The benefits of effective supplier management include less price volatility for businesses and the possibility of future collaboration. Learn about others and why they matter.
Like virtually every other company in 2020, NTT Data Services, a digital business and IT services provider, had to make major pivots.
In March of that year, nearly all of the workforce had to shift to working from home full time, said Jeff Tramel, vice president of global procurement at the company. That switch required forging stronger supplier relationships to solve procurement challenges. As just two examples, the company was facing supply chain delays for the laptops employees suddenly needed. In addition, no shipping services in India were delivering directly to homes. But the NTT Data Services team was able to successfully work with various partners -- everyone from SAP Ariba to the transportation company that normally drove employees to work -- to successfully get what they needed.
Effective supplier relationship management (SRM) made it all happen, Tramel said. There was trust and willingness to share ideas and information across the supply chain -- even when it wasn't directly related to the existing business relationship.
For better -- as for NTT Data Services -- and for worse -- as in the case of many others -- the COVID-19 pandemic has brought to light just how critical supplier relationship management is to today's companies.
Snapshot of supplier relationship management
Supplier relationship management is a complicated concept, and different people emphasize different aspects.
In essence, supplier relationship management is an alignment of all the people, processes and technology tools that enable effective performance and risk management across the supply chain.
Supplier relationship management is crucial for resilience, said Matt Lekstutis, global managing partner of supply chain consulting for Tata Consultancy Services.
"To respond to uncertainty or disruption in supply requires close relationships with suppliers," he said.
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Gartner supply chain analyst Miguel Cossio noted that Gartner defines supplier relationship management as "a deliberate enterprise strategy designed to increase collaboration with the supply base."
"[Supplier relationship management] doesn't happen out of the blue," he said. "It must be a strategy."
Technology alone can't solve SRM issues, but it can help.
Supplier relationship management has become easier with tools like photos and video, supply chain consultant Rich Weissman said. For example, each side can send cellphone images of components to see if two are the same. Video chats can prevent miscommunication and build rapport.
In addition, supplier management software can be helpful for collaboration.
Companies can use them to maintain an innovation pipeline and share workflows with suppliers, Cossio said.
Other technologies are coming into play as well.
Many organizations are using blockchain technology to better monitor their supply chain and make it more transparent, said Purushottam Meena, associate professor of marketing and management studies at New York Institute of Technology.
Some benefits of effective supplier management have become even more obvious in the wake of COVID-19's effects. Here are some of the most important ones for businesses.
More trust
Trust in buyer-supplier relationships mitigates disruption risks for the buyer and supplier.
"[Trust is] the buyer's and supplier's willingness to adapt to each other's behavior and actions," Meena said. "Trust and confidence in each other are essential to work in unsafe and ambiguous conditions."
Building strong long-term supplier relationships requires trust and loyalty from both sides.
"Management needs better communication, coordination, information sharing, and commitment between the buyer and supplier," Meena said.
Lower supplier management costs
Supplier relationship management can lead to a better bottom line. Companies have an advantage during negotiations if they already have a good relationship with their suppliers.
In addition, businesses don't have to spend money on new negotiations if they're staying with the same supplier.
You are trying to increase collaboration with suppliers so that you can become their preferred customer.
Miguel CossioSupply chain analyst, Gartner
Less price volatility
Supplier relationship management can lead to more predictable prices.
Fixed pricing or scaled gains can be exchanged for preferred minimum order levels, better contract terms or other measures that can reduce pricing shocks, said Dusan Stanar, founder and CEO of tech information sharing portal VSS Monitoring.
"Having a clear and unambiguous price base allows a business to set its own pricing structures with some faith, and that often translates to more loyal, happier customers," he said.
Shorter to-do list
Every business wants to take a few tasks off its daily list. A supplier may be more willing to take on additional jobs when it has a good relationship with the business making the request.
A company that outsources can focus on more of its main tasks rather than getting bogged down in minutiae.
New opportunities for collaboration
Supplier relationship management can benefit a company's long-term planning as well.
Suppliers on good terms with businesses will want to work more with those businesses down the road, Cossio said. This can help the organization over the long term.
When a company has a good relationship with its supplier, the supplier may share ideas, which could also lead to improvements and new business opportunities. In addition, supplier relationship management can strengthen brand image since the supplier will view the company positively.
Better able to weather disruption
A major event like COVID-19 is easier to deal with if a business is already on good terms with its supplier. Communication is more open, and each side is used to working with the other.
In addition, with SRM, a company is more informed about possible supplier-side risk. Companies can incorporate risk assessments into their plans.
Improved supply chain management
COVID-19 has affected buying behavior, so supply chain management best practices are more important than ever. Supplier relationship management is a critical component of supply chain management.
"[COVID-19] has caused a tremendous amount of bullwhip upstream with suppliers and downstream to the end customers," said Kristopher Glotzbach, chief revenue officer at Shipwell, a transportation management and partnership platform.
Because of this, businesses need to be on the same page as their suppliers at all times.
"Tighter alignment on forecasts and creating a single source of truth with suppliers [are] paramount to ensuring supply chain elasticity and deliverability," Glotzbach said.
Preferred buyer status
Suppliers could give businesses extra privileges if SRM is effective. This could further help a company's bottom line and put it at the front of the pack for deals down the road.
"In a nutshell, you are trying to increase collaboration with suppliers so that you can become their preferred customer," Cossio said.
