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Developing good relationships with suppliers can mean the difference between disruption and gaining a competitive edge.
Supplier relationship management (SRM) is important, but doing it well can be difficult. Typical challenges include lack of competencies and alignment; meanwhile, the pandemic and its aftermath have brought additional disruptions.
Here are some of the most difficult supplier relationship management challenges and how to address them.
SRM strategy creation
Companies need to create a supplier relationship management strategy rather than operating in reactive mode. A lack of strategy can lead to inconsistent results or worse.
Organizational leadership should first determine which business results are most critical, said Steven Jeffery, director of research at Info-Tech Research Group, a research and advisory company located in London, Ontario. Then they can decide which vendors are strategic in that regard and which fall into other categories.
Strategic goals to improve relationships with suppliers may conflict with traditional goals, such as a focus on low cost. Many lower-ranking decision-makers focus on simply getting the best price rather than strengthening supplier ties or improving quality. They want measurably improved results to show up in their yearly review. That's why leadership must communicate and support goals in concrete ways to dispel any vagueness or confusion.
"A lot of procurement people are trained to get the best distributor service for the [lowest] distributor price," said John Wiborg, CEO of Stellar Industrial Supply, an industrial supplier in Tacoma, Wash.
Sometimes a company's stated goals and its tacit goals may be different.
In that case, companies should examine the stated goals and the unofficial ones and decide which ones to support, said Marisa Brown, senior principal research lead of supply chain management at APQC, a nonprofit benchmarking and best practices firm in Houston.
COVID-19 has disrupted supply chains across the globe and shown how critical supplier relationships are. This collection of articles includes guidance on how organizations can improve those relationships.
Lack of SRM clarity
If an organization is having trouble answering questions around strategic suppliers and acceptable risk, understanding customer relationship management (CRM) data could be the key.
Focusing on the customer can help clarify many choices, Brown said. Considering the relationship of SRM and CRM can help align organizational thinking around data collection and analytics, governance, and other measurements.
Supply chain leadership and representatives need to encourage supplier representatives to openly share feedback and communication, and then prove their willingness to listen.
Steven JefferyDirector of research, Info-Tech Research Group
"As buyers, many of us have become too opaque in the amount of information we share with suppliers," Jeffery said.
This has led to vast mistrust between buyers and sellers, he noted. Buyers can improve this by being more transparent and collaborative. Company management can be open with the supplier without compromising their ability to negotiate price and performance goals.
Both the buyer and the seller can also examine particular metrics to see whether the relationship is helping improve business results.
Both buyer and seller should look at ROI, said Bernie Donachie, global supply chain lead at Protiviti, a consulting firm in Menlo Park, Calif. Buyers and suppliers can then discuss the positive aspects of the relationship and what improvements should be made.
Technology can support buyer-supplier communication and enable process improvements.
Buyers can share data with sellers using tools they already have, Donachie said. For example, most e-procurement tools can report and extract data. The buyer can then migrate that data into familiar tools like Power BI or Tableau, where both parties can access it. Some companies even use PowerPoint.
Overcoming supply chain risk
Supply chain risk and its accompanying uncertainty can negatively affect a buyer-supplier relationship.
Segment suppliers by quantified risk category such as cyber, credit, financial and production, said Bob Hawkey, director of supply chain strategy at Grant Thornton, an advisory and accounting firm in Chicago. A supplier might belong in the cyber-risk category because it has lax cybersecurity practices, making its operations vulnerable to hacking and potentially endangering company information. A supplier organization might belong in the production risk category because it operates in a region with political or labor problems.
Once companies have identified potential supplier risks, they can decide how to use each supplier and utilize supply chain risk technology to keep an eye on each one, Hawkey said. AI-based data aggregation systems are available that can conduct 24/7 threat monitoring, which includes examining social media and regulatory analytics.
A just-in-time supply chain management approach focuses on operating in as lean a manner as possible, aligning supply and demand with virtually no buffer inventory. Many companies have targeted achieving a JIT approach, but it also has its vulnerabilities -- which the pandemic highlighted for companies across the globe.
JIT is not a one-size-fits-all supply approach, Hawkey said. Instead, companies should weigh JIT's potential rewards against the risks involved and then decide if following the JIT model is prudent.
Supplier relationship management can be more difficult if the company's technology isn't helping the process.
Using technology that can integrate SRM with the ERP portfolio and put all the data in one place is critical, said Lisa Highfield, a research director at Info-Tech Research Group.
Since supply chains and technology are continually changing, organizations must also continually optimize the process, Highfield said. And that's not easy.
Organizations focusing on SRM efficiencies can sometimes overbuy or underbuy.
"It isn't big-dollar items," Wiborg said. "It's about connecting production objectives to supply chain management."
Companies need to link SRM activities to inventory tracking and continually review that information. Once they've established a good relationship with a supplier, the supplier may let the company know about stockout risks or help with offloading out-of-date inventory.