Supplier Relationship Management

What is supplier relationship management?

Supplier relationship management is the management and maintenance of the relationship between a buyer and supplier. The type of working relationship you should form with your suppliers, depends on the criticality of the goods or services being purchased and supplied into your organisation.

Supplier relationship management is a core soft skill for all procurement and supply managers. When managing a supplier, you’ll need to consider doing the following things:

• Assess their capability to meet your contractual needs
• Measure their performance during the contracting period
• Work with them to identify challenges, whilst looking to improve the working relationship
• Ensure you have the right levels of contact to ensure that the relationship remains on track for both parties

The CIPS Relationship Spectrum

The relationship spectrum reflects the level of commitment to the relationship from both the buyer and the supplier. It considers trust, transparency and information sharing, risk management and mitigation, and communication. As the levels of each of these factors increase between the two parties, so does the strength of the relationship.

About the CIPS Relationship Spectrum

The left side of the spectrum focuses on buyer-supplier relationships with low commitment from both parties. These relationships are price-focused, transactional, and sometimes adversarial in nature. The outcome of the deal is more important than maintaining good relations over a long period of time.

Moving towards the centre of the spectrum, the relationship becomes more frequent in nature, with a level of dependency and commitment between the parties. The goods or services provided have a higher value or level of associated risk, making closer relations a necessity. Suppliers may provide unique or bespoke goods or services or assume responsibility for a business task previously undertaken in-house.

The right-hand side of the spectrum considers strong relationships with key strategic suppliers. Relationships are characterised by high levels of commitment and collaboration between both parties. These relationships are only entered into with strategic suppliers, or suppliers who provide critical high-risk/high-value goods or services, due to the amount of time and resources required to manage the relationship. In some circumstances, a more collaborative relationship is developed with one or a small number of strategic suppliers to achieve mutual gain. These relationships can sometimes progress into partnership or co-destiny situations, where the buyer and supplier work closely together to the extent that they could be considered one function or business.

What are the benefits of effective supplier relationship management?

Effect supplier relationship management can in turn lead to benefits within the relationship in the form of:

• Price reductions: Working collaboratively and sharing forward forecasts can open a discussion to remove cost from the production process, or any other areas of the supply chain.
• Cost information exchange: Buyer and supplier discussions around the total cost to deliver the goods or service. This could be consideration for alternative components/specification variance, inventory reduction and other areas of cost-saving, whilst still achieving performance objectives.
• Technology or innovation exchanges: The supplier may share innovative developments or new market offerings 
• Improved or priority service levels: Highly regarded customers are often offered priority production availability. Based on the scope of work and security of the relationship, suppliers may even consider investment in developing their production capacity to meet increase customer demand.

What are the challenges of supplier relationship management?

Developing good relationships with your supplier will help you eliminate waste activities within your supply chain and help you to improve the service you’re offering to your customers. However, supplier relationship management isn’t easy, and there are some challenges you may face.

• Difference in business cultures: Many organisations opt to source their products from suppliers oversees as costs are much lower. However, understanding your suppliers' culture may be difficult, particularly if you’ve never done business with them before. Do some research on their location and culture, which will help you build up a good rapport.
• Corporate social responsibility: Supply networks have become more complex so ensuring that suppliers meet ethical, social and environmental standards, is the responsibility of the supplier relationship management team.
• Compliance: Ensuring that your suppliers meet regulatory requirements, environmental and manufacturing standards can be difficult if you’re working with multiple suppliers across the globe.
• Supplier training: If your supplier doesn’t understand your organisations objectives, then the supplier will not meet the agreement and under-perform. It’s important that you take the time to walk them through processes about how your organisation works and give the appropriate training. However, this can be time-consuming if you work with multiple different suppliers.

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