What is Supplier Relationship Management? – An Ultimate Guide on SRM

What is Supplier Relationship Management (SRM)?

Supplier Relationship Management (SRM) is a crucial part of effective Supply Chain Management. It primarily focuses on building a strong relationship with suppliers and maintaining it to optimize business performance. Businesses deal with their supplier management through SRM which involves managing and interacting with its suppliers to ensure a smooth function between the company and suppliers and an efficient flow of goods and services.

To streamline the SRM - Supplier Relationship Management process, many businesses utilize specialized software known as supplier relationship management software or SRM software. These supplier relationship management tools help businesses by providing a Supplier Relationship Management framework for managing their supplier and also implementing supplier relationship management strategies to enhance overall supplier performance.

By ensuring Supplier Relationship Management reliance and mutually beneficial partnerships, SRM enables businesses to minimize risks and improve overall efficiency. Some examples of SRM strategy include establishing clear communication channels, setting up performance metrics, and negotiating favourable contracts. By these supplier relationship management examples, businesses can benefits from implementing SRM such as reduced costs, increased quality and enhanced supplier reliability which will ultimately help in improving customer satisfaction.

Well-known SRM software providers like SAP also offer services such as SAP Supplier Relationship Management(SRM), which empowers businesses to effectively manage their supplier relationships and drive successful supply chain management.

History of SRM (Supplier Relationship Management)

SRM first emerged in 1983 when Mr Peter Kraljic, who was working as a consultant at McKinsey, emphasized the importance of corporate buyers and supply management. He played a vital role in the emergence of Supplier Relationship Management (SRM). His idea was for buyers to have a deep understanding of the risks and profitability associated with different categories of suppliers. By gaining a deep understanding of SRM, buyers could then develop supplier management strategies that satisfied their specific needs and objectives.

Mr Peter Kraljic challenged traditional procurement practices, which only focused on price negotiation and transactional relationships with suppliers. He believed that effective supplier management required a broader perspective beyond pricing negotiations that will impact a company's overall operations and performance.

Through SRM, Mr Peter Kraljic highlighted the importance of strategic alliances between suppliers and buyers. SRM helps businesses to identify which amongst all suppliers are critical to them and how to develop SRM strategies to manage those supplier relationships effectively.

What Are the Types of Supplier Relationship Management (SRM)?

Supplier Relationship Management (SRM) primarily focuses on two buyer-supplier relationships one is a Vertical Relationship other is a Horizontal Relationship. In Vertical SRM, the supply chain is linked between the Manufacturer and the Seller or retailer or distributor on different hierarchy levels. Whereas in Horizontal SRM, the supply chain is linked between two manufacturers or say two distributors or retailers at the same hierarchy level.

This can be further categorized into different types based on the nature and depth of the relationships established with suppliers. Here are some of the different types of buyer-supplier relationships as follows.

• Arms-length SRM: An arms-length relationship is purely transactional and concurs with an urgent need. Which involves selecting a supplier to meet an immediate need without any guarantee of a long-term relationship. There is a piece of short and one-time information sharing between the buyer and the supplier. This information only focuses on completing the transaction. These kinds of relationships may be one-time only and don't provide any special competitive advantage.
• Partnership SRM: This SRM talks about having a business partnership among the suppliers. Partnerships require a high level of trust between the buyer and the supplier. Partnerships with suppliers involve long-term contracts and detailed information sharing to ensure the supplier delivers according to the buyer's requirements and fulfils the buyer’s needs. The supplier is dedicated to meeting the specific needs of the buyer. 
• Just in Time (JIT) SRM:  As the name suggests JIT fulfils the requirement on an “as and when required” basis. Just in Time relationships focuses on supply chain management. Suppliers deliver goods and services to the buyer's customers as and when asked by the customers. The supplier provides the right quantity at the right time and at the right place which prevents excess inventory or any stock shortage.
• Strategic Alliance SRM: Just like Business partnership with suppliers work, strategic alliance with supplier also works. The only difference is Strategic alliances are long-term partnerships between businesses working together for mutual benefits. It includes collaboration on new products, resource sharing, joint ventures, joint operations, any research and development or joint arrangements. Strategic alliances give strengths to each partner minimizing the overall costs. These alliances create a win-win situation for both buyer and supplier.
• Outsourcing SRM: Outsourcing SRM involves contracting work to external partners instead of conducting it internally. This will help in getting the expertise of outsourced units and also helps in reducing costs. It can be used in various ways, such as manufacturing overseas, hiring freelancers online, or subcontracting specific tasks like IT support or accounting services. Outsourcing allows businesses to access external talent and resources, enhancing agility and competitive advantage.

These are just a few examples of buyer-supplier relationships. There are many other types, such as long-term contracts with transactional suppliers or exclusive deals that provide a competitive edge. It's essential to analyze your needs and research potential suppliers to determine which types of relationships would work best for your business.

