Software, Taulia and Whiztec.

Integration of SRM with related systems

SRM systems are often linked with other systems that support an organization's business operations. Figure 3 shows how various systems may be linked.

Some CRM platforms may embed modules addressing supply chains, transportation and warehouse management, and SRM. Some older legacy systems may be standalone, but the likelihood today is for links among the various applications in a common platform. The various modules can share a common database, and actions taken in one module can initiate actions in one or more other modules. The result for customers is a more efficient experience with minimal bouncing around among different apps.

Supplier relationship management and AI

Use of AI and machine learning is likely to increase with newer releases of the various platforms available. Adding AI capabilities can mean faster results, improved management and performance data, more effective customer management strategies and a better overall user experience.

Learn about top challenges of supplier relationship management and explore 8 key supplier relationship management strategies.

13 Mar 2024

All Rights Reserved, Copyright 2017 - 2024, TechTarget | Read our Privacy Statement