Evolving Supplier Relationship Management (SRM)
The management of supplier relationships was once an all-or-nothing game. The majority of companies were focused on short-term goals, where the price was the primary focus. The practice of bullying suppliers was common in specific organizations. Employees were very proud of “facing down suppliers,” and relationships were judged based on “how much money we will make.” With the rise of outsourcing and the volatility of commodities, the management of supplier relationships (SRM) is now at the top of organizational strategies. Companies are spending more time considering their selection criteria and establishing the best practices for managing the relationships with partners. However, only a few companies have successfully managed their suppliers, and SRM is still in its infancy.
The issue of quality
Due to the increasing outsourcing and the expansion of global trade, the quality of the product is now an essential aspect. A lot of companies operating in the food for pets, toys, and dairy industries are suffering from recent scandals regarding quality in China as well as other regions of Asia. These scandals have put more pressure on businesses since consumers are becoming more worried about the quality of their products. Recent quality scandals and also those that have occurred in the industry of apparel in the last decade have made clear the necessity of managing relationships as well as the importance of tracking suppliers and auditing. The days when companies could claim “we don’t have control over our suppliers” are over. Environmental concerns and a more excellent examination of labor practices have companies clamoring for better supplier relations.
Outsourcing to the “unknown.”
As outsourcing of manufacturing to Asian countries growing businesses must be aware of the cultural issues. A lot of companies have suffered by outsourcing manufacturing to countries like India as well as China. Management methods that have worked in one place aren’t necessarily going to be effective in other countries, and businesses have to alter their thinking and operate in different markets. The values of each country are different. For instance, cutting corners to cut costs is considered an escape strategy and is more accepted in certain countries. It is essential to know the values of every country and to be adamant about nothing.
The outsourcing of services to markets in emerging economies presents businesses with particular issues. Companies need to develop contingency plans since delays in delivery are more common. According to one executive, “getting on-time deliveries from our Asian suppliers is one of our key challenges.” Being with suppliers in an “unknown” also provides companies with legal issues that are unique to them. Foreign companies that trade with China or India have been criticized in the past for illegal legal procedures. Businesses must be careful to beware of disputes and ensure that contracts are understood by everyone that is involved. Don’t presume that all parties have understood the fine print, and be sure to stay clear of legal definitions. Always strive to make matters easier for the suppliers. Get lawyers that are not just familiar with local laws but also cultural questions. The meaning of law may differ from one country to the next, and cultural aspects must be considered.
In the last few years, businesses have witnessed technological advancements in managing relationships with suppliers. The days of managing suppliers using spreadsheets are gone. SRM has become more complicated. Businesses are demanding greater transparency. The need for real-time information is increasing. Companies are investing significant funds in managing suppliers, and the utilization of software to manage supplier relationships is becoming more prevalent. Managers of supply chains are more often utilizing the web for collaboration and communication with their suppliers and partners.
Find the right partner.
In the past, the selection of partners was focused on cost, with quality sometimes being a secondary consideration. Today, businesses are investing increasing time and resources to create and implement an extensive process for assessing suppliers. Businesses must establish a practical road map as well as clearly defined selection criteria. For instance, the criteria for selection could contain important aspects like strategic vision capabilities, capacity, and environmental concerns. The companies must assess whether potential suppliers meet their requirements. In addition, the selection of suppliers isn’t just restricted to procurement departments. Businesses are increasingly utilizing cross-functional teams. Utilizing outside agencies to track and monitor the relationship with suppliers is also growing.
The company must keep the relationship with the relationship in mind. Businesses must have a clearly defined strategy for developing relationships with every partner, with clear objectives. Trust is the most critical factor for any relationship. Trust must be established across all levels of the company, not only at the senior management levels. For instance, businesses can implement departmental induction programs and, in some instances, integrate suppliers into the company. The better partners know their business partners more effectively, the better for all those affected. With transparent communication channels, partners will be able to confront issues head-on.
The benefits of relationships
One of the main benefits of long-term partnerships is cost reduction. Companies collaborate to address supply chain issues and share their knowledge. Improved communication and collaboration can result in increased sales. Collaboration that is improved can result in more efficient routing and demand planning. For instance, when Kellogg assessed the inventory levels of Tesco, it found that the majority of stock occurred between the hours of work. Kellogg cooperated with Tesco and altered its delivery timing to better accommodate Tesco’s demands. With the change in the delivery schedule, Kellogg reduced stock-outs which increased sales and also increased satisfaction of both customers and consumers. As the Kellogg example, shows cooperating with suppliers can yield mutual benefits for all parties who are involved.
Today, businesses need suppliers who focus on the results of their business and demand speedier service from their suppliers. All suppliers are not equal, and all suppliers should be separated. The importance of segmentation is that it determines the value of the partnership as well as how much time companies have to invest in building relationships with suppliers. Each member in the chain of supply should be accountable, and every person on the team should be aware of their obligations. Companies must ensure the compliance of their employees and establish and communicate clearly Key Performance Indicators (KPIs). In today’s fast-paced world, SRM is on the top of the list for any company that is successful. SRM has seen a significant change in the past few years, and suppliers are considered to be part of the company.
Tielman Nieuwoudt has vast operational and supply chain experience with more than 20 emerging markets in Asia as well as Africa. He has managed supply chains, starting from forecasting through the entry of orders, controlling inventory management, Go-to-Market design, and deployment.
He’s also a highly skilled corporate trainer and has been involved in the creation and implementation of several training programs across Asia in addition to Africa. Tielman is certified as a Certified Supply Chain Professional (CSCP APICS) and holds an undergraduate Degree of Marketing (SA) and an MBA in International Business from the University of Edinburgh in Scotland.