How to drive supplier relationship management in 5 key levers

Supplier relationship management procurement challenges
April 20th, 2023
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Supplier relationship management is an integral part of the procurement function’s missions. In today’s uncertain and volatile global environment, creating the conditions to ensure a lasting and trusting partnership with key suppliers has become strategic for companies. To achieve this, you must manage supplier relationships with a view to joint development.

1. Define the contractual framework

When sourcing suppliers, it is essential to start by ensuring a balanced match between the need, the contract, and the market. You must therefore consider the actual needs of internal customers and the resulting management by the buyers within the company as soon as the specifications are drawn up.

In the contract itself, you must clearly and carefully detail the conditions as well as the Key Performance Indicators (KPI) that will be monitored throughout the commercial relationship to avoid any risk of confusion or litigation.

You can also attach sustainable procurement charters to the contracts or include certain best practices, which provide a reference framework for the corporate social responsibility commitments expected by the company.

Following this, both parties should set up evaluation processes and gather the necessary resources to monitor and control strategic supplier performance.

2. Relying on a digital solution (SRM)

The best way for the procurement departments to manage their supplier relationships is to get a complete SRM[1] software. A tool like this enables them to:

  • Keep just a single supplier relationships file;
  • Analyse costs;
  • Manage legal documents;
  • Automate supplier data updating, etc.

As a result, purchasing teams get a 360° view of supplier relationships, performance, and the management of related risks.

Peter Bonney, CEO, and co-founder of Vendorful, a SaaS sourcing and SRM solution, says: "The value of supply chain data cannot be overstated. Supplier relationships are complex and typically the data for these relationships is spread across multiple solutions that don’t communicate with each other. The first step in data is to get visibility into supplier relationships across all data silos and make it visible to all stakeholders."

3. Managing supplier risk

After the last successive crises, risk management has become a top priority for companies. The majority of them have set objectives regarding the management of supplier risks (whether they’re logistical, quality, operational, financial, CSR based, etc.). In fact, a key supplier’s most minor failure can have an impact on the entire supply chain or on the company’s brand image.

Therefore, it is essential to analyse the risks before entering any new business relationship by collecting the necessary information. For suppliers that are already under contract, you are advised to map out all the risks and then carry out an action plan suited to their various challenges such as:

  • Implementing supplier audits;
  • Updating contractual clauses;
  • Adjusting processes, etc.

4. Complying with payment deadlines

Compliance with supplier payment deadlines is just as important as compliance with delivery deadlines for the company. Procurement departments are also evaluated based on compliance with and management of supplier payment deadlines. Buyers are taking responsibility for these cross-functional issues, as well as for the tightening of regulations in this area. Should there be any late payment, it is important to initiate a constructive communication approach via a continuous and transparent dialogue.

To date, nearly one in two European companies pays its suppliers on time, according to the latest Altares study. Thierry Millon, Director of Research at Altares, the leading international BtoB information network, explains: "Covid, supply difficulties, the war in Ukraine, inflation and so forth all create the kind of serious context that encourages vigilance and, consequently, careful cash management. However, overall, payment behaviour is not deteriorating. Better yet, it’s improving.”

5. Building a genuine company/supplier partnership

Today, procurement departments are also implementing strategies to improve the quality of supplier relationships, mainly by making them more willing to work together. In fact, companies have realised that it is in their interest to become their suppliers’ "favourite customer", in other words, their priority.

In addition to giving suppliers visibility about future orders, it is a question of developing together, through co-innovation or co-investment processes, for example. Suppliers then become genuine partners with whom companies work closely and build long-term, mutually beneficial relationships that support value creation.

Supplier relationship management therefore consists of building a strategy based on your strategic partners so you can improve and foster your relationships with them in the long term. So why not consider streamlining your supplier portfolio to achieve this? This lever is often used by the procurement function to optimise the Total Cost of Ownership, among the many other tools available to buyers.

[1] Supplier Relationship Management