Even today, very few small companies use a formal process of customer relationship management (CRM). Far less have even heard of Supplier Relationship Management (SRM). The survival and profitability of every business are dependent on few critical suppliers. It is, therefore, essential to categorize them, assess the risk, and develop a plan to manage it. It is the fundamental basis of SRM.
Every small business should follow these three steps in implementing a preliminary SRM program.
Supplier Segmentation: Assess the profitability and risk exposure to your business because of each supplier. For example, a stationery supplier is not in the same category as your critical raw material supplier.
Strategy: After assessing the criticality of the suppliers, it is necessary to plan a management strategy. Resources should be allocated as per the criticality of the suppliers. The ultimate objective is to meet the long-term goal of the company.
Execution of strategy: Planning without execution is futile. The company should believe its analysis and implement the plans.
A good SRM helps an organization bundle similar products into a category and develop a single sourcing partner. It not only deepens the relationship with that supplier but also increases their business pie. However, careful consideration should be given in assessing the capability of the supplier beforehand.
SRM is based on mutual trust between partners. It is vital to share the business plans with critical suppliers. I have never found a supplier taking advantage of this information and raising the price. In fact, they become part of the team and provide critical inputs in advance. That way, cost savings are achieved by innovation instead of negotiations.
SRM is a demanding process. Very few companies can implement it effectively. But the few companies that execute even a primitive SRM system do significantly better than others.
Metrics:
Categorize your suppliers based on value, type, frequency of purchase.
Evaluate their criticality.
Develop an SRM plan.
Implement, Monitor, and Modify.
Subodh
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