Supplier Relationship Management

Improving your Vendor Relations

Rather than just pushing your suppliers through automated portals, Tradeshift allows you and your suppliers access to collaborative tools and analytical capabilities to help you create a highly efficient and strategic supply chain.

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 (SRM)

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.

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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 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:

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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 portal, 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’s 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.

Bring your sellers closer.

Tradeshift Engage is the only solution that gives sellers free access to powerful collaboration and analytics tools along with predictable, prompt payments.

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What is meant by supplier relationship management (SRM)?

Supplier relationship management (SRM) is the process of evaluating suppliers and identifying which relationships are essential to the business. In many organizations, as their supply chain grows, the relationships with suppliers become more complex. Supplier relationship management helps companies ensure that they invest in the relationships that contribute to and matter most for their success.

What are the core functions of supplier relationship management?

The core functions of supplier relationship management are:

Vendor
Review and evaluate your existing vendors and understand how to improve supplier performance to meet your current and future needs. Click here to learn more about how to optimize your supplier relationship management.
Strategic Alliance
Collaborate with suppliers to improve supplier quality. When you embrace a strategic alliance, both organizations collaborate and modify their processes to help achieve their goals. Read more about the types of supplier relationship management here.
Partnership
Manage your data more effectively and make your suppliers happy. Discover our supplier management guide to get started on building stronger, future-proofed relationships with your vendors.

What are the main benefits of supplier relationship management?

The five central tenets SRM revolves around are the following:

Mutual growth
Value creation
Trust between parties
Open communication
A win-win mindset

Additional Benefits:

Reduced costs

Your company saves money on sourcing, onboarding, and negotiations when you invest time and resources into maintaining your current suppliers.

Increased efficiency

Ensure your vendor relationships remain profitable, improve communications, and align your goals more closely.

What are the main steps in forming an SRM?

Broaden your definition of the value of SRM
Get stakeholder buy-in as high up as possible
Train everyone working with the suppliers, not just procurement people
Use technology to kick-start your transformation
Create joint account plans with suppliers to increase their value

What are the main types of supplier relationships?

There are three distinct stages of supplier relationship management:

Supplier Segmentation
Buy the market
These suppliers and the products they sell are in high supply. The products you’re buying from buy-the-market suppliers are important, but your business won’t shut down without them, and they have no direct impact on profitability.
Ongoing
Many technology hardware suppliers will fit into this category. Suppliers in this category have mid-range contract lengths, perhaps longer than the standard one-year agreement but shorter than the more strategic five- to 10-year agreements.
Partnership
Suppliers in the partnership segment are those with longer-term contracts. Trust has been established, though the relationship is not exclusive. There is a moderate risk due to limited competition and a moderate risk to profitability.
Strategic alliance
Suppliers your company has a strategic alliance with are those you typically work with exclusively. There is a high risk due to minimal competition and profitability risk. A shutdown or outage could also be highly detrimental to your company.
Backward vertical integration
These are suppliers that your company has fully merged with to the point that they own the supplier. This is common in manufacturing environments where certain components are critical to daily operations.
Creation of Supplier Strategy
You’ll set goals, objectives, and expectations for each segment and KPIs to measure those. Additionally, you’ll make sure resources are available to meet these needs internally and with the suppliers.
Execution of Supplier Strategy
With buy-the-market suppliers, there may be very little to do here. But for your partnerships and strategic alliances, execution of the strategy will involve collaboration and ongoing evaluation and feedback.

Why is supplier relationship important?

A long-term relationship between your organization and its suppliers sets the tone for stronger collaboration now and in the future. By allowing the opportunity to share ideas, feedback, and questions, an SRM will create a more streamlined and effective supply chain that positively impacts your costs and customer service over time.

How can supplier relationships be improved?

Improved value

A structured SRM system, like Tradeshift’s Engage, automates busy work and saves your company valuable time. Tradeshift Engage stores the data you need and offers core insights that aid in your decision-making. This greater visibility allows you to identify issues before they arise, creating a resilient and valuable relationship.

Loyalty

When you invest in your relationships, they invest in you. Having an SRM system to help you manage your suppliers creates a positive supplier experience, making them more likely to continue their relationship with you.

What is the best software platform for supplier relationship management?

Supply chain management is the key component for the success of any business. SRM helps business leaders make better sourcing and purchasing decisions, mitigate vendor performance risks, and streamline communication with suppliers.

Our users choose Tradeshift to support their supply chain operations because of our:

Streamlined data

Tradeshift Engage’s analytical capabilities give sellers a quick dashboard view of payments and transactions.

Optimized collaboration

Tradeshift Engage users can easily collaborate on tasks, attach necessary documents and search for old records, all within our digital platform.

Embracement of digitization

The Tradeshift network acts as a digital hub to support and assist with your supply chain needs. Our online payments portal, Tradeshift Pay, helps you secure payments more quickly.

How do you build strategic relationships with suppliers?

Organizations inherently understand the importance of building trust-based connections to strengthen their relationships with suppliers. If your suppliers are happy, you retain familiar partners, condense the number of suppliers you use, and grow to anticipate your suppliers’ needs.

Instead of spreading yourself thin trying to please a variety of suppliers that could jump ship, investing in these valuable relationships helps extend the lifespan of your partnerships as well as keep your supply chain healthy and agile. Tradeshift’s SRM platform will help you get there.