Introduction:
In today’s highly competitive business environment, cost reduction is a top priority for procurement professionals. However, achieving this goal without sacrificing the quality of supplier relationships can be challenging. Supplier Relationship Management (SRM) offers a strategic approach to managing and collaborating with suppliers to extract more value while reducing costs. This article explores nine practical ideas to reduce costs through SRM, emphasizing the importance of balancing strong supplier relationships with effective cost-cutting strategies.
What is SRM, or Supplier Relationship Management?
Supplier relationship management is the field that studies how to plan and handle all contacts with outside companies that provide goods and/or services to a business so that those interactions are as valuable as possible.
In real life, SRM means getting closer to and working together more with key providers to find and use new value and lower the risk of failure.
Alignment between buying and the business units is very important.
They need to be able to explain why providers who might not be the cheapest choice because of things like customer service, on-time supplies, payment terms, reporting, etc. are actually the best value for the business as a whole.
Category leaders need to be able to explain how the company will be affected by new suppliers vs. current suppliers. Too many times, it looks like the grass is better on the other side. When a low-cost new provider is chosen, practical differences can get lost, and the change ends up being a disaster.
Why is it important to manage suppliers?
To put it simply, it gives you an edge over your competitors. Whether you are in charge of purchasing or the supply chain for your company, a good supplier management system will help you get the most out of cost-cutting possibilities, services that deliver value, and general systemic efficiencies that you wouldn’t be able to get otherwise.
Focus on your ties with suppliers.
A key part of any business’s success is being able to keep good working ties with their suppliers and partners.
People who manage relationships with suppliers should never get too comfortable. You should never follow the saying “if it ain’t broke, don’t fix it.” Instead, you should always be looking for ways to improve the relationship, make things easier, or change how things are priced. Relationship managers for suppliers should always be looking for ways to change things.
To have good ties with your suppliers, you should also be able to talk to them and not be afraid to ask, “What can we be doing better?”
Are you a customer of some important suppliers? Here are some quick ideas to help you build a better relationship with them and make them want to fight for your business.
7 ways to make managing your relationships with suppliers better
- Always treat your sources as more than just sellers
- keep trust and loyalty in mind.
- Make mechanisation and technology better.
- Follow the payment terms and make plans for how to communicate.
- Explain the difference between worth and price.
- Assign a Supplier Relationship Manager (SRM) to your business.
- Make sure that the leaders of the Procurement and Supply Chain categories are on the same page.
How to Use Supplier Relationship Management
Let’s look at the supply chain and transportation area and see how some of these ideas can be used there.
How to get your supply chain and transportation network to choose you as a “shipper of choice”
Logistics costs are often a big part of how much a company tries to cut costs. A big chunk of accounts due can come from logistics costs, whether they are direct or secondary.
You can save money on shipping by going with the cheapest option, but it might cause more problems than it’s worth.
What are the shipper’s main goals in supplier relationship management?
- Stay away from problems
- deliver on time
- low cost
- no damage.
What are the most important things a provider wants to do?
- Getting the best shipper
A carrier has something valuable to offer, and it’s very important for them to find the best customer to work with so they can use that valuable thing.
The world transportation network can only hold so many packages at a time. Why would a carrier want to move your things instead of someone else’s?
Before negotiating prices, a seller should try to make their goods something that carriers want to have in their network. Because they care about you as a partner, they will fight for your business.
What can a seller do to make sure that companies will want to take their goods?
- Label goods correctly
- Safely and correctly pack goods
- Give correct details about the goods
- When you can, use normal measurements.
- Use good boards.
- If you can, give plenty of lead time.
- Be open to change on your end, but stick to your method.
- Make sure the driver facility is clean, safe, and looks good generally.
Save money on the delivery chain: Talks about lowering costs
Once the right steps have been taken and a strong base has been created, the relationship between a procurement and supply chain company and its providers can finally talk about lowering costs.
After getting through the Supplier Relationship Management process, you are now ready to talk about costs.
Here are nine things you can say to your sellers to cut costs and improve your supplier relationship management:
- Length of contract
- With caps, future price rises will be less.
- Better deals or levels of incentives
- Cash Back
- Limits on volume
- Costs of Delivery
- Terms of Payment
- Charges Not Included
- Other Than That (Better reporting, more openness, communication plan)
One of the most important things to do before these talks is to be ready to talk about these kinds of ways to save money.
If your main goal is to get the unit price as low as possible, your seller probably won’t be too open to that.
As you work together, listen, and find common ground, you can create a relationship that benefits everyone.
Conclusion:
In conclusion, Supplier Relationship Management is a powerful tool that not only helps organizations reduce costs but also fosters long-term, mutually beneficial relationships with suppliers. By focusing on collaboration, transparency, and strategic negotiation, companies can unlock significant savings while maintaining high standards of service and quality. Implementing these nine ideas will position businesses to navigate the complexities of modern procurement, ensuring both cost efficiency and supplier loyalty in the long run.
