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Here's one of the most important supply chain lessons the pandemic has provided: Supplier relationship management is critical, but it doesn't just happen. As a supply chain leader, you need to create effective strategies.
Supplier relationship management is the practice of examining a company's vendors and strategizing how to improve the company's interactions with them. Practitioners and analysts agree that a strong supplier relationship management (SRM) program is vital for virtually every company.
Here are a few components you'll need to create a successful SRM strategy.
Segment your suppliers
One key element of supplier relationship management is dividing suppliers into categories.
Segmenting suppliers is a good first step for strengthening SRM, said Duncan Jones, vice president and principal analyst at Forrester Research.
Supplier segmentation quickly reveals which suppliers are most important strategically and are helping the organization stand out in the marketplace, Jones said. The practice also sheds light on which suppliers are crucial in the short term but ultimately replaceable.
Treat suppliers like partners
It's imperative to think of suppliers as a valuable part of a business.
Business and supply chain leaders must view suppliers as equal teammates and continually measure the relationship's strength, Jones said. However, the term supplier relationship management can have some negative connotations due to the historic focus on cost management.
Duncan JonesVice president and principal analyst, Forrester Research
"Talk instead about nurturing the relationship," he said. "Measure the health of the relationship and if there is a problem, you sit down and ask, 'What do we do to make it work better?'"
Staying in communication with the supplier about the relationship is key.
Creating a strategy for building supplier relationships is crucial, said Miguel Cossio, a Gartner analyst.
"[A good relationship] is something that doesn't just happen," Cossio said. "You have to [define] what will be done to make a supplier like you better."
For example, Unilever just relaunched a program called Partner with Purpose. Conagra Brands has a similar program.
"[Calling] it a program or initiative -- that is a trend," Cossio said. "In other words, companies are formalizing these approaches."
Treating suppliers like partners can benefit your company in other ways. For example, many businesses are focusing on sustainability, and suppliers could give a company a fresh take on how to achieve it.
"[Companies] are asking suppliers for innovative ideas to help address [sustainability]," said Kevin Rhone, practice director for channel acceleration at Enterprise Strategy Group, a division of TechTarget.
Examine supplier experience
Supplier experience describes what it's like to be a supplier to your company.
"Part of managing [supplier experience] is to track the activity and look for the things that cause friction," Jones said.
For example, if a business invites a supplier to bid in a lot of sourcing events and the supplier never wins, they won't be keen to bid again, he noted.
"Those are the kind of things you have to measure," Jones said.
Capitalize on technology
Technology is key for modern supplier relationship management, though that doesn't mean one technology alone can achieve all goals.
"[A company could] aggregate information from sourcing systems and transactional systems, because you do want to have that overall view of the supplier, both at a granular level of particular business units and also at a higher level," Jones said.
However, businesses should use some dedicated form of software to keep track of vendor information, such as contact names and business addresses -- as well as a summary of activity, like how many purchasing orders have been filled, Jones said. The software could include a formal process for validating important information, including certifications or agreements to abide by corporate social responsibility policies.
These functions could be part of a wider suite of sourcing and procurement software, like that from SAP Ariba, Coupa or Ivalua, or it could be a specialized tool such as those from Aravo or HICX, Jones said.
Make SRM an organizational priority
Supplier relationship management should naturally be a priority for the supply chain and procurement functions, whose leaders realize the critical and strategic nature of SRM. However, other executives need to make supplier relationship management a priority as well.
Procurement should attend senior leadership meetings so they can speak up in support of supplier relationship management, said Marisa Brown, APQC's supply chain management research lead.
"Senior leadership is still, more times than not, looking for reduced cost, while procurement is looking for value," Brown said.
Change is slow when it comes to procurement being involved with these decisions, she said. However, procurement concentrations are increasing at undergraduate institutions, which is helping raise the field's visibility.
"It is shifting, but not every business has made the transition," Brown said.
Plan for, then handle disruptions
Particularly in a COVID-19 world, businesses need to be ready for anything.
Companies focusing only on vendor cost rather than cultivating the relationship fare worse when there's supply risk, Brown said. Meanwhile, businesses with good supplier relationship management get a heads-up about a problem from suppliers and work collaboratively to address it. Companies should make planning for the unknown part of their supplier relationship management plans.
For many businesses, "just in time" is no longer the focus -- it's "just in case," Brown said. Every company should embrace that mindset.
Be adaptable about your RFP
Leaders who want to get strategic about their approach to supplier relationship management should be leery of relying on an RFP for starting a supplier relationship.
The request for proposal (RFP) may no longer be the best way to attract and select suppliers because in many industries, suppliers have more power than the buyer, Jones said.
Still, the RFP may still have some value for both the buyer and supplier.
The RFP can be important for setting supply chain expectations as well as defining customer expectations, growth and profitability, said Bob Hawkey, director of operations transformation at Grant Thornton.
"[The] RFP has taken on new value in handling the go-to-market messaging, what suppliers desire, and how they can become a member of the supply chain and not just a bolt on [it]," he said.
The importance of a statement of work or master service agreement has also evolved.
"[They've begun to] take on vast new dimensions as a way to define the relationship," Hawkey said.
Show you mean it
A company's promises don't mean much if the business doesn't back them up.
Suppliers are often reluctant or skeptical to try new customer programs because they don't see the benefit, Cossio said.
"[You need to] make sure whatever you are saying is backed up by proof of engagement and a willingness to implement improvements and changes," he said.
Some companies even say they find the idea of SRM meaningless.
"[SRM] must be a strategy that really drives suppliers," Cossio said.