9 Successful Strategies for Managing Supplier Relations

14 min read

The relationship between businesses and their suppliers is more important today than ever before. Companies now rely on suppliers to fuel a global supply chain and keep their operations running smoothly. Knowing how to contact a supplier when starting your business is one thing. Maintaining a positive and effective working relationship with suppliers is another thing.

Supplier Relationship Management (SRM) is the process of building and maintaining productive supplier relations. SRM is a multifaceted process, which can involve balanced relationships with multiple suppliers. The supplier relationship management process goes beyond managing contracts and orders. It’s about building strong, strategic partnerships with your key suppliers. It involves a methodical approach to assessing, managing, and enhancing supplier relationships to maximize their value to your company.

The primary objective of SRM is to secure high-quality materials and services, delivered on time and at a reasonable cost. While every supplier relationship has its own unique demands, there are strategies you can use to navigate supplier relations. Here are some tips on establishing and managing supplier relationships.

The Importance of an Effective SRM

Effective supplier relationship management is vital for businesses to succeed in competitive markets. Here are the key benefits that an effective SRM will offer:

Cost reduction: An effective SRM helps identify cost-saving opportunities. Companies can negotiate better terms with existing vendors and strategic suppliers and can reduce their procurement costs by as much as 12%.
Improved supply chain efficiency: Good supplier communication and collaboration can streamline your operations, minimize delays and supply chain disruptions, and ensure timely delivery of goods and services.
Enhanced performance: Routine supplier performance management and evaluation will ensure improved efficiency and results.
Mitigating risks: Effective SRM helps identify and mitigate supplier risk. Close monitoring of supplier information and performance will enable you to anticipate potential issues and take proactive measures to prevent such instances.
Strong strategic partnerships: Collaborating with suppliers will result in mutual growth. By sharing best practices and an innovative approach you can achieve long-term business objectives through strong vendor relationships.

Implementing strong and effective SRM practices is crucial for maximizing value, reducing risks, and achieving long-term business success through well-managed supplier relationships.

Choosing Your Suppliers

Good supplier relations start with choosing the correct supplier for your business. You should be thorough in selecting suppliers for your company. The supplier you work with needs to be able to meet production demands, as well as meet other standards for your business. Other factors, like manufacturing and shipping costs, are also critically important.

The simple truth is that if you select a supplier that is a poor fit for your company, your supplier relations will suffer. And this will not be the supplier’s fault. The initial responsibility of selecting your supplier is on you and your business.

Your relationship will also vary depending on the type of supplier you work with. If you start a dropshipping business, for instance, your supplier relations might be more hands-off than with a private-label manufacturer. But no matter what your business model is, your suppliers will be very important.

SRM Challenges

Maintaining an effective relationship with your suppliers can give your company a great many benefits, but is not without challenges. Matters such as ensuring compliance with standards and regulations, and managing risks can be daunting if these factors are not taken into account when choosing your suppliers.

Typically, the following challenges are the most common in the industry.

Communication Breakdowns

Poor communication can lead to significant delays and cost overruns. Confusion over delivery timelines, product details, or payment conditions can put stress on the relationship with the supplier.

Disruptions

Unexpected events, such as material shortages, transportation delays, or supplier bankruptcies, can disrupt the supply chain and cause delays in construction projects. It’s important to have contingency plans in place to handle these disruptions.

Pricing Instability

The cost of materials in construction can fluctuate due to market conditions, causing instability in pricing. This can complicate negotiations with suppliers and make it difficult to maintain financial control.

To manage this challenge, companies can engage in long-term contractual agreements with suppliers or use hedging strategies to lock in prices.

Performance Issues

Even with careful vetting, suppliers may occasionally fail to meet expectations. When suppliers consistently underperform, it can affect project timelines and budgets. Having a system in place to monitor performance and address issues early is key to overcoming this challenge.

Often companies use segmentation of suppliers to mitigate these issues, while detailed supplier information management and robust vendor relationship management systems help address this.

9 Supplier Relationship Management Strategies

Once you have chosen your suppliers, it’s imperative to ensure that they continue to fulfill your product demands. While suppliers do not work directly for you, they do provide an essential service for you. This presents some unique challenges, as manufacturing companies and suppliers operate according to their own company goals and procedures. However, there are several key strategies you can follow when managing supplier relationships.

1. Have a clearly defined supplier code of conduct

A supplier code of conduct is a document that outlines the expectations and standards for your company’s suppliers. This document should provide clear guidelines for your suppliers with regards to supply chain demands as well as ethical and environmental concerns.

