Your Ultimate Guide to Supplier Relationship Management

September 13, 2023 - 13 minutes read

What you need to know to get the most out of your supplier relationships.

 

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Running a business is all about relationships, and one of the most important for retailers is the relationship they have with their suppliers. It follows, then, that supplier relationship management is a key component of any successful retail business. 

Supplier relationship management involves ensuring that the relationship between you and your suppliers is strong, productive, and mutually beneficial. When done well, it can help ensure that your supply chain runs smoothly; when relationship management suffers, there can be hiccups in the supply chain, added expenses, and, as a result, disappointed customers.

Let’s dig into how you can ensure your supplier relationships are both collegial and profitable.

 

What is supplier relationship management?

You know you have relationships with suppliers, but where does the management come into play?

Supplier relationship management, or SRM, is a way of systematizing the process of assessing a supplier’s capabilities and performance, ensuring that the relationship is—and continues to be—mutually beneficial. 

In other words, by taking a good, hard look at how your suppliers are delivering for you, you can better judge how they fit into your business strategy and maximize the value of these relationships. You’ll also be able to create criteria to measure how well your suppliers are delivering for you.

SRM includes everything from getting the best price for goods or services to ensuring both parties understand their responsibilities and expectations. This fosters trust between you and your suppliers, and ideally, it also allows both sides to reap greater rewards from the relationship.

If you’re familiar with customer relationship management, supplier relationship management is quite similar.

 

Understanding the SRM process

Supplier relationship management can be broken into a few linear steps:

1. Segment suppliers

Identify the key suppliers for your business, then segment them into different categories and levels of importance. Segmentation may include the services offered, how important a supplier’s products are to your business’s success, and other factors; you may want to use the Kraljic matrix, a schema created by Peter Kraljic, the originator of SRM.

This type of segmenting helps you prioritize and create smarter strategies to manage each supplier relationship, acknowledging that these relationships are different and some are more critical than others.

2. Develop your supplier strategy

Once you’ve segmented your suppliers, the next step is to create a strategy for each one. This includes understanding the terms of the relationship, what you expect from them in terms of quality and delivery times, and the goals you want to achieve through working with them. Taking the time to develop a unique strategy for each supplier will help both companies gain maximum value from the relationship.

Criteria to measure the success of a supplier relationship include measurable factors like lead time and pricing, but also more subjective indicators like flexibility, reliability, and communication. After determining the factors that are most important to you, you’ll want to create a scorecard to evaluate your suppliers.

3. Implement your supplier strategy

This is where the rubber hits the road. Once you have a strategy in place, it’s time to implement it. This means communicating with suppliers to make sure everyone understands their roles and responsibilities and meeting regularly to discuss performance. It also involves setting up systems and processes so there is clear communication between both parties.

4. Monitor your relationships

The last step in the process is to measure your suppliers’ performance over time and adjust the relationships as needed. Regularly engage with suppliers to discuss their performance, problems they (or you) may be having, and opportunities for improvement. Keeping tabs on your suppliers can also help you identify opportunities for better pricing, increased collaboration, and other benefits.

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Benefits of supplier relationship management

Maybe you’ve been working without a supplier relationship management plan in place. You’re doing fine—or so it seems. Why should you implement SRM? Consider these benefits:

• Improved supplier performance, including faster deliveries and higher quality products, as you’re able to identify and eliminate unreliable suppliers.
• Increased profitability through better pricing, more satisfied customers, and reduced costs gained from streamlined processes.
• A stronger relationship with your suppliers, leading to more transparency, responsiveness, and better communication.
• Greater visibility into the supply chain and improved forecasting capabilities.
• Improved risk management and greater control over your supply chain.

Most importantly, SRM can help you create long-lasting relationships with your suppliers that will pay dividends for years to come.

 

Tips for improving supplier relationship management

Let’s say you do have SRM in place. Is it time to rest on your laurels? Never! These tips will help you improve your supplier relationship management and make sure your current strategy is as effective as possible:

Have clear expectations—but make them reasonable

It’s important to communicate your expectations to your suppliers, but also take a step back and make sure what you’re expecting is actually realistic and achievable. 

