What is Supplier Relationship Management?
Supplier Relationship Management (SRM) is the way a retail store interacts with its relationships with wholesalers, manufacturers, and distributors. Strong relationships with suppliers influence the entire purchasing process. They enhance the quality of service you receive, reduce costs, and strengthen your supply chain, minimizing order confusion that could lead to shoppers being unable to purchase products from your store.
Goals of Supplier Relationship Management
There are three main goals of Supplier Relationship Management: managing risk, streamlining sourcing, and maximizing value.
Managing Supplier Risks
Running out of stock is one of the biggest risks retailers face. This occurs when suppliers fail to meet customer demand, often forcing consumers to buy products from another retailer. This issue costs U.S. retailers $82 billion in lost sales each year, or about $1.56 billion a week.
Simplifying the Sourcing Process
Suppliers are experts in manufacturing and shipping. Leverage their expertise to simplify the sourcing process, reduce waste, and save money.
Confident Inventory Management
The Shopify POS system helps you manage inventory in the warehouse and retail store from the same back office. Compare inventory costs against revenue, see which products are running out or piling up on shelves, forecast demand, and more.
Maximizing Supplier Value
In addition to providing inventory, a strong supplier base enhances the value you receive from each partner. For instance, retailers with fast-moving inventory may require quicker response times from suppliers. Suppliers with whom you have built strong relationships may be more responsive or even provide a direct phone line for their point of contact.
Challenges of Supplier Relationship Management
Supplier Relationship Management is essential, but it’s not easy. Let’s take a look at some common challenges associated with managing supplier relationships.
Lack of Visibility
Suppliers are not part of your business, but they are one of your most important assets. Nevertheless, a lack of visibility regarding suppliers, such as their commitments to other retailers and their capabilities, can be a challenge. “Trust is essential in any relationship, but building trust with suppliers can be difficult,” says Helen Armstrong, founder of APSLEY Australia. “Like any relationship, supplier relationships need to be nurtured through timely communication. This is not easy when you’re managing multiple suppliers while trying to run your business at the same time.”
Over-Focus on Cost
Of course, it is important to get products that you can sell at a higher price in your retail store. But suppliers also run businesses. Pressures regarding pricing can strain the relationship.
Unclear Performance Indicators
Supplier relationships often fail when parties have different expectations. This largely stems from unclear Key Performance Indicators (KPIs) and metrics. For example, if you expect products to be shipped within three business days of placing an order, but the supplier thinks five days is the normal timeframe, this will create friction.
Benefits of Supplier Relationship Management Programs
A Supplier Relationship Management program can positively impact your business in several ways. The main benefits of an SRM program include cost reduction, enhanced supply chain, and increased innovation.
Cost Reduction
The less you spend on inventory, the higher your profit margins. Building a strategic relationship with suppliers may grant you access to special discounts.
Enhancing the Supply Chain
The conflict between Ukraine and Russia has significantly impacted air freight, ports, and shipping. Meanwhile, supply chain management professionals are still suffering from the effects of the COVID-19 pandemic. For this reason, 39% of the brands we surveyed stated that shipping/manufacturing disruptions and shipping costs would be the biggest challenges they would face in their supply chain over the next 12 months.
Increase
Innovation
Suppliers and manufacturers need to be innovative to stay competitive. Retailers need this too. As part of your Supplier Relationship Management program, explore whether you can rely on the innovation provided by suppliers to accelerate your own business innovation.
Supplier Relationship Management Process
There are several steps to effectively manage supplier relationships:
Segmenting Suppliers
Not all suppliers are equal. Strategic suppliers, who have a greater impact on your business than others, include those who provide:
Collaborating with Suppliers
Once you identify your strategic suppliers, prioritize building relationships so that you can extract maximum value from them. Work with your most important partners to manufacture, purchase, and ship inventory in a way that makes both parties satisfied.
Building a Supplier Strategy
How do you plan to work with your suppliers? How often will you communicate with them? What metrics will you use to monitor performance? Discuss these points with each strategic supplier at the beginning of your new Supplier Relationship Management strategy.
Tracking Results
Is the supplier meeting the goals you set at the beginning of the relationship? Continuously monitor the supplier’s performance to ensure they meet quality, service, and delivery objectives.
Tips for Improving Supplier Management
Here are some tips for enhancing supplier management:
Clearly Define Goals
Share your business goals before working with any supplier to avoid miscommunication in the relationship.
Pay Suppliers on Time
Try to pay all suppliers according to the terms agreed upon in the contract. This shows your respect for them and awareness of their needs.
Use Detailed Contracts
A contract is a legally binding agreement between your retail store and the supplier. It obligates both parties to uphold the quality of goods purchased and the funds exchanged.
Establish Continuous Lines of Communication
Communicate regularly with your suppliers, even if there is no agenda. For example, you can:
Continuously Monitor Risks
Continuously monitor risks so that any issues can be addressed with suppliers before affecting supply.
Utilize Supplier Relationship Management Software
Use supplier relationship management software to facilitate tracking and effectively managing relationships with suppliers.
Enhance Supplier Relationship Management for Your Business
Suppliers are the backbone of any retail store, especially those with which strong relationships have been built. Mutual partnerships can offer benefits such as price stability, increased innovation, and a steady supply of best-selling products.
Manage Inventory from One Place
Shopify POS system comes with tools to help you manage inventory in the warehouse and retail store from one place. Forecast demand, create low-stock alerts, know which products are selling or sitting on shelves, conduct counted inventory, and more.
FAQs About Supplier Relationship Management
What does supplier relationship management mean?
Supplier relationship management is a strategic approach to managing a firm’s interactions with the people and institutions that provide the goods and services it uses. It involves creating and maintaining mutually beneficial relationships with these suppliers to improve the quality and cost of the goods and services they provide.
What is an example of supplier relationship management?
Supplier relationship management is a business practice that involves managing interactions with external organizations that provide goods and services to the company. The goal of supplier relationship management is to improve the quality and cost of the goods and services purchased from suppliers. An example of supplier relationship management is when a company has a contract with a supplier for a year, and during that time, the company works to build a strong relationship with the supplier. The company works to ensure that the supplier delivers goods and services on time and as expected, and also negotiates better terms for the next contract.
Why is supplier relationship management important?
Supplier relationship management is important because it helps organizations manage and track relationships with suppliers. It can help reduce costs, improve quality, and increase communication and cooperation between both parties.
What
The three steps in supply chain management for supplier relationships include identifying, qualifying, and selecting suppliers.
Source: https://www.shopify.com/retail/supplier-relationship-management
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