How Supplier Relationship Management Drives Productivity and Cost Reduction

Simon Hardy is Director of Customer Solutions at Elemica, he shares his thoughts on Supplier relationship management.

According to a recent American Productivity & Quality Centre (AQPC) report, supply chain managers identify supplier relationship management (SRM) as a top 2017 priority. If properly executed, SRM can result in materials and services arriving at the right place at the right time and can provide an ideal balance of inventory, working capital, and service levels. A disciplined SRM approach increases collaboration and communication between trading partners and helps to remove transactional barriers.

A robust SRM strategy helps businesses to maximize partnership value, minimize risk, and manage costs throughout the supplier relationship lifecycle. As a procurement expert, you recognize that your suppliers are also focusing on their customer journey so that they can ensure your loyalty.

Effective SRM starts with understanding your internal capabilities, your supply base, and the available collaborative technologies. A key goal is to drive holistic alignment with suppliers across the corporation. By automating with the right suppliers, your business can reduce administrative burden and errors, gain visibility into what is happening, and drive down costs.

However, automation alone is not the answer.  Process efficiency needs to first be measured before it can be improved.

To understand the supply base, begin by evaluating your suppliers’ financial stability. Gain visibility into inventory, recognize their flexibility and scalability, attain lead times, monitor key performance indicators, identify their payment terms and evaluate their commitment to customer service. A high level of trust is required to maintain strong relationships. Engaging with suppliers as collaborators evokes a win-win relationship that fosters cost savings and efficiency.

For example, a leading global tire manufacturer was able to remove $800,000 in annual costs through the automation of their direct materials procure-to-pay business process.  Linking the complete inbound supply chain including suppliers, carriers, freight forwarders and third-party logistics providers on a collaborative network provided the end-to-end visibility they needed to eliminate costly expedited freight.

SRM also allows procurement managers to conduct regular spend assessments. This helps them to better understand what they get for what they spend, and also enables them to make accurate comparisons of various supplier offerings.

Other SRM best practices include aggregating same supplier volumes across the organization to provide the business with a stronger negotiating position. SRM can also help you evaluate alternative suppliers on a regular basis so that the best products at the best value can be purchased.  In addition, SRM data can help when renegotiating contracts on a regular basis so that cost and risk can be adjusted.

The need to evaluate supplier relationships on an ongoing basis is symptomatic of the global reality of a marketplace fraught with risk. Socio-economic challenges, natural disasters, war and weather can wreak havoc on suppliers’ facilities and organizations. It is important to have back-up suppliers that have undergone strict evaluation and passed protocol in case something happens to your Tier 1 partner. Buyers need a network that can quickly identify alternative suppliers who have already been evaluated regarding their on-time performance, costs, and lead times.

When collaborating with suppliers, a win-win perspective solidifies positive relationships. As you forge your journey together, you develop a relationship that will thrive for years, or even decades. Help your suppliers to lower their costs by suggesting more efficient manufacturing processes or less costly transportation options. Provide insight into your own production cycles and educate them as to how their product adds value to your customers. By working hand-in-hand with suppliers, everyone wins.

The Benefits of Having Effective Category Management in Your Business

Applying category management to purchasing activity for your organisation can benefit the company by reducing the cost of buying goods and services both short and long term.

Category management is a strategic approach which organizes procurement resources to focus on specific areas of spends. This enables category managers to focus their time and conduct in depth market analysis to fully leverage their procurement decisions on behalf of your whole business.

So what other benefits can category management deliver? Implementing the process can reducing risk in your supply chain, increase the overall value from the supply base and gain access to more innovation from suppliers.

Using category management effectively can result in significantly greater cost savings to your business than traditional transactional based purchasing negotiations.

Here is a ten steps process to implement an effective category management process in your business:

  1. Segment Spend

Classify purchasing items into market sectors and develop category trees

  1. Category Teams

Establish Cross-functional category teams & board

  1. Demand Analysis

Forecast & analyse internal demand for purchasing items in each category

  1. Supply Analysis

Analyse the external supply market

  1. Sourcing Strategies

Evaluate and decide sourcing strategies for each category5

  1. Supplier selection

Select suppliers that best fit the business need and seek strategic partnering

  1. Identify and Prioritise Opportunities

Cost saving and improvement initiatives with focus on high impact and quick-wins

  1. Category Plan

Finalise the category plan and obtain senior management approval

  1. Contracts and Supplier Management

Purchasing execution and management of contracts and supplier performance

  1. Review & Improvement

Conduct timely reviews and implement continuous improvement of the category plan

Getting these steps right are critical to the success of the implementation process. Opinions differ on the approach to manage categories based more effective solution for a not for profit organisation the business sector and the size of the organisation.

A small to medium sized enterprise (SME) and a not for profit organisation have unique needs and requirements, meaning one approach cannot be used for all businesses. If you are using a different process believe yours is more effective we would like to discuss this and share it with the group.

Contact Business Improvement Advisory for a no obligation discussion on how we can assist your business to develop and implement a category management plan to achieve improved results and enhanced profits for your business.

Business Improvement Advisory

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Kym Clayton:                                     0411 500 015

Bryan Schriiffer:                                0450 457 196

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