Remember, most suppliers have dozens or even hundreds of other customers competing for their attention; while you deserve the very best service they can provide, it can’t come at the expense of their other business relationships.

Establish clear goals and define what success looks like to help ensure that everyone is on the same page.

Identify potential internal risks

Internal risks come from within your business and can affect your relationship with suppliers. These might include a lack of communication, inadequate processes for tracking performance, or failure to adhere to agreed-upon terms. Identifying these risks early can help ensure that you stay on top of them and don’t let them negatively impact your supplier relationships. 

Encourage open (and frequent) communication

Good communication is key to any successful relationship, and that includes your supplier relationships. Make sure you have regular meetings with suppliers to discuss performance and address any issues or opportunities that arise. This will build camaraderie and ensure that everyone is on the same page and working towards a common goal.

Reward suppliers for success

If your suppliers are meeting or exceeding expectations, be sure to reward them accordingly. Doing so shows that you appreciate their efforts, which in turn encourages them to keep up the good work.

Ideas for rewarding suppliers include discounts on your offerings, preferential terms, and recognition through awards or other public forums. Don’t underestimate the power of an email, written note, or phone call praising performance either.

Review deliverables and supplier performance

It’s important to regularly review the deliverables and performance of each supplier to ensure that expectations are consistently being met. This includes checking for any problems or missed deadlines, as well as assessing the quality of products delivered. Doing this on a regular basis can help you make sure your suppliers are held accountable for their performance and that lapses don’t slip through the cracks.

Be proactive when addressing problems

Expanding on the previous point, don’t let issues with your suppliers fester. If you encounter a problem, address it immediately. This helps ensure that issues don’t escalate and, ultimately, a good supplier will appreciate being informed of any issues promptly.

When discussing problems, focus on solutions rather than blame. This will help create a more collaborative atmosphere where both parties feel like they have a stake in finding the best solution for everyone. 

Use software to help

Using software to manage your supplier relationships can help streamline the process and make it easier to track performance. There are a variety of tools available for this purpose, but multi-channel retail management software is your best bet if you’re looking for a comprehensive solution that includes all the important data for retail operations in a single place.

These tools can help you keep track of details like pricing, invoices, contracts, and more. They can also help you manage supplier relationships by tracking performance metrics and providing insights into areas that need improvement.

 

Goals of supplier relationship management

Ultimately, the overall goal of the steps outlined above is to create a harmonious relationship with suppliers. That said, there are some specific objectives you can achieve by improving your SRM:

Optimized value chain

Supplier relationship management can help optimize your value chain by lowering prices, along with eliminating waste and inefficiencies. By creating better relationships with suppliers, it’s easier to identify opportunities for savings—or to create those opportunities for yourself through stronger relationships.

Improved quality assurance

SRM can also help ensure that quality is consistently maintained. This is done by establishing clear expectations for suppliers and providing timely feedback on performance. Transparency and communication will help ensure that the products you receive are of high quality and meet your standards.

Lowered supplier risk

SRM can also help lower supplier risk by providing visibility into the supply chain and creating contingency plans for when things go sideways. Better relationships can mean getting a heads up about materials shortages or having some bargaining power when prices are increasing. Segmenting suppliers can also allow you to pivot to the second-best option when needed.

Enhanced trust and communication

Finally, SRM can help build trust with suppliers by creating open lines of communication and rewarding them for meeting or exceeding expectations. This helps foster a more collaborative atmosphere where both parties are invested in the success of the relationship.

 

The bottom line

Supplier relationship management (SRM) is key to the success of retail, wholesale, and e-commerce businesses. It involves establishing clear expectations, identifying potential risks, encouraging communication, and rewarding success. 

By using the strategies outlined above, you can optimize your value chain, ensure quality assurance, lower supplier risk, and enhance trust between you and your suppliers. All of these benefits will lead to stronger relationships, which in turn will result in greater success and profitability for your business.

If you’re interested in enhancing your supplier relationship management journey with best-in-class software, please contact us. We’ll be happy to help.