Supplier Relationship Management - Driving Factors, Roadblocks & Enablers

In todays Globalized world with all its benefits, Supply Chains across the geographies and Industries also have to deal with wider range of Risks & Uncertainties. Till recently Supply Chain Risk were perceived to be bound by Regions or industries mostly isolated from rest of the world but recent pandemic has forced all the Supply Chain members to be prepared for a Global impact which can result in impact on both Demand-Supply Side and simultaneous impact across the borders of any countries even beyond regional levels.

Suppliers are very critical to have successful upstream performance in Value Chain and Supply Chain members have to collaboratively associate with Suppliers to build on this relationship. Strong Supplier Relationship can be beneficial to organizations in longer run helping them mitigate risk, Improve resiliency and expedite the implementation of Strategic Objectives

Key Aspects of Supplier Relationship Management (SRM) Program are

1. Vendor Evaluation & Onboarding,
2. Vendor performance Management & Improvement,
3. New Product / Business Development
4. Strategic Alignment through Structured Engagement (beyond Transactional activities)

Key factors driving success of any Supplier Relationship Management program

1.      Segmentation – Its important to segment the Suppliers basis spend category criticality, Market concentration, Risk & Value associated. This will help to customize the Program to specific needs

2.      Risk Mitigation through Contribution to resilience & reliability-Having an effective SRM program will help in sharing of risk and its impact. It helps you to assess the risk associated at deeper levels of value and have a mitigation plan.

3.      Innovation & Contribution to Sustainability- Its practically impossible for any organization to have all the capabilities and intelligence inhouse so partnering with diverse suppliers will open the opportunity to utilize their talent as well as capabilities to improve the Innovative offerings of any organization.

4.      Existing Trust Quotient & Collaborative Approach - Many times, SRM program are driven by Customers and don’t involve the Suppliers beyond the presentations and Audit/evaluation. Its important that even responsibilities are shared and if possible, Customers should open themselves up for equivalent evaluation by Suppliers.

5.      Stakeholder Consensus & Management Support - Usually SRM programs get unilaterally driven by Supply Chain team without involving Internal stakeholders who can contribute with their technical capabilities & collaborate on efficiency improvement as well as new product/Business development. Management support is needed to facilitate the initial & active participation by Senior Management can enhance the Trust levels to greater extent from both sides. Regular review by Management will enforce the importance of success of this program and strategic direction

6.      Well-defined and accepted Policy Framework - Clear roles and responsibilities must be defined with set frequency to drive the SRM program. Policy should encompass the aspects of Scope, Criteria, Timelines, Stakeholders, responsibilities and Measurement metrics of effective SRM program. More than being an add-on program this should flow into Key deliverables of critical members of Supply Chain & Senior Management.

Critical roadblocks usually derailing the SRM program

1.      Lack of Understanding of Supplier Capabilities & Business Growth Plans– This creates a big mismatch and adversely impact the support from Supplier

2.      Too many processes & priorities to be managed by Suppliers even for one organization – Simplifying the SRM program and providing the initial support will be of great benefit otherwise Suppliers would end up perceiving it to be additional paperwork & time intensive exercise

3.      One size fits all Mindset –It has to be customized depending on strength of relationship, future potential and capabilities of suppliers.

4.      What’s in it for me…. – It usually happens that without aligning the suppliers fully and having their Buy-In , SRM programs get driven by Supply Chain team. This is with prejudice that Suppliers are expected to get most benefitted hence why should they have any concerns. Suppliers have to equally commit themselves and also contribute to have an effective SRM program

5.      ROI difficult to measure and we try to link it to cost benefits only – Its very difficult to measure the ROI or tangible benefits unless thought through extensively along with all stakeholders. Nevertheless it cannot be short term or only cost reduction benefits. Lots of benefits will be Cost avoidance, Stockout Avoidance, Better product/service offerings, Faster TAT, Productivity improvements etc.

6.      Thinking Cost is secondary and program can survive being cost intensive – Its important to be judicious in investing towards the program. Identifying high benefit less efforts relationship can help in developing a business case which can further be expanded to other relationships as the program gets matured and benefits start Pouring In.

7.      Doing it for fancy reasons with no clearly defined purpose or strategy – SRM shouldn’t end up being a cosmetic exercise to fill the marketing fliers or Customer assessment. Equally dangerous would be to have short term approach expecting tangible benefits immediately. There should be clearly defined policy which can guide the total program.

8.      Organization Bandwidth – Most of the supply Chain members end up utilising most of their time in Urgent matters as compared to Important aspects. As SRM would be time consuming and mostly not delivering short term tangible benefits, there is always a risk of deprioritising the SRM initiative in lieu of other critical responsibilities.

Enablers which can further enhance the effectiveness of SRM program

1.      Make it Visible through Performance metrics & Celebration of Success. Any achievement of milestone has to be appreciated as in any people intensive initiative to ensure high motivation levels of members participating in the program. Few measurement metrics can be as below and need to be customised to program

• Improved Supplier performance – Through Supplier Balance scorecard
• Value Transacted per supplier
• New Business Areas Supported
• Business growth Per supplier
• Quote to Order ratio improvement
• Reduction in Opportunity lost / Stock out
• Improvement in TAT / Credit period

2.      Training & Development driving the SRM both internally & externally. -Having a structured approach through well defined policy will be the starting point but to ensure successful implementation it will be every important all stakeholders are aligned and aware towards expected contributions. This can be effectively achieved by robust T&D program supporting the SRM efforts & regularly upgraded to meet the different needs at different stages.

3.      Technology penetration - Technology support will not only simplify the availability of necessary data to drive the SRM program & measure the benefits/improvements but can contribute immensely in utilizing the manhours towards more value adding activities than the transactional activities.

4.      Business Growth -Growing business relationships are bound to have more successful SRM program as compared to stagnant ones. Its important to find ways of ensuring that commercial benefits prevail for both sides to continue to commit themselves for a successful SRM program. Vendor consolidation / Preferred Vendor Concept / High performance incentive can be few measures which can be adopted to improve the business of SRM partners

Most of the organizations who have been able to strive through the Pandemic were due to Resilience and Agility of their Supply Chain; needless to mention that it wouldn’t have been achieved only by internal stakeholders of Supply Chain. Key contributors to any resilient and Effective supply chain are the External Partners so its important to develop strong relationship which is mutually beneficial

Best Wishes & Stay Safe. Wish you all Merry Christmas and Happy New Year 2021. [email protected]