Supplier Relationship Management

What is supplier relationship management​?

Supplier relationship management (SRM) is a crucial part of procurement that focuses on nurturing and optimizing relationships with suppliers. The ultimate goal of SRM is to make sure the company gets the best value from its suppliers while fostering positive and mutually beneficial partnerships.

At its core, SMR strengthens the interactions between a company and its suppliers in order to achieve strategic objectives and minimize disruptions to the business. SRM does this by strengthening:

• Cost savings.
• Quality improvements.
• Product innovation.
• Risk mitigation.

Note that the terms supplier and vendor are often used interchangeably. In general terms, a supplier gives materials that are part of an organization’s cost of goods sold (COGS), while a vendor sells finished products or services that constitute indirect spend. For example, a supplier might sell materials needed in manufacturing a company’s finished product, while a vendor sells a software subscription used by their marketing team. This definition incorporates both supplier and vendor management.

Elements of supplier relationship management.

Here are some of the key elements of effective supplier relationship management.

• Evaluate potential suppliers based on criteria like cost, quality, reliability, and compatibility with the company’s culture and goals.
• Onboard vendors to capture payment details, contract terms, etc. A smooth onboarding experience not only prevents administrative problems down the road but also sets the relationship up on a positive note.
• Build strong lines of communication to address issues and drive improvement. Open communication can build trust, which enables better collaboration.
• Monitor and measure important key performance indicators (KPIs), such as delivery times, quality levels, and cost savings. Closely monitoring performance can help to identify issues before they escalate.
• Work closely with suppliers to identify opportunities for things like process improvements and cost reduction. With collaboration, it’s often possible to unlock extra value for both parties.
• Assess and mitigate the risks associated with supplier relationships, such as supply chain disruptions, quality issues, and geopolitical events.

Supplier relationship management and risk mitigation.

SRM is not only about optimizing supplier relationships for financial gains but also about managing risks to safeguard operations. The following risks must be managed.

Supply chain disruptions.

Disruptions can result from many events, including natural disasters, geopolitical tensions, transportation problems, and supplier bankruptcies. The supply chain disruptions experienced at the height of the COVID-19 pandemic show how vulnerable the supply chain can be.

SRM involves assessing those risks, identifying weaknesses in the supply chain, and developing contingency plans to minimize any potential disruptions. These plans could include diversifying suppliers to protect continuity.

Quality risks.

Quality risks are another critical concern addressed by supply chain management. Through rigorous quality control measures, closely monitoring supplier performance, and promptly addressing quality issues, organizations can ensure that they consistently maintain high-quality standards and deliver value to customers.

Financial risks.

Financial risks include supplier solvency, payment delays, pricing fluctuations, and currency exchange rate volatility. Supply chain management can reduce these risks by diversifying suppliers, negotiating favorable payment terms, and hedging against currency risks.

Compliance risks.

Organizations must confirm that their vendors adhere to relevant laws, regulations, and industry standards, particularly in areas like labor practices, environmental sustainability, and data security. Regular audits and building processes that enforce compliance requirements can minimize compliance risks.

How Airbase helps with supplier relationship management.

Airbase’s secure self-serve vendor portal gives vendors the ability to provide their payment details and track payment status with ease. This helps contribute to a positive relationship and eliminates extra work on both sides.

“Having that automated notification go out when payments are approved and processed has helped reduce the volume of emails in our AP inbox by at least half,” says Chris Morello, Director of Accounting at SeekOut.

“It’s mutually beneficial,” SeekOut’s Senior Accountant, Collin Fredericks, adds. “We can make payments to them faster, the vendor onboarding is easier, and we get the cash back.”

The ability to schedule payments, with multiple payment options, keeps payments on time — an important part of harmonious vendor relationships.

Built-in fraud protection keeps both your company and all suppliers safe.

Selecting the right vendor for your company’s needs is easier when the vendor questionnaire is automatically routed to all stakeholders. Airbase’s Guided Procurement module ensures all information submitted by a vendor seamlessly flows to the right people for review and/or approval.

Airbase reduces risk by automatically validating the tax ID of all domestic and international vendors, eliminating possible friction at the onset of the relationship.