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Benefits from Formally Managed Supplier Relationships

The components which comprise Supplier Relationship Management provide a high level of assurance, at a relatively low cost that contractual deliverables, and relationship objectives are met, by concentrating management effort through a well defined and focused team.

An SRM approach provides benefits to suppliers and customers!

For both parties

Major deals are expensive to pursue.  Set up costs for each party may be six or seven figure sums, and deals take many months to complete.  Neither party wants to incur:

  • damaged reputation from disputes
  • unnecessary costs associated with either re-negotiating or early exiting of a contract
  • financial consequences resulting from poor performance

An early analysis of each organisation's culture, values and expectations for the relationship, can help to ensure that the relationship matures to mutual benefit

Benefits to the Supplier

If you are a supplier and believe Supplier Relationship Management to be:

  • appropriate to customer organisations only
  • a tool to control or regulate suppliers
  • something you would be better off without

.. then please read on!

Supplier Relationship Management should be about management of the relationship between a Customer organisation and a Supplier, to the mutual benefit of both parties.  This is the only basis upon which a long term commercial relationship can be founded.

This requires both parties to have a mutual respect and understanding for each other's business, and the rights of each business to make profit.  This is the basis for a partnership.

Some of the advantages to suppliers from an SRM implementation:

  • It provides formal routes of engagement at different levels of management allowing further supplier business opportunities to be exploited at senior levels
  • Ensures that operational level process mapping is undertaken, so a supplier is in possession of all details it needs to be able to perform
  • Ensures that customer's obligations to the supplier are identified and managed.
  • Provides forums for discussing and resolving supplier issues, including escalation paths within both organisations
  • The approach limits customer influence on the way the supplier runs their operation
  • Complements a suppliers Key Account Management function.

Benefits to the Customer

A customer organisation may benefit from a well managed supplier relationship through:

Competitive Advantage

  • Allows the full potential of the supplier's expertise to be realised in developing the Customer's business strategy.  Early and senior, formalised engagement will ensure integrated strategies which will enable the customer to bring new business services/products to market at the earliest opportunity.
  • This benefit will increase over time as trust is established, and both organisations feel comfortable in sharing strategic plans

Efficiency

  • Ensuring maximum use of standardised products and services.  Customised products and services will cost more, and make the organisation dependent on the supplier, which may also make it difficult to achieve competitive pricing
  • The less interaction there is between the organisations to resolve incidents, problems or poor performance, the lower will be the costs of managing the relationship, and the lower will be the costs associated with quality failure
  • Customer organisations using the same standardised approach for a number of suppliers will gain economies from re-use
  • Ensures that supply costs are contained, and that opportunities for improving the cost effectiveness of services are regularly explored and progressed
  • Helps to ensure that supplier capacity is matched efficiently with demand

Effectiveness

  • The longer a supplier works with the customer, the greater will be the implicit knowledge which the supplier's staff accumulate about the customer, resulting grey areas being handled 'correctly' more regularly
  • Ensures that process linkages are created between the organisations for all the service management disciplines.
  • Ensures that the right people are involved in the right activities at the right time.
  • Limits the people involved to ensure consistency in process and communication.
  • Identifies and involves senior stakeholders, mapping escalation routes and matching face-offs.
  • Takes an active approach to ensuring that contractual performance is met
  • Ensures that suppliers continue to improve their own products and services, in ways which provide most improvement to the customer organisation's products and services
  • Ensures that comprehensive risk management is undertaken, including where relevant ensuring that statutory and/or regulatory obligations are met

 

A suitably balanced, and well implemented SRM framework will ensure that the business and operational interests of both parties are protected.   Essential has a ready formed toolkit which can be used to profile a particular relationship, and then establish relevant structures and processes. For more information --> Essential Toolkit


 

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The content of these pages represents the personal views of the author and is provided for information only.  The content does not constitute advice.  The reader shall accept responsibility for all uses to which the information is put.


For help in developing and implementing, or reviewing the effectiveness of supplier management arrangements, please contact us: info@essentialcs.co.uk