Businesses often tend to ignore one thing: supplier relationship management. They focus on fostering customer loyalty and ignore the fact that establishing relationships with suppliers and managing them is equally important. In fact, the rise in the number of suppliers and increasing complexity of supply chains is making supplier relationship management even more crucial.
However, companies have now realized that the supplier relationship management is imperative to develop bilateral, trust-based relationships with key strategic suppliers to reduce supply risk, decrease long-term costs, and develop more efficient procure-to-pay and supply management processes. This is compelling companies to leverage the benefits of the supplier management program and systematically manage interactions with key strategic suppliers while maximizing the value of those interactions for their procurement organizations. In this blog, we have compiled a list of benefits that companies should look to achieve through supplier relationship management.
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Supplier relationship management benefits
Optimizes procurement process
Many times, the turnaround time between registration of requirement and the delivery of the goods and services is invariably long. The major reason behind this delay is the time spent by the procurement department in handling the request for quotation (RFQ) processing. The preparation and issue of RFQ’s followed by quotation processing, shortlisting and negotiations can be a sluggish and drawn-out process. Continual ‘one off’ RFQ processing represents ‘death by a thousand cuts’ for the procurement department leads to significant delays in delivering the requirements of businesses. Time spent in supplier relationship management is represented in the company’s e-catalogs that reduces the number of RFQ situations and speeds delivery schedules dramatically.
Another issue pertaining to the procurement cycle is the time taken for requisition approval. Managers involved in the requisition release hardly have any time to look into the operational IT systems. Requisitions wait unnecessarily in e-commerce/ ERP systems for the budget holder to sign-on and release them. In such cases, the visibility of the full supply chain becomes a critical piece of equipment. Implementing supplier relationship management strategies addresses the ‘visibility’ issues efficiently in such situations.
Reduces the number of strategic suppliers
Establishing effective governance is vital to unlocking supplier relationship management value. It requires alignment within the organization and setting up of internal governance processes with ownership of supplier relationships. Since the ownership of the relationship can lie outside the procurement organization, it is essential to involve the right suppliers from the business in the process. Companies can track operational measures mutually agreed with tier 1 suppliers through supplier relationship management governance and can concentrate on a limited number of strategic suppliers.
Want to know how reducing the number of suppliers can lead to strategic sourcing?
Improves supplier performance
Although establishing strong contract relationships and ensuring buyer and supplier compliance to those agreements is one part of delivering value, yet it can distract businesses from the ultimate value created from a supplier relationship management. Value from a supplier relationship comes through innovative and collaborative activities that focus on solving customer problems. This primarily involves sharing of plans between the two entities and jointly defining initiatives that can create long-term value for both organizations through supplier relationship management, such as:
- Innovative business plans, aligning supplier’s creative efforts to business needs.
- New market penetration, leveraging strengths and knowledge of both organizations.
Consolidates the supply chain
As supplier’s and buyer’s business work in collaboration, understanding the inner workings of each other becomes easy through a supplier relationship management process. It helps both parties to adapt their own working practices and operations to better accommodate the other and improve their operational efficiency. The consolidated supply chain further allows the buyers to reduce the number of suppliers they purchase from and streamlines the purchasing process thus making the scope for financial improvements.
Maximizes the usage of inventory
As a result of recent upstream sector trends, inventory management has started facing several challenges. The transfer of stocks between companies due to mergers and acquisitions is leading to poor visibility and compelling companies to externally procure materials when stocks of material are actually available. Supplier relationship management addresses these issues by automatically determining appropriate sourcing strategies using catalogs and integrating them with a back-end system that is capable of handling the separation of stocks.
SpendEdge’s strategies enable businesses to consolidate suppliers within specific supply markets and reduce purchasing and supplier management costs while increasing the efficiency of their procurement process. It analyzes various parameters including equity interests, sales volumes, technology base, manufacturing, and distribution capabilities, and helps companies make better purchasing decisions by improving the supplier relationship management.