In the modern age of procurement, the supply chain is becoming ever increasingly complex, with multiple suppliers being utilised by one organisation to produce their end products. With the increasing pressure on the supply chain to keep the cost for the customer down, it’s increasingly difficult to maintain healthy margins.
In order to keep profitability and efficiency at its peak, companies must apply a systematic approach to their sourcing strategy. That’s where supplier relationship management has its advantages.
When it comes to seeking out and negotiating fresh deals with new suppliers, there are a number of initial costs involved. There are usually some significant costs involved in setting up deals with new suppliers, but a supplier relationship management programme can eliminate many of those costs.
By establishing a mutually valuable relationship with key suppliers, an organisation can achieve long term cost savings, in the form of reduced issues with availability, quality and delays in supply.
As the relationship with an organisation’s supplier develops, the communication improves. As with any relationship, as it develops the supplier gets to know more about the organisation and that enables them to increase the efficiency of their service. Order issues will be reduced, and in the event order issues do arise the strong relationship between organisation and supplier will make it simpler to solve the issues.
Consolidated Supply Chain
The more that both the organisation and supplier understand about each other’s business, the more they may be able to help each other. This may require some adaptation on both sides, but it can lead to further efficiencies and increased operational value. If the organisation can reduce the number of suppliers needed, then the buying and budgeting processes would be simplified and there could be great potential savings.
As the relationship between supplier and organisation develops, trust should be built between the two. This will allow the organisation to permanently outsource non-core activities to the supplier, including inventory responsibility and some level of customer service.
Ongoing Improved Operations
Building a long term healthy relationship between supplier and organisation will allow for ideas and feedback to be passed between the two. This will allow for the improvement of operations, streamlining the supply chain and reducing costs in addition to improving customer service.
If you would like to learn more about supplier relationship management and the sourcing process, then you may be interested in the CIPS Diploma in Procurement and Supply. The procurement course covers organisational procedures and processes in procurement, and is ideal for a junior procurement professional looking to increase their knowledge and progress their career.