Effective SRM: communication, innovation and value

There is a natural knee-jerk reaction to underestimate the importance of soft skills in technical areas such as purchasing and supply chain management. This is an understandable position to take: why focus on communication or the ability to build relationships when in practice contracts often depend on costs, balance sheets and KPIs?

But the days of one-sided trading with suppliers are numbered. Modern and efficient purchasing functions live or die through the strength of their relationships, both with internal stakeholders and, above all, with their ecosystem of external suppliers. Organizations were made aware of this fact during the COVID-19 pandemic, when shortages, bottlenecks and fluctuating prices became the status quo.

“If the last year has taught us anything, it’s the need to manage disruption and build resilience with agility across our supply chains,” says Ambeshwar Nath, VP & Regional Head, Consumer , Retail & Logistics – Europe, Infosys. “This cannot be done on its own given the myriad of suppliers across the value chain that we have to work with in order to get the goods to their doorstep. “

Perhaps more than any other function in the supply chain, Supplier Relationship Management (SRM) has become an essential skill for ensuring efficient procurement organizations. Duncan Brock, Group Director, Chartered Institute of Procurement & Supply (CIPS), believes it is now more important than ever for organizations to build strong relationships with suppliers, not just to ensure they meet their obligations contractual, but to understand them and support them in the event of disruption.

“If your suppliers fail, you fail, it’s that simple,” says Brock. “As companies discovered during the pandemic, it was not easy to find alternative sources for merchandise that did not show up. If you’re sourcing from halfway around the world and expecting to find sources closer to you, that’s not always possible.

What is an effective SRM in purchasing?

An effective SRM must follow four key principles: effective communication, fairness, transparency and respect, says Nath. Ultimately, it must be fair and two-way.

“Effective supplier relationship management is a two-way, mutually beneficial management for both parties, where the focus goes beyond traditional purchasing agreements and extends to fostering innovation and collaboration. », Explains Nath. “A good supplier relationship is a partnership that must be nurtured and invested in – for long-term benefits. It’s managed through a two-way balanced dashboard where you give feedback to your partners, but are also open to receiving feedback on what you can do better.

For Brock, “it’s about open, transparent and honest communications and a willingness to collaborate in good times and in bad times. Regular catch-ups allow suppliers to share the difficulties they encounter and which could have an impact on you later ”.

Sometimes it’s as easy as renegotiating the payment terms. During the pandemic, thousands of SMEs went bankrupt as cash flows strained and supply chains came to a halt. “Some companies saw the writing on the wall of their critical suppliers last year and paid them earlier to avoid any problems during these disruptive times,” Brock said.

And it’s the organizations that have backed their suppliers who will emerge stronger as the global economy reopens in earnest. With no end of disruption in sight, suppliers have more bargaining power than ever before. “In times of disruption, a supplier can hold so much energy if the one critical component they supply but does not supply blocks your production line,” explains Brock. “Gone are the days of ‘knocking down the supplier’, not just because it’s an unethical approach anyway, but because the next disruption is just around the corner. “

Digitization and supply chain management

The digitalization of purchasing has been revolutionary for SRM. Platform technologies make the value chain more transparent, while robotic process automation (RPA) and intelligent automation enable purchasing professionals to engage with suppliers and drive more value.

Jaggaer is a leading provider of procurement technology, offering a suite of solutions that bridge the gap between organizations and their supplier ecosystem. Jim Bureau, CEO of Jaggaer, says that harnessing this type of technology “drives more efficiency.” “Procurement can build stronger relationships with suppliers instead of relying on outdated spreadsheets, phone calls and other communication methods that are prone to errors and hamper agility and innovation. He said.

Bureau reports an increase in emerging technologies, such as artificial intelligence (AI), machine learning (ML), predictive analytics and natural language processing (NLP), which will further connect vendors and help business professionals. purchases to manage and develop their partnerships. “This built-in intelligence helps people predict and mitigate risk, share skills and knowledge, and collaborate better with suppliers and stakeholders,” he says.

Other emerging technologies, including blockchain, will open up new opportunities. Some of the world’s largest organizations are already testing the technology. “For example, Walmart Canada has already started using blockchain with the logistics companies that transport its goods,” says Nath. “A shared blockchain makes it possible to synchronize logistics data, track shipments and automate payments without requiring significant changes to technological systems inherited from logistics companies.

The value of proactive SRM

Beyond risk mitigation and short-term navigation of global shortages, SRM should be seen as an opportunity to spur innovation, work collaboratively towards critical ESG goals and, in the age of better rebuild, support and strengthen the entire value chain.

“There are benefits for both parties,” says Brock. “Buyers can learn from their suppliers and consider innovative approaches, which also broadens their perspectives in their particular market. Suppliers can benefit from their customer’s support when times are tough, especially if it’s a David and Goliath situation, with a large company working with a small company.

Nath says that companies often “underestimate the power” of their suppliers and that their capabilities help an organization. “Toyota is one of the pioneers of collaboration between suppliers,” he adds. “They have had close relationships with their major suppliers for decades, which has enabled them to reap significant benefits,” he says. “Establishing a long-term culture with regular two-way communication and top in both cost savings and product innovations.

“A healthy relationship with suppliers also has the added benefit of allowing you to increase the value of your business,” adds Nath. “The higher the bond between you and your supplier, the more benefits, preferential rates and dedicated treatment you can derive from it. This allows your company’s supply chain to become more efficient, profitable and dynamic.

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