May 6, 2024
4 min read

Supplier Relationship Management Guide: What, Why & How

Discover how to build positive and strong vendor relationships using eProcurement software.

Supplier Relationship Management (SRM) is crucial for successful procurement. However, traditional methods of managing these relationships have been complex, with poor communication and transparency issues.

In this article, we will discuss the significance of supplier relationship management, its impact on purchasing, and how eProcurement systems are transforming this initiative.

Modern Supplier Relationship Management (SRM)

Supplier management is an ongoing process of establishing good relationships with organizations that supply goods and services to your company. This is a strategic method of evaluating which connections bring the most value. Like any relationship, this process requires consistent attention and a systematic approach.

Given modern complex supply chains, companies are moving beyond traditional cost-reduction tactics. Chief Procurement Officers (CPOs) are increasingly redefining existing supplier relationships to better support business needs.

Modern SRM provides a clear framework with aligned management that helps maintain relations at all levels, enhancing transparency and effectiveness.

Effective SRM Process

This is how supplier relationship management works today:

  1. Supplier Segmentation: This step involves categorizing vendors based on specific criteria to identify the key strategic suppliers to engage with. Since not all suppliers require the same level of focus, this selection is vital for good SRM. By doing so, companies can concentrate their resources on the most relevant vendors, often called Tier 1 Suppliers.
  2. SRM Governance: To unlock the value of SRM, companies need to assign supplier relationship ownership and establish an internal governance process. A key element of this step is involving the right business stakeholders in the process.
  3. Performance Evaluation: This step requires a shared understanding of supplier performance based on a common set of KPIs important for business. These indicators usually include cost, quality, compliance, and sometimes innovation. Companies typically manage performance through supplier scorecards, monitoring and updating them regularly.
supplier relationship management (srm)

Closing the loop on these steps ensures a solid foundation for a competitive edge through win-win partnerships with vendors.

Why Is Supplier Relationship Management a Top Priority in Procurement?

In 1983, Peter Kraljic, a director at McKinsey & Company, introduced a new concept to purchasing in his article "Purchasing Must Become Supply Management". He highlighted supplier "diversification" as essential for a consistent supply chain.

Although purchasing strategies and tools have progressed since then, companies still prioritize SRM as they refine their sourcing and acquisition operations. According to the 10th annual Supply Chain Management research conducted by APQC, there's a noticeable shift from transactional procurement towards nurturing strategic vendor relationships that benefit both parties.

Moreover, the increasing focus on sustainability regulations made disclosure a mandatory activity. Companies must disclose and validate their suppliers' sustainability data to avoid potential penalties or supply chain disruptions.

Here are the two key issues that effective supplier relationship management addresses:

  • Strategic Alignment: SRM ensures that vendor interactions align with the organization's strategic objectives, fostering collaboration and growth.
  • Supplier Risk Management: By proactively identifying and addressing supplier-related risks, SRM minimizes the potential for disruptions and enhances procurement resilience.

Ultimately, SRM ensures a smooth supply chain and contributes to your company's bottom line. And yet, can businesses manage strategic relationships with vendors 100% manually?

How eProcurement Platforms Improve Vendor Relationships

In today's ever-changing business world, manual processes rarely keep up with all the twists and turns of procurement. Dealing with mountains of data, needing instant insights, and juggling the ins and outs of supplier relationships often overwhelm teams using traditional methods.

This is where eProcurement platforms swoop in, amplifying vital processes like vendor onboarding, communication, and performance tracking.

Simplified Onboarding

When companies manually pre-qualify vendors, it involves a lot of emailing back and forth — documentation, certifications, NDAs, you name it. These files are then stored on hard drives, copied, and shared among different people in the organization for approval.

Modern digital systems, like Team Procure, offer a much simpler solution for onboarding suppliers. Procurement professionals can create vendor profiles with all the necessary information stored in one centralized system. They can organize the vendor pool based on custom service areas. When it's time for approval, stakeholders in the organization log into the system and review everything they need swiftly.

supplier info cards

Centralized Document Management

Being able to exchange documentation like quotes, contracts, and invoices in a structured environment makes life easier for a company and its suppliers.

Using online platforms, everything is organized and accessible in one place. There's no hassle of searching through emails or folders for the right document, reducing the risk of errors and ensuring that everyone is working with the most up-to-date information.

Plus, features like audit trails provide added security, giving stakeholders peace of mind knowing that the document exchange is reliable.

Enhanced Communication

Conventional methods can lead to fragmented communication, with vital information scattered across emails, spreadsheets, or phone calls.

However, procurement solutions offer a centralized hub for buyers and suppliers to interact with each other. Whether negotiating terms or discussing project requirements, stakeholders can easily communicate using built-in messaging, automated emails, and instant notifications.

As a result, everyone stays aligned, minimizing misunderstandings and speeding up decision-making.

Performance Monitoring

As mentioned, keeping track of supplier performance is critical for effective vendor management. It helps make sure that suppliers meet business standards.

Online procurement tools come with digital scorecards that visually represent vendor performance over time. Users can rate supplier quality based on various criteria, including delivery performance, costs, or reliability, and access or change this data as needed.

supplier performance evaluation

Managers can also share this feedback directly with their suppliers, giving them a heads-up on where to improve. Such a practice is an advantage for everyone, as suppliers become better partners, and buyers become happier customers.

Real-Time Data Insights

Finally, complete visibility over order summaries, pricing agreements, and spending data across multiple suppliers helps organizations respond to negative shifts.

Digital tools make this data readily available and easy to filter as needed. Procurement specialists are able to access historical reports or review individual stats for a specific vendor anytime, anywhere.

With such a high level of transparency, companies quickly identify potential problems and respond promptly to changing market conditions.

Take Your Supplier Management Up a Notch

Building strong relationships with your supplier base is a must-have in today's acquisition game. With digital SRM tools, organizations streamline their supplier relationship management process from start to finish.

Features like document sharing, live data reports, and performance tracking enable companies to turn their suppliers into valuable partners. This eventually leads to increased efficiency and greater business success.

Don't settle for mediocre supplier management — make it your strategic advantage with Team Procure. Schedule a personalized product tour and get access to a 14-day free trial today!

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