The Importance of Supplier Relationship Management

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Supplier Relationship Management is a software-backed solution adopted by an enterprise in order to strengthen its relationships with vital suppliers. The focus of SRM is to reinforce existing interaction instead of simply relying on contracts by streamlining relationships and increasing their efficiency for both parties.

SRM Explained

  • In order for an enterprise to prosper, among other things, it needs to focus on supplier relationships. These relationships are no less than crucial—maintaining excellent relationships with an enterprise's suppliers can, for instance, lower product development costs and shorten manufacturing schedules, and by doing so, can manifestly increase said enterprise's profitability. In short, through enabling proper management of an enterprise's relationships with its suppliers and reducing the total cost of ownership (TCO) for goods, Supplier Relationship Management creates a competitive advantage for that enterprise.

Goals

  • The specific goals an enterprise may have for its SRM efforts may differ between companies and/or industries, but they are most likely to include a reduction in terms of the costs an enterprise incurs, both supplier-specific costs and overall expenditures; flexibility in terms of the relationship between the enterprise and its suppliers; a more rapid product cycle; an improvement in the service offered by suppliers; and increased efficiency stemming from more tightly integrated operations of both enterprises and suppliers.

SRM Solutions

  • Using software solutions that focus on automating various processes and simplifying a firm's relationship with its suppliers can go a long way towards improving Supplier Relationship Management. Such solutions are available from vendors such as SAP, Manugistics, Infor, 12 Technologies, and PeopleSoft. Many of these solutions work to provide an environment where suppliers and enterprise can collaborate and which can help manage differences between them that can act as stumbling blocks to better collaboration.

Critical Factors for SRM Success

  • In order for an SRM solution implementation to be successful, four steps need to have been taken before said solution's implementation. First, enterprises must have already automated and integrated their own internal processes. Second, the enterprise and suppliers need to be directly connected to allow suppliers to interface with the system. Third, analytical tools must be in place to monitor performance and efficiency. Lastly, a "culture of collaboration" must also be put in place such that interactions with suppliers is not simply viewed as relationships that result in certain costs, but are seen as part of the system themselves.

Advantages of a Functional SRM System

  • It has been said that the greatest advantages of adopting and implementing a Supplier Relationship Management system are the convenience and cost-effectiveness it affords both the enterprise and its suppliers. Since a well-managed SRM system would result in the two becoming very closely tied, the speed at which both can coordinate would increase dramatically; communication barriers would be diminished if not eliminated altogether; and costs would be significantly reduced as well. In addition, less staff would be needed to manage the relationship thanks to the automation afforded by the software.

References

  • Photo Credit Creatas/Creatas/Getty Images
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