Supplier Relationship Management Process

In Supplier Relationship Management (SRM), effective planning, tracking and organizing partnerships are very crucial to optimize the SRM processes. This will help in increasing productivity, saving costs, and maintaining quality standards. SRM needs to cover operational, tactical, and strategic procedures between the businesses and their suppliers to make it successful.

To achieve this, SRM must be responsive to change and adaptable to the change. That's why implementing the supplier relationship management process is vital. It should be a mutually beneficial relationship which benefits both the business and its suppliers.

The process of Supplier Relationship Management (SRM) involves several key steps to effectively manage relationships with suppliers which are as follows –

1. Supplier Identification and Selection: This is the first step of Supplier Relationship Management (SRM) which is focused on identifying potential suppliers based on the business requirements and selecting appropriate amongst them. This can be done through conducting market research, checking and evaluating supplier capabilities, also by ensuring other factors such as quality, reliability, cost, and delivery. Once these factors are applied and suppliers identified, then select the most suitable suppliers for your organization.
2. Supplier Segmentation: After the selection of the most suitable suppliers the next step is to categorize your major suppliers into groups like strategic segment, tactical segment, and tail vendor segment. Each segment requires its management strategy and allocation of resources. Segmenting suppliers into different groups will help in prioritizing your resources and efforts, which will give you a clear idea about which segment more resources and efforts needs to be devoted to.
3. Set Clear Objectives: Set clear and specific objectives for each supplier relationship. Establishing clear objectives will help in alignment with your overall business goals. These objectives should align with the business goals such as cost savings, innovation, and quality improvement or on-time delivery efficiency to determine how your SRM objectives will support your company's specific needs. Setting clear objectives provides a common focus and guides the supplier relationship management strategy.
4. Measure Supplier Performance and Evaluation: Businesses regularly measure and evaluate supplier performance against the established objectives. Use key performance indicators (KPIs) which include checking compliance, on-time delivery, product innovation, responsiveness to customer needs, quality control and other factors that determine the value of the supplier relationship.
5. Creating a Supplier Management Strategy and Communication: The last stage of Supplier Relationship Management (SRM) is to develop a strategy to maintain communication with suppliers and ensure they meet the set goals. This communication will benefit both buyer and supplier and it will help to meet the customer's needs. Businesses need to ensure that it must share their goals, provide insights into their operations, and exchange performance data with suppliers. Also, Supplier input can lead to unexpected gains and innovative ideas.
6. Continuous Improvement: Once the process of supplier relationship management (SRM) is done the businesses need to regularly review and update their SRM practices to keep costs low and encourage innovation. Sharing data and communicating your company's objectives in working with suppliers are integral to this strategy.

Importance of Supplier Relationship Management (SRM)

Having a good relationship with your suppliers will play a crucial part in your company's success. When your business has a strong connection with your suppliers, it can benefit in various ways. First of all, businesses can receive personalized service, discounted prices, and also special terms from their suppliers. Here are some key reasons that show why Supplier Relationship Management (SRM) is essential.

• It enables businesses to monitor and assess supplier performance consistently.
• It helps businesses negotiate better pricing terms and identify opportunities for cost savings.
• By collaborating with suppliers, businesses can identify and address potential risks such as disruptions, quality issues, regulatory compliance, etc. and mitigate those risks.
• SRM will help in collaboration and innovation between businesses and suppliers. By sharing information, ideas, and insights with each other, Businesses can get into their suppliers' expertise.
• SRM helps in building loyalty and trust by maintaining strong relationships with suppliers.
• SRM emphasizes continuous improvement, both within the organization and with suppliers through regular feedback, performance reviews, and a joint problem-solving approach.
• SRM gives reliable and high-quality suppliers that contribute to meeting customer expectations.
• SRM helps to align suppliers with the organization's strategic goals and objectives.
• SRM promotes ethical sourcing and sustainability.

An effective SRM can provide a competitive edge in the marketplace by which businesses can differentiate themselves by offering superior quality, reliable delivery, innovative and qualitative products, and better overall value to customers.

Benefits of Supplier Relationship Management (SRM)

Supplier Relationship Management (SRM) is all about actively managing your relationships with suppliers. It involves more than just buying goods or services from them. Both buyer and supplier should work together to improve each other's performance which will help them improve their overall performance. Here are some Supplier Relationship Management benefits are as follows.

