Besides the obvious benefits of reduced costs, this has an added benefit of leading to increased efficiency in your overall supply chain, which leads us to our next benefit. The second benefit of SRM is increased efficiency.
Regular supplier reviews often leads to a better understanding of your supply chain as a whole. By consolidating items, reducing multiple vendors, and creating mutually-beneficial relationships with your suppliers, you reduce the time and effort of managing your supply chain. Of course, as you grow, your supply grows both in size and complexity.
Unfortunately, this can mean that companies end up with too many vendors to manage effectively. SRM, then, gives you the opportunity to engage your vendors on how they believe they can add value to your business, creating a win-win buyer-supplier relationship. At the end of the day, your success is their success and vice versa.
The third benefit of SRM is consolidation of the supply chain. This reduces price volatility and creates a more efficient supply chain. By holding regular SRM reviews, you can share your business outlook with suppliers, allowing them to plan for the future.
By working together like this, a supplier is better armed to offer you the best deal possible for as long as possible. This process also lets you create agreements around pricing, such as open book or regular reductions, which alleviates the need for continual competition during purchasing. The fourth benefit of SRM is improved relationships with suppliers.
An often overlooked but very important function of SRM involves understanding cultural norms and differences for better buyer-supplier relationships. Understanding how other cultures conduct business and understanding their values produces trust and mutual respect. And this leads to better relationships. However, this can lead to unpredictable supplier behavior and complications within the supply chain which could, in turn, have numerous negative effects.
Supplier relationship management is, however, complex when you are dealing with multinational supply chains and a base that incorporates thousands of suppliers. Therefore, it can be tempting to focus solely on the suppliers which are perceived to be most strategic and profitable in order to maximize their ROI.
Nevertheless, this can expose your company to greater risk than anticipated. With that in mind, here is some guidance on the benefits for making a business case , the risks of not doing so and some recommended next steps. Organizations that dedicate sufficient time to putting supplier management processes and systems in place for all their suppliers are more likely to reap benefits, such as:.
On the other hand, organizations which do not allow enough time and resources for building meaningful supplier relationships , processes and policies put themselves at risk of:. General guidelines for setting up more productive supply management processes within organizations will vary depending on multiple factors, however, they include:. For now, we will part with some food for thought — you are only ever as good as your suppliers and processes for managing them because the impact they have on your organization and the contribution to your brand and brand value is profound.
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Your data will be handled as detailed in our Privacy Policy. You have completed extensive research into the significance of allocating resources for putting supplier management processes in place and you have the software ready… What now? Every time you introduce a new supplier to your business, you introduce a new element of risk.
The size and maturity of your business will dictate how much time and resource you need to dedicate to supplier risk management but its importance should never be underestimated — even if you only have a few suppliers. Remember, the success of your business is very often dependent on the ability of your suppliers to meet their contractual commitments so identifying and managing poor supplier performance are crucial.
Supplier management allows you to identify potential performance issues, keep lines of communication open and ensure that your suppliers are supporting and working towards your compliance requirements. These are often worst case scenarios but a lack of ongoing management can soon add up to internal issues too, including missed renewals, further unidentified risks and even duplicate spend.
An effective supplier management process should underpin each and every relationship with third-parties. There are a number of activities that belong to a supply management process including:. When an effective management process underpins your supplier contracts, it produces numerous business benefits. These are often mutual and can lead to long-term, stronger relationships with your suppliers.
Below, we take a look at the benefits of supplier management. It also means being aware of their competitors and whether or not they can offer you a more cost-effective relationship.
This gives you the power to renegotiate ahead of renewal dates. Another way to control your costs is to identify examples of duplicate suppliers or services. If these are apparent within your business, you can take a consolidation approach to save money. At the beginning of your supplier management process, you should outline and agree business objectives — making your suppliers aware of their contractual obligations.
By keeping lines of communication open throughout your relationship, you can ensure the terms of the contract are being met and that your suppliers always remain viable. Risk management is a priority when it comes to supply chain management.
If any part of the supply chain fails, you could be left without a critical service. Always maintain communication with your suppliers so you can be quickly alerted to any new, ongoing or potential risks. Regular performance reporting can also help in this area. If these events do occur, involve your suppliers in your business continuity planning and explore whether or not they can help you to make alternative plans. These plans should be made with the objective of obligations still being met.
If your business needs to meet industry standards or exists in a highly regulated sector, you need to work with suppliers who can support your compliance efforts. By including risk assessments in your supplier management process, you can ask for reports in a timely fashion, identify potential risks and mitigate them before they become a significant problem.
Poor supplier performance will have a detrimental impact on your business. By managing your suppliers, and strengthening your relationship with them through constant dialogue, you can maximise their performance. Supplier KPIs should be set early on in the relationship and supplier performance periodically evaluated against these.
These insights are invaluable, enabling you to identify areas for improvement and optimisation. By maximising supplier performance, your business will benefit from better outputs overall.
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