Supplier relationship management has many benefits including better relationship with your suppliers, overall value creation for you and your supplier partner. Financial benefits for your supplier includes increased top-line and better revenue predictability. Financial benefits for your organizations includes better bottom line and better cash flow management.
Companies with established SRM (Supplier Relationship Management) teams have defined methodologies for supplier relationship management. But if you don’t have a team, don’t wait to get one. Get started on a small scale by following the steps below
As it goes with any other initiative, defining the outcome of your Supplier Relationship Management program, before you start is key to success. No two companies are same and so are the objectives for SRM. For example, your objective might be to reduce supply chain risk or it could be supplier development because the supplier is a sole source.
Most of the times, SRM initiatives are established because of a current situation, so use whatever the current challenge is (Risk,Delivery, Price Competitiveness etc.) to design your objectives.
Supplier Relationship Management (SRM), is very involved and time consuming. So narrow down the list to top suppliers who should be included in this program. Here is a simple methodology to segment your suppliers
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Once you are done with supplier segmentation, sort your suppliers by spend and pick the top 4-5 suppliers from Strategic category, 2-3 from Critical category and 1-2 from Strong potential.Define SRM owners for each supplier, SRM owners will be responsible for tracking and reporting supplier performance.
Once you have identified the suppliers, it's time to communicate the objectives of the SRM program to your stakeholders. Communicate it with the key executives of the selected suppliers and the key executives from operations within your organization. You need both sides to be involved and committed to make SRM program a success.
Clearly states the support and required from the supplier, so that they can accordingly assign resources for this program. Also communicate the benefits of the program for the supplier, it could be increased business or reduced cost of doing business.
4. Define Key Measures
Based on the defined objectives, define the key performance Indicators for the suppliers. If the primary objective is Risk management, then define KPI’s (Key Performance Indicators) to measure financial risk, Operational risk, Supply Chain risk, GeoPolitical risk and other risk which your organization deem important.
If the focus is cost savings, then define KPI’s around saving targets, key initiatives to reduce cost.
Defining Key measure for any SRM program is a joint effort between your suppliers and your operations team. It is critical to define what you need to measure but equally critical is to define how you are going measure it, and what data is required to support the performance tracking on an ongoing basis.
5. Track the performance
Once the program is established, start tracking data for key measures. First define a schedule for measurement. For example, you might measure delivery performance every week or month but you might measure financial performance only once a quarter.
Review and set schedule for each KPI and then start measuring it. For Quantitative measures like “On time Delivery”, you might need to work with your IT team to get the data out of your ERP systems. For Qualitative measures like “Supplier Responsiveness”, a survey might work best.
6. Continuous feedback
Measuring the KPI’s (Key Performance Indicators) is going to tell you where the problems are, fixing the problems requires collaboration with suppliers. There is a reason why there is “Relationship” in Supplier Relationship Management.
Set up a schedule to review the results with your suppliers, weekly/monthly. Focus not only on things which are going wrong, but also focus on what is working. Everyone can use a little motivation and appreciation!
Clearly document the root cause for problem areas by performing RCA (Root Cause Analysis). List down the steps which the supplier is taking or planning to take, to remedy the situation and track the status in the next review meeting.
Set up a executive review meeting to inform key stakeholders on the value add of the SRM program.Positive results will build the momentum to expand the program and dedicate resources for “Supplier Relationship Management”.
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