When you rely on suppliers, your relationships make or break business. The stronger your connections, the more consistent your delivery schedules, costs, and product quality will be.
A robust supplier relationship management (SRM) strategy makes all the difference. SRM helps you cultivate solid, collaborative relationships with suppliers, leading to better business outcomes.
Learn about different SRM approaches, their benefits, and some tips for optimizing the process. And if you’re just looking for a solution, jump to the bottom to learn how Fishbowl makes managing supplier relationships a breeze.
What is supplier relationship management?
SRM is an aspect of supply chain management that helps you understand and enhance relationships with key vendors. You gather information about suppliers’ impact on company success, then use it to determine which relationships are most critical and how to improve them.
For example, if you manufacture cars, you need a reliable, cost-efficient relationship with a tire supplier. SRM might involve evaluating your current tire supplier’s performance and strategizing to strengthen the relationship — whether that’s negotiating a long-term contract to secure better pricing or collaborating to ensure more timely deliveries.
Types of supplier relationship management
There are three main SRM approaches, each for different levels of interaction and importance:
- Transactional relationships: This approach is appropriate when your company sources products that aren’t critical to business success, like office supplies. The priority is to meet an immediate need — getting quality products at the best price — rather than building deeper, collaborative relationships. Efficiency and cost-effectiveness are most important.
- Collaborative relationships: Collaborative relationships involve more interaction and cooperation. Here, you aim to develop stronger ties with suppliers who play a more critical operational role. This may involve regular communication about goals and joint problem-solving efforts to ensure mutual benefit. For example, you might work closely with a supplier to coordinate inventory management, which is helpful for consignment-based business models.
- Strategic partnerships: When a supplier is essential to long-term success, you engage in a strategic partnership, which involves a high level of collaboration and mutual investment. A manufacturer might partner with a critical supplier to co-develop new technologies or products, ensuring both parties benefit from the relationship. This approach is particularly helpful for dropshipping companies since it lets businesses and suppliers integrate order placement and delivery systems more seamlessly.
4 benefits of supplier relationship management
Effective SRM offers four key benefits that optimize performance:
- Improved cost-effectiveness: Strong SRM strategies nourish long-term relationships with suppliers, which lead to better pricing and cost savings. You can negotiate more favorable contracts and volume discounts or reduce costs by jointly addressing inefficiencies and other inventory management problems.
- Reduced supply chain disruptions: SRM enhances communication and coordination for more consistent and reliable operations. Plus, if supply chain disruptions arise, you and your suppliers are more likely to work together proactively instead of finding yourselves at odds.
- Greater insight into supplier capabilities: Working closely with suppliers helps you understand their unique strengths, abilities, and technological innovations. Leverage this knowledge to improve product quality and performance and stay ahead of industry trends. This unlocks new growth opportunities and ensures that your products benefit from the latest advancements in the field.
- Enhanced supply chain agility: When suppliers see your company as a valuable partner, they’re more inclined to prioritize your needs, swiftly adapt to fluctuations in demand, and align their operations with your specific goals. This increased supplier agility creates a more responsive supply chain — one in which you can navigate market changes and maintain a competitive edge.
The supplier management process
Now that you know what SRM is and how it can benefit you, here are the six steps of the SRM process.
1. Supplier identification and selection
The first step involves identifying and selecting suppliers. If you already work with some, take the time to assess their past performance. This could be an opportunity to find vendors that better align with your needs.
To choose a supplier, research potential options, evaluate their capabilities, and assess their compatibility with your company’s goals. The aim is to find companies that reliably deliver quality goods and services at a competitive price.
2. Supplier onboarding
After selecting suppliers, integrate them into your supply chain through an onboarding process. This step involves setting up contracts, defining expectations and payment terms, and establishing communication channels. Onboarding is most effective when both parties understand their roles and responsibilities, laying the groundwork for a successful partnership.
3. Supplier segmentation
Divide suppliers into different categories based on their contributions and importance. This will allow you to tailor the management approach for each supplier and better prioritize resources and efforts to focus more on the strategic partners who significantly impact your operations.
4. Performance management
Performance management is about monitoring and evaluating suppliers’ performance to make improvements as needed. Measure factors like delivery times, product quality, and costs to identify areas that might need work. Then, devise strategies to enhance performance and maintain high levels of efficiency and quality within the supply chain.
5. Relationship management
Relationship management is the heart of SRM. It involves regular communication and joint problem-solving for mutual trust. Strong relationships lead to better cooperation and long-term success for both parties, which looks like punctual communications and deliveries, consistent business, and even strong referrals.
6. Risk management
The final step of the SRM process is about identifying and mitigating potential risks associated with suppliers, like financial instability, supply chain disruptions, or compliance issues. Proactively managing these risks helps maintain supply chain continuity and reliability, safeguarding the business against unforeseen challenges.
6 best practices for SRM
Follow these six best practices for fostering robust and productive supplier relationships:
1. Communicate clearly
Clear and consistent communication is the foundation of any successful business relationship. You and your suppliers should update each other regularly about changes in demand or inventory management strategies. This is especially important when it comes to global supplier management since misunderstandings can arise from differences in time zones, languages, and cultural practices.
2. Provide performance feedback
Regular performance feedback leads to continuous improvement. Share insights on what’s working well and where there’s room to improve so suppliers can adjust their processes to better meet your needs — while giving you the opportunity to recognize and reward their successes.
3. Build trust
Building mutual trust takes time, but it pays off in the form of more reliable and dedicated suppliers. When suppliers trust you, they’re more likely to invest in the relationship, share valuable information, and prioritize your business needs. And when you trust suppliers, you feel confident that they’ll act in your best interests.
4. Strive for mutual benefits
For a supplier relationship to be truly successful, both parties should benefit. Create a win-win situation that motivates both sides to work together effectively and sustain the relationship over time. Ensure that all agreement terms are fair and that all parties see value in the partnerships.
5. Collaborate to innovate
Innovations — like new product designs, process improvements, or cost-saving strategies — often emerge from collaborative efforts between companies and their suppliers. To collaborate effectively, engage in brainstorming sessions and share insights and expertise across teams whenever possible.
6. Plan for the long term
While it’s important to address immediate needs, don’t lose sight of supplier relationships’ long-term potential. Develop strategies that consider growth-related goals, market changes, and evolving needs. Long-term planning helps you and your suppliers align on goals and prepare for future challenges and opportunities.
Enhance your supplier relationships with Fishbowl
Supplier relationships are complicated. Fishbowl helps you strengthen them.
Fishbowl’s advanced inventory management solutions help you keep track of and manage supplier interactions. Plus, with seamless QuickBooks integration, you can streamline purchasing, improve data accuracy, and build stronger partnerships.
Discover how Fishbowl can simplify your SRM and inventory management. Book a demo today.