1. Better Quality Products and Services: SRM will help in providing a better quality of goods and services by building a strong relationship with its high-performing suppliers. This will enable them to better communicate and collaborate with each-others. Which will result in improved quality products and services. 
2. Cost Reduction: SRM helps in reducing costs by negotiating better prices with suppliers and enhancing supply chain efficiencies.
3. Enhanced Supplier’s Overall Performance: Under SRM, businesses focus on setting up clear expectations and also provide feedback to their suppliers which will lead to improving their supplier’s overall performance. This fosters better communication and collaboration, which ultimately improves the quality of products and services.
4. Increased Transparency and Visibility: Through effective monitoring and evaluating supplier performance and establishing clear communication channels, businesses can improve transparency and visibility.
5. Better Communication and Collaboration: SRM can help in better communication and collaboration between buyers and suppliers which will result in improved quality products and services.
6. Innovation and Development of new products and services: SRM encourages relationships with innovative suppliers which will lead to the development of new products and services that will give a business a competitive edge.
7. Higher Customer Satisfaction: SRM ensures that customers receive the right products and services they need at the right place and in a timely manner. This will increase overall customer satisfaction.
8. Effective Risk Management: There could be some potential risks such as disruptions, quality issues, regulatory compliance, etc. SRM will help in identifying and mitigating those risks in the supply chain which will lead to improved product and service quality.
9. Improved Business Continuity: Under SRM, businesses build strong relationships with their trusted suppliers which will ensure a track record of dependable supply and also enhance business continuity and the delivery of quality products and services.

Challenges of Supplier Relationship Management (SRM)

Everything which has benefits has challenges as well. Take a look at the following challenges faced in supplier relationship management : 

1. Lack of Supplier Visibility - One certain challenge is that there are several organizations that lack the crucial required insights into their supplier’s operations and, due to that, their potential remains limited.
2. Risk Management - Sometimes, organizations fail to adequately assess and manage the risks which are related to the suppliers, leaving them vulnerable to various problems such as issues with quality.
3. Integration of Technology - The data visibility and process efficiency is sometimes hindered due to the inadequate integration of the SRM tools and systems with the current procurement and enterprise resource planning platforms.
4. Staffing and Training - One of the challenges is a hindrance in the realization of the full potential of SRM programs due to improper investment in training and development for staff responsible for managing supplier relationships.
5. Indecisiveness in Objectives - Failure in deciding the clear and right objective for supplier relationship management leads to limited opportunities and ineffective management.

SRM Software

Supplier Relationship Management (SRM) software helps businesses to build and maintain strong relationships with their suppliers. It simplifies communication and collaboration between the buyers and suppliers throughout the supply chain management. With the help of SRM software, businesses can now access supplier performance data and analyze that data to optimize their procurement processes. In this article, we are going to discuss the concept of SRM software, its key features, and some of the top SRM solutions available. There are several Supplier Relationship Management (SRM) software options available in India. Here are a few popular SRM software solutions that businesses in India can consider.

• SAP Ariba: SAP Ariba offers comprehensive SRM software that is suitable for growing and large corporations that need eProcurement and supply chain management capabilities. It provides comprehensive functions to manage the entire supply chain such as supplier management, inventory control, supplier performance evaluation, contract management, and payment processing.
• Magestore:  Magestore is ideal for Magento merchants who want a comprehensive solution for managing their retail stores. It offers features like supplier management, inventory management, procurement, and order fulfilment. In Magestore SRM software all data is synchronized on a real-time basis which provides a complete view of your business operations for effective use.
• Procureware: It is designed for businesses that want to focus on procurement and vendor management. Procureware offers features for eProcurement, such as sourcing, bidding, supplier evaluation, and contract management.
• Oracle Supply Chain Management: Oracle Supply Chain Management is suitable for manufacturers and industrial companies who seek end-to-end supply chain control. It includes tools for supply chain planning, supplier management, vendor sourcing, manufacturing, logistics, etc.
• Ivalua: This SRM software is ideal for businesses that prioritise their spend management and source-to-pay processes. It simplifies the overall procurement procedure from sourcing to invoicing and provides cost management analysis as well.
• AdaptOne: AdaptOne is a basic vendor management software for business owners. It includes features for managing suppliers, diversity, compliance, certifications, and risks.
• Pipefy: This SRM software offers business process automation solutions for businesses. It provides features like vendor management, procurement, purchasing, and contract management, streamlining communication and saving time on manual tasks.

These are the SRM software that caters to various business needs and can help enhance supplier relationships. Business can streamline their procurement processes and improve supply chain efficiency.  Businesses are advised to consider their specific requirements and choose the software that best aligns with their business goals.

How Can MastersIndia’s AP Automation Help in Managing SRM?

Masters India's AP Automation platform can help in processing your Account Payables which offers an advanced Account Payable Solution that can optimize your organization’s Supplier Relationship Management process. This AP solution helps in establishing efficient communication channels, allowing suppliers to submit their invoices electronically, track payment status, and resolve any discrepancies promptly which improves accuracy, reduced cycle times, and enhanced transparency.

Conclusion

In Conclusion, establishing a strong relationship with suppliers will be crucial for any business. Maintaining a healthy relationship with suppliers can give businesses a competitive advantage over their competitors. It plays a vital role in enhancing a company's efficiency, reducing costs, and improving the quality of goods and services. By investing resources in SRM, businesses can gain a competitive advantage and achieve long-term success in their supply chain operations.

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