Strategic Supplier Relationships: The Key to Vendor Performance Management
An old saying in the supply chain says that a vendor will give you the best deal, while a strategic partner will provide you with the best quality and lowest cost. This is the basis for our article on Strategic Supplier Relationships, also known as Supplier Relationship Management (or SRM). SSR can be described as a holistic approach to managing interactions and communications between enterprises and their suppliers. SSR aims to improve and streamline communication between enterprises and their suppliers. SSR enhances the efficiency of the purchasing of goods and services, managing inventory, processing purchase orders, and managing materials. SSR has many benefits, including lower costs, reduced administrative burden, higher productivity, and a more integrated supply chain. It is vital to aggressively manage COGS (cost-of-goods sold) in order to increase profitability. Margins are being squeezed in the food industry. This article aims to provide insight into how SSR can reduce administrative burden and increase margins. Many companies have published numerous examples of SSR being used to improve the strategic relationship between suppliers and buyers. These rules of engagement can help you achieve SSR.
1. Take the time to evaluate and select strategic suppliers.
Take a look at the business of your strategic partners before you make a decision.
– Financial stability (D&B).
Refer to clients
– Increase your network’s proximity
– Management depth
– Years of experience in business
– Technology (EDI).
– Cultural fit
2. Set clear expectations.
Make sure you have clear expectations and rules before signing any agreement with a supplier. Also, make sure they are able to perform the tasks that you require. Clear roles must be established, and no ambiguity should be allowed in terms of responsibilities.
3. Define your goals and performance targets.
To compare suppliers and keep them on the right track, you must develop and track key performance indicators (KPI). KPI’s include on-time delivery and expected lead times. Freight terms are also important. Each supplier must submit a quarterly report card. Use the SMART method to set performance targets. Each goal should be:
Specific,
Measurable,
Attainable,
Realistic and realistic
It’s essential to do so promptly.
4. You can monitor and rank supplier performance.
A scorecard is a great way to track supplier performance. It is also a good idea to rate suppliers from best to worse and share this data to help improve performance. Nobody wants to be at the bottom of the report.
5. For continuous improvement, conduct annual reviews.
Last but not least, meet with suppliers to discuss ways to increase productivity, reduce administrative burden, increase technology use, and lower costs.
Conclusion
Comprehensive strategic supplier management programs will lead to a significant decrease in administrative burden, lower costs of goods, and eventually, better profitability. First, establish the base of suppliers in terms of volume, frequency, price, and other factors. Next, create a clear set for expectations, goals, key performance indicators, and monitor them quarterly. Last but not least, make sure you meet regularly with strategic partners to discuss ways to increase productivity and reduce costs. You should also spend time explaining to your suppliers the company’s culture and your strategic growth plans. If taken seriously, these steps will improve supplier relations and reduce costs. They will also impact profitability. Remember that vendors are a thing of the past. Strategic partners are what really make a difference.
Bio: Tony Vercillo
Tony Vercillo, the president and CEO of IFMC, Inc., a supply chain, logistics, fleet management, distribution, and logistics consulting company located in Southern California, is Tony. Tony has 12 years of experience as an International Supply-Chain consultant, four years as a chief operating officer and regional vice president at a significant third-party logistic company, and eight as the National Manager for Distribution at PepsiCo.
