In this article I will give you 5 of my best tip on how to succeed in building strong supplier relationships. Enjoy!
The concept of SRM was first introduced in 1983 by McKinsey consultant Peter Kraljic in a Harvard Business Review article titled ”Purchasing Must Become Supply Management”. “Instead of simply monitoring current developments, management must learn to make things happen to its own advantage. This calls for nothing less than a total change of perspective: from purchasing (an operating function) to supply management (a strategic one),” Kraljic wrote.
In a recent article from SoftCo, they envisage the rising importance of focusing on building strong supplier relationships as one of the most crucial procurement trends for 2019. And I am happy to hear that! I have always been keen on building strong business relations with key suppliers in previous sourcing positions during my career and I find it crucial in order to build profitable and sustainable business setups. It takes effort to create and manage good business and putting that effort in building strong relations with key suppliers is fundamental for achieving long-term, sustainable business and is part of a purchaser’s job.
Furthermore, in a recent report by Deloitte, supply assurance has been identified as one of the largest, growing year-on-year procurement risks. And in order to manage that risk in a fast-transforming society with on-demand supply being the new norm, a focus on supplier management and SRM is fundamental if you want your company’s business to be successful.
So how can you and your purchasing organization secure sustainable business relations and a positive supplier development? Here I give you 5 of my best tip on how to succeed in SRM – Supplier Relationship Management.
#1 Treat your suppliers as partners
Your suppliers are not just vendors. They are your business partners. And this partnership should be based not only on financial transactions, but also on mutual trust, loyalty and respect. I mean, without your suppliers you cannot do much sustainable business as a purchaser, can you? And for some reason the purchasing side is often taught to not be transparent, to not trust a supplier and to not provide enough information due to fear that suppliers will cheat you by charging a too high price. But that is not a very solid foundation to build your business relation on, is it? Price is what you pay, value is what you get. Instead, make your suppliers feel like they are a part of your business. Inform them about your challenges and processes, such as new customer requirements, new distribution setups, growth plans, releases of new products and promotions. Listen to their concerns. Try to find ways of creating mutual advantages. I mean, how many companies do you think treat their key customers just as buyers who order and pay? Excactly, so treating your business partners as partners no matter if it is a key customer or a key supplier is equally important. Your company is dependant on both.
“Instead of simply monitoring current developments, management must learn to make things happen to its own advantage. This calls for nothing less than a total change of perspective: from purchasing (an operating function) to supply management (a strategic one)” // Peter Kraljic
#2 Invest in a dedicated SRM process
Business is managed by people. And people and their soft skills are the core of SRM. So why would it then be essential to have a dedicated SRM process available in the organization? Because a documented process will help to guide your team through the management and administration of suppliers. It is a framework that will create alignment, a common understanding and set the tone of how to handle supplier relations in your organization. It will also help your team in prioritizing time, resources and effort on the right suppliers and secure a professional business approach from an overall company level, a kind of ”this is how we do business in our company-statement”.
A SRM process can consist of many different guidelines like policy documents, purchasing handbooks, agreement templates, supplier classifications, supplier development tools, preferred supplier lists to mention just a few. The importance is that the SRM process you choose to implement in your company is efficient and applicable on your specific business demands and supplier base.
#3 Get everybody onboard
Having a Supplier Relationship Management process in place is important but getting everybody in your organization on board is critical. It is the difference between failure and success. And here the soft factors come into the picture, where guidance, coaching, leadership, employee trainings and managers acting like role models are essential for obtaining a successful result. And I am not only talking about the purchasing functions here, I am talking about all stakeholders having any kind of a supplier relationship in the company. Product development functions, design functions, operations…all stakeholders. The purchasing function should own and lead the process but it requires support from senior management who needs to stand behind the direction.
For communicative purposes I recommend to create a flowchart or deck explaining the process to your team and stakeholders, so everyone knows their duties, responsibilities and can recognize if something goes wrong in the workflow.
#4 Invest in efficient technology
Even if business is made by people, investing in efficient supplier management software is undoubtedly valuable for any company. You don’t have to invest in a massive top notch digital solution, but adapt the software to your business needs and take help from companies who has digitalisation and IT solutions as their core business. They are there to help you, not to cheat you.
By having the right software in place, you can easily keep track of information about your suppliers’ performance and development in one place and by that saving many working hours. Instead of wasting time and energy to find numbers and create statistics, you can concentrate your effort on actually making value of the information, to develop the business further and look for new opportunities.
Definition of SRM:
Supplier relationship management (SRM) is the systematic approach of assessing suppliers’ contributions and influence on success, determining tactics to maximize suppliers’ performance and developing the strategic approach for executing on these determinations. It helps to create positive buyer-supplier relationships and determines which activities to engage in with each supplier. Supplier relationship management is used by supply chain professionals involved in areas such as procurement, project management, strategic sourcing and operations where these professionals regularly deal with suppliers. SRM includes both business practices and software.
#5 Have a constant and close dialogue with your business partners
Make sure to have regular communication with each of your key suppliers. And the communication should not only be about price, but keep them informed and up to date. Share your strategy and plans so that they know where they fit in and how they can help, plan for and benefit from those plans. Again, talk to them on a wider business perspective and make them your partner. If you appreciate their work, let them know. If something’s not working for you, tell it. And ask how you together can improve your businesses.
I have seen many business cases where suppliers are navigating in total darkness, trying to please their customer’s demands and wishes without really knowing what they are expected to deliver. And many great business opportunites are not realized since nobody knows about them. A pity, isn’t it? I have also seen many purchasers trying to get something out from their suppliers which they will actually never get, because the chosen supplier is not the right partner, the strategic fit is missing. This is why a stronger, deeper supplier relationship with clear, frequent and strategic communication is so important. Instead of mistrusting your suppliers, try to gain their trust and be a little bit more transparent and you will unleash greater business opportunities.
Last but not least…not all suppliers are made equal so think global – but act local. As the world becomes ever more connected, we increasingly find ourselves dealing with suppliers across the globe. And we need to consider cultural differences as well as local rules, laws and terminology when interacting with suppliers. You will never be able to cover all these aspects in a SRM process, so here the ability to apply a pragmatic approach becomes essential. You don’t want to kill the creative businessmanship in your organization by implementing too rigid steering documents and processes, but you want your team and organization to make as good business as possible, right? Hence, a portion of pragmatism is key to succeed in balancing clarity and guidelines vs business creativeness and motivation.
And of course, you cannot partner up with all suppliers but have to select your key suppliers where a mutual strategic fit is present. Which leads us to another subject, the creation of sourcing strategies, which we will touch upon in another article.
//Hanna Notmeijer
How are you handling your supplier relationship management in your organisation?
HDN Consulting can help you and your organisation with SRM and supplier development, please find out more about our services here!