sheelamohanachandran - Fotolia
8 supplier relationship management strategies
Categorizing suppliers, then understanding how to treat each type of supplier, helps companies allocate resources appropriately. Learn some top strategies.
Suppliers can make or break a company's supply chain, and nurturing relationships with them is critical for success.
Supplier relationship management (SRM) involves working with suppliers to maximize their value to a company. Understanding which suppliers add the most value helps organizations reduce their costs, reduce their risks and create mutually beneficial relationships. A strong supplier relationship can also potentially help companies during supply shortages.
Here are eight supplier relationship management strategies to help supply chain leaders make the most of their supplier partnerships.
1. Segment suppliers
Some strategic suppliers may require close collaboration, while more transactional or basic suppliers merit a more hands-off approach. Categorizing suppliers based on several factors, including spend with the supplier, risks, their strategic importance and their value, can help make it clear where to concentrate efforts.
Here are some potential categories for supplier segmentation:
- Strategic/partnership. Suppliers that fall into this category would be involved in very close collaboration, with strong and frequent relationship management.
- Preferred. Suppliers in this category would be the subject of strong collaboration, with medium to high effort on relationship management.
- Transactional. Suppliers in this category would be the subject of medium collaboration managed through detailed service-level agreements (SLAs) and KPIs.
- Basic. Suppliers in this category would be the subject of low collaboration managed through basic SLAs and KPIs.
Understanding how to treat each type of supplier helps companies allocate resources appropriately.
2. Concentrate on strategic partnerships
Once a supplier partnership is determined to be strategic, supply chain leaders should ensure their company is dedicating the proper resources to that relationship.
Identifying goals that are important to both the client company and the supplier can help improve the relationship. For example, a supplier and client company may plan to develop and sell new products together.
Supply chain leaders can also encourage senior leaders from their suppliers to share company values and overall goals.
3. Establish clear performance metrics
Good SRM depends on clear expectations.
Supply chain leaders can work with suppliers to create "supplier scorecards" that include the KPIs the company will use to evaluate suppliers. Potential KPIs include on-time delivery and message response speed. Performance targets should be realistic yet somewhat challenging to encourage the best results from suppliers.
Regular performance reviews, as well as sharing constructive feedback and ways to improve performance, help ensure that suppliers are on the same page.
4. Take advantage of technology
Technology can help improve SRM in a few different ways.
Collaborating on one platform can help improve speed of communication and information sharing. The platform can also help reduce errors, since information is gathered in one place.
In addition, predictive analytics and trend analysis can help prevent supply issues before they occur, which means fewer crises for supply chain leaders and their suppliers to deal with.
5. Improve supplier communication
In addition to centralizing communication on one platform, applying a few other best practices to supplier communication can help improve it overall.
Holding regular meetings and being clear about how to escalate issues if needed can make communication go more smoothly, as well as documenting all key discussions to ensure a record exists if needed.
Supply chain leaders should ensure their team is communicating with suppliers about potential risks or future changes so suppliers aren't caught by surprise.
6. Work with suppliers to mitigate risks
Good risk management is critical for business continuity, and mitigating risks is the responsibility of both suppliers and the clients they serve. Best practices for supplier risk management include the following:
- Conducting regular risk assessments across the entire supplier base.
- Creating contingency plans and securing backup suppliers.
- Conducting business continuity planning with suppliers.
- Remaining alert for indicators that a supplier is experiencing issues or will in the future.
7. Invest in supplier development
Helping suppliers develop their capabilities benefits both suppliers and their client companies.
Supply chain leaders can help establish supplier certification programs, provide suppliers with technical assistance and training, including the temporary transfer of employees between companies, and encourage the sharing of best practices and industry knowledge.
Investing in supplier development helps build loyalty, and suppliers will likely remember it later during challenging times.
8. Practice ethical and responsible supplier management
Treating suppliers with fairness and transparency helps build trust between a supplier and client.
Supply chain leaders should ensure their company is honoring payment terms and contractual obligations as well as providing fair compensation and payment for products and services.
Supply chain leaders should also ensure all employees are respecting any potential cultural differences between their company and their suppliers.
Paul Maplesden creates comprehensive guides on business, finance and technology topics, with expertise in supply chain and SaaS platforms.
