Key Fundamentals of Supplier Relationship Management

Large manufacturers have traditionally been the dominant player in the supply chain, and hence had enjoyed the upper hand when it comes to impelling support and engagement from their supply chain partners. Big OEM’s, for instance, would have a major influence on how their part suppliers and distributors would operate, and would play this to their maximum advantage.

Nowadays, with the rise of fully integrated supply chains, globalization and technology for innovation,  the door of opportunity for suppliers has been opened, to get onto an equal ground with their big customers. Where before suppliers have been mostly seen as auxiliary support and fill resource gaps, their collaborative engagement is now seen as a key factor in achieving and maintaining competitive edge.

As a result organizations are investing resources to capture the benefits of leveraging existing and new supplier relationships to remain relevant in today’s fiercely competitive market.

Organizations have set out to develop their own guidelines to manage supplier relationships and scramble to train their buyers hoping to quickly drive the nail right on the heads. “It’s all about the relationship”, is the new mantra of middle management to emphasize the importance of keeping and maintaining a good

Sounds easy, right ? But truly, it is not.

While some organizations get the whole supplier relationship thing right on target, some simply don’t and fail to hit the key fundamentals that underpin an effective supplier relationship management program.

1. A clear and robust framework is essential to systematically and effectively manage supplier relationships. Internal guidelines must be established to govern the proper interactions with suppliers at various fronts and levels within the organization. A strategy should be laid out for managing the complexities brought by having a large supply base and setting priorities.
2. The classic purchasing principle of supplier segmentation is one of the basics that facilitates the proper implementation of supplier relationship framework. Awareness and understanding of your supply base, identification of strategic partners, preferred suppliers and suppliers treated at arm-length approach. Each level of these levels of supplier relationship requires varying and graduated levels of commitment,  engagement and investment.
3. Relationships are a 2-way street, where both parties mutually enjoy benefits and invest the same level of commitment from both ends to fulfil expectations. It is a classic case of give and take, and each party complimenting one another to achieve greater value when their efforts combined.
4. Requires a change in attitude at all relevant levels (executive down to buyers) involved, and cross-functionally as well ( including business owners and other stakeholders who interface with the supplier, not just Procurement). Foster collaboration, partnership and  leave the adversarial mentality behind, and instead cultivate a win-win attitude.
5. Honest and open communication. Customer and supplier builds and nurture trust, commitment to understanding of the other party’s requirement and interests and genuine desire to learn from each other and help each other become better. Being open about costing, best practices, issues, risks and opportunities.

Improved organizational efficiency, reduction of operational costs, ability to introduce innovative products and solutions at a shorter time to launch, increased agility to respond the ever-changing market demands and reinforced competitive edge are only few of the many things that an organization can benefit from a successfully implemented supplier relationship program.