The supplier code of conduct acts as a contract between your company and the suppliers. You should be sure to present your code of conduct clearly to your suppliers at the outset of your relationship. Doing so ensures that they understand your needs and can be adequately prepared to meet them.

2. Set clear expectations

One of the most critical aspects of supplier relationship management is setting clear expectations from the start. This is done by giving suppliers detailed information about project timelines, material specifications, and quality standards. In return, suppliers should commit to delivering the required materials on time, within budget, and in line with the company’s quality expectations.

3. Conduct consistent supplier performance evaluations

Speaking of clear expectations, another way to manage supplier relations is to conduct periodic performance evaluations. In some contexts, performance evaluations might not seem like an intuitive way to improve relations. But, when done properly, performance evaluations are a vital part of most professional relationships. Problems arise when performance evaluations are unfair or overly critical.

Supplier performance evaluations provide an opportunity for you and your suppliers to assess needs, performance, and risks. As with your code of conduct, you should clearly communicate the expectations and criteria of your evaluations. Any concerns discovered during the evaluation should be communicated as constructive feedback.

This way, your evaluation comes across as sincere and improvement-oriented, rather than overly-critical. Suppliers will also appreciate receiving positive feedback during evaluations so that they know their hard work is appreciated.

4. Keep an open line of communication

Even when you are not conducting a formal evaluation, communication is important. How much you communicate with your supplier will depend on the nature of your business. But you should know the best way to get in touch with your supplier when needed, and vice versa.

Being communicative not only helps to avoid immediate problems. But, it also establishes trust and familiarity and helps build long-term stability.

5. Understand and evaluate supply chain risks

There is no such thing as a risk-free supplier relationship. Every supply chain faces risk, whether it’s resource shortage, shipping cost increases, or weather-related shipping delays. Ignoring or failing to understand and prepare for risk factors is detrimental to supplier relations. The key to risk management, and supplier relationship management, is to identify vulnerabilities and have a plan to address them.

Factors to consider include the supplier’s experience dealing with risks, financial stability, and production capacities. Some risks are unavoidable. But how a company responds to risks is within its control.

You should carefully monitor the risks involved in your supplier relations. Likewise, you should be assured that your supplier has the means to address any supply chain complications they might encounter.

6. Know the difference between value and price

One of the easiest mistakes to make in choosing a supplier is to try to save money by choosing the lowest upfront costs. This highlights the difference between the price of a service and the value of a service.

In many cases, the least expensive supplier also has the most risk involved. This might mean that shipping is slower, more expensive, or less reliable. It might also mean that the product quality is inferior to that of other suppliers.

The value of your supplier relations is about more than just upfront costs. Yes, price is an important factor. You are running a business and need to make a profit, after all. But sometimes, spending more upfront provides more value in the big picture. This might mean you choose a slightly more expensive supplier in order to receive higher-quality products.

An unreliable supply chain can quickly unravel your business, even if everything else is in good shape. In these cases, strained supplier relations are only one part of your worries.

7. Prioritize certain supplier relations if needed

All supplier relationships are important. But, if you have multiple suppliers for different aspects of your business, some may be more important than others.

For instance, suppose you run a cafe and bakery. Most of your business relies on selling coffee products. Therefore, your relationship with your coffee supplier likely deserves top priority. Your paper goods supplier still plays an important role, and you should by no means neglect them. But having a structure in place for various suppliers is important when it comes to managing your company’s overall supply chain needs.

8. Understand the importance of interpersonal skills

Finally, it is important not to overlook the soft skills that are required for supplier relationship management. While supplier relations are professional, working relationships, they still involve interpersonal communication.

What this means is that your company should have the right people in charge of supplier relations. Those responsible for managing supplier relationships should be friendly, compassionate, and strong communicators. There is a long list of crucial soft skills for SRM that can help improve your supplier relationships. Honing these skills can be a big step in the right direction toward building better supplier relations.

Supplier relationship management is one of many concerns that your business needs to balance as it grows in the modern business world. As more and more companies make global, fast-paced connections, supply chain demands become even harder to keep track of.

9. Leverage technology

Up-to-date technology and software tools can enhance the management of supplier relationships. For instance, procurement software is useful for automating the ordering process, monitoring supplier performance, and overseeing contracts. Being able to monitor the flow of products and materials in real time will ensure better control over the supply process.

Ecwid Can Help

SRM is just one process you need to keep operations running smoothly. Other aspects you need to consider include choosing the best inventory management software for your business. To gain access to some of the most user-friendly, e-commerce software available, consider choosing Ecwid to build your online store. Ecwid is highly intuitive, flexible, and can work with just about any online retail platform.

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Aug 22, 2024

About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.