Supplier Relationship Management
Optimize Vendor Relations
What is Supplier Relationship Management (SRM)?
The definition of supplier relationship management (SRM) is that it is the ongoing and continuous process of evaluating your organization’s suppliers to identify which relationships are essential to effectively and efficiently do business—especially with regards to international trade. And like any relationship, this process needs to be maintained.
In many organizations, as their supply chain grows, relationships with their suppliers become more complex so to ensure efficient relationships, SaaS software tools and relationship management systems become critical to ensure business growth.
Supplier relationship management systems help companies to ensure that they are invested in the relationships that contribute to, and matter most, for their business success.
In this article, we’ll discuss the importance of supplier relationship management, the kinds of relationships you might have with your suppliers, and ways you can work to strengthen those critical business relationships.
The importance of supplier relationship management
As with any relationship, both parties strive to build value and profitability. The relationship you have with your suppliers can have direct business benefits on improving the efficiency and productivity of your supply chain. After you have begun cultivating a strong supplier relationship, you’ll need to stay on top of managing the relationship to ensure it flourishes.
Successful supplier relationship management leads to tangible business benefits:
Reduced costs: Replacing a supplier can be costly and time-consuming and may slow your business down. As you invest time and resources into maintaining relationships with your existing suppliers, you’ll save money on sourcing, onboarding, and negotiations. Take a look at your existing vendors and evaluate whether those relationships could thrive in the long-term. Do they have the capacity to meet your current and future needs? Or should you move on and seek out a new supplier?
Increased efficiency: The more time you invest in supplier relationship management, the more secure it will be. When you take the time and effort to create a strong and reliable supplier relationship management process, you can identify parts of your relationship that work well and also areas that could improve. By keeping accurate records and managing your relationship with vendors, you’ll make sure your relationships remain profitable. It’s a win-win for all parties. Over time you’ll notice that communications improve, and mutual goals will align more closely.
The two types of supplier relationships: vertical and horizontal
There are two main types of supplier relationships. Identifying which type of relationship you have with suppliers will help you effectively manage your expectations and align your goals.
In a vertical supplier relationship, the supply chain is linked in the traditional way between sellers and buyers.
Each party places emphasis on ensuring individual and supply chain goals are achieved. Examples of vertical supplier relationships include distributors, retailers, manufacturers, and suppliers. These relationships are often involved frequently, with many providers operating together day-to-day.
Horizontal relationships are those that are created between organizations that work in conjunction.
For example, the supplier for brake pads and the manufacturer of tires both provide parts to the car manufacturer. These suppliers work together to achieve mutually agreed-upon goals, and therefore they partake in a horizontal supplier relationship. Horizontal supplier relationships are built on a foundation of mutual trust and shared risk. With each party specializing in their specific aspect, the integration of their processes leads to shared success.
There are two main types of supplier relationships. Identifying which type of relationship you have with your suppliers will help to effectively manage your expectations and align mutual business objectives.
- In a vertical supplier relationship, the supply chain is linked in the traditional way between sellers and buyers. Each party places emphasis on ensuring individual and supply chain goals are achieved. Examples of vertical supplier relationships include distributors, retailers, manufacturers, and suppliers. These relationships are often involved frequently, with many providers operating together day-to-day.
- On the other hand, horizontal relationships are those that are created between organizations that work in conjunction. For example, the supplier for brake pads and the manufacturer of tires both provide parts to the car manufacturer. These suppliers work together to achieve mutually agreed-upon goals, and therefore they partake in a horizontal supplier relationship. Horizontal supplier relationships are built on a foundation of mutual trust and shared risk. With each party specializing in their specific aspect, the integration of their processes leads to shared success.
When it comes to supplier relationship management, there are a variety of depths of involvement. The extent to which you are involved with your suppliers is based on the intended outcome of the relationship.
The three levels of supplier relationship involvement are:
- Vendor — These supplier relationships are primarily transactional. In this situation, both parties are represented as a buyer or seller, with little or no collaboration during the process outside of the transaction.
- Strategic Alliance — Strategic alliances are more entwined. In this relationship, both organizations collaborate and modify their processes to help achieve their goals. In this scenario, the relationship is more strategic rather than transactional.
- Partnership — In partnerships, both parties work closely together to customize their business strategies to produce positive results. These outcomes are generally more successful than anything either part could achieve individually.
Why should organizations be concerned with smooth and efficient supplier relationship management?
Aside from the benefits of SRM outlined above, organizations need to concern themselves with their supplier relationship management process to ensure they retain the relationships they already have. It’s usually more cost-effective to invest in an existing supplier relationship to keep it going (and improving!) than it is to source and start a new relationship from scratch.
Improved value: Just like any project, the more time and effort you put into something, the better, the end result will be. When organizations focus on creating value for their suppliers, their relationships flourish. A well-organized and easy-to-use supplier relationship management software system like Tradeshift’s Engage automates time consuming ‘busy work’ so that you can spend more time fostering strategic relationships with suppliers.
The SRM software system stores the data you need granting you access to insights to help aid you in decision-making. The biggest benefit being that this greater visibility allows you to identify issues before they arise, creating a resilient and valuable relationship for all parties.
When you invest in your supplier relationships, they invest in you. Having a supplier relationship management software system to help you manage your suppliers creates a positive supplier experience, making them more likely to continue their relationship with you. Finding good suppliers can be tricky. It’s much easier (and cheaper!) to spend time ensuring your existing suppliers are supported with your relationship.
How the Tradeshift Engage platform optimizes supplier relationship management
Tradeshift revolutionizes supplier relationship management with Tradeshift Engage. With our digital platform, vendors can see value in their relationships with you from day one. Rather than just push your suppliers through automated portals, Tradeshift Engage allows you and your suppliers access to collaborative tools and analytical capabilities to help you create a highly efficient and strategic supply chain.
Users choose Tradeshift to support their supply chain operations because of our:
Better data Tradeshift Engage’s analytical capabilities give sellers a quick dashboard view of payments and transactions. When integrated with Tradeshift network data, suppliers will enjoy access to all of their data in one place which leads to fewer inquiries and a more efficient process. Tradeshift answers your questions faster, with more in-depth data, and provides more clarity than any other solution.
Enhanced collaboration Giving your suppliers a personalized experience right from the start, Tradeshift Engage strengthens supplier communication by storing and consolidating conversation history. Users can easily collaborate on tasks, attach necessary documents, and search for old records, all within our digital platform.
Embrace of digitization The Tradeshift network acts as a digital hub to support and assist with your supply chain needs. Suppliers enjoy access to our powerful digital tools, improving their processes and capitalizing on new opportunities. Plus, when suppliers sign up for Tradeshift Engage, they also gain access to our online payments portal, helping you secure payments more quickly.