How to Improve Supplier Relationship Management (SRM System)?
Suppliers as customers are strategical business partners and yet there is often a big difference when it comes to relationship management practices between these two.
In sales there is Customer Relationship Management (CRM) software e.g. Salesforce, Pipedrive etc. which ensures that every piece of information about current and potential customers is systematically stored. Additionally these tools help to manage sales pipeline and budget revenue streams.
In Procurement, maintaining and updating supplier information is often undervalued and for sure this is not seen as important housekeeping task as maintaining customer records.
When looking at numbers then according to CAPS & Bain research external purchasing is the largest single expense category for most firms, and it covers close to 50% of total revenue. As an example manufacturing company with annual revenue of 100m€ will spend nearly 50m€ to purchase various goods and services in order to keep production running. There are 4 main types of purchases what one can think of.
4 types of purchases:
- Direct goods—tangible goods required to manufacture items or provide services to customers. These goods are typically part of BOM (Bill of Material) so these are purchased from suppliers and used directly in production of final product.
- Direct services — when it comes to direct services, then these can be subassemblies, subcontracting works, transportation, 3rd party manufacturing etc.
- Indirect goods — good distinguisher from direct goods is that indirect ones are not part of BOM and these are not necessarily required to provide service or manufacture items for customers. Indirect goods examples are office supplies, computer hardware, transportation equipment, furniture etc
- Indirect services — various additional services what companies may need for various reasons. As an example indirect services can be: marketing services, IT, legal & management consulting, research and development, travel, transportation, capital, financial advice etc
For a company who wants to improve supplier relations it is very important at first to set a clear improvement objective and then find out what solution will provide most value.
- Gain greater visibility into supplier relationships and performance.
- Accelerate procurement processing time.
- Store and maintain all supplier information including contracts, certificates, memos, conversations etc. in one place.
- Move discussions and emails out from purchasers personal inboxes into one central account.
- Monitor supplier spend and decide volume allocations.
- Crawl information from web regarding suppliers and get notifications about significant events.
- Support supplier negotiations, by using everything mentioned above.
- Keep potential suppliers on radar.
Relationships with suppliers are never one sided. Instead these work based on mutual agreements. In best case scenario there is a win-win situation and both partners are satisfied with their business relations. Unfortunately it is not always the case and often things go sour. When this happens then both parties need to consider loss of time and money.
Top 5 reasons why business relations go bad:
- Over-promise under-delivery — typical situation when expectations do not meet with reality.
- Communication cap — things go bad when information is not funnelled correctly or when there are no clear communication path. Small misunderstandings can quickly lead to major disruptions.
- Agreed terms are not respected — overdue payments, wrong delivery terms, not agreed price lists.
- Performance is not meeting expectations.
- Inconsistency — missing out regular meetings, phone calls, performance reviews means losing out personal touch.
Typical costs linked with bad supplier relations:
- Administrative costs
- Quality costs
- Wasted time
To make supplier relationships work and avoid negative scenarios plus extra costs then it is important to invest into good supplier relationship management systems. SRM systems help to manage data and typically these pull information from various sources and consolidate everything what matters under supplier account.
ProcurementFlow.com is helping to keep all supplier related information in one single SRM (Supplier Relationship Management) system. This means that supplier contacts, documents, activities, spend and internal comments are all seen from one supplier page. All vital pieces of data are combined together and presented in a most meaningful way.