7 Benefits of Prioritizing Supplier Relationship Management

Effective supplier relationship management goes beyond just securing the best deals and prices. It involves building strong connections with your suppliers to create mutually beneficial partnerships. 

However, many organizations overlook the immense value that a well-nurtured supplier relationship can bring into their operations. 

In this article, we will discuss the benefits that come with prioritizing this essential aspect of business operations. 

Related: 5 Tips to Help You Manage Supply Chain Disruptions 

What is Supplier Management Relationship? 

To sum it up, supplier relationship management (SRM) is a systematic approach to managing and evaluating the organization's interactions with the external entities that supply goods and services to the business. It also involves assessing the value and benefits each supplier can bring to your business. 

Why is Supplier Relationship Management Important? 

Here are 7 benefits why enhancing the SRM is important to the business: 

1. Cost Savings 

One of the most significant benefits of an effective SRM is cost savings. When companies like you build strong relationships with your suppliers, you can negotiate better prices and deals. On top of that, you can enjoy favorable payment terms and lower overall expenses. 

According to a survey by Deloitte, companies need to rethink portfolio management since it can offer a wide range of possible levers that can drive and save on procurement costs. These savings can substantially impact on the company’s bottom line, allowing for the reallocation of funds to other critical areas of your business. 

2. Continuous Operations Improvements

Having a well-managed supplier relationship can lead to continuous improvements in your operations. When suppliers feel valued and engaged, they are more likely to share new ideas and propose process improvements. This is because a strong mutual trust encourages open communication and collaboration. 

By closely managing supplier relationships, you can proactively identify and address inefficiencies in your supply chain operations. This not only helps in streamlining processes but also in enhancing the quality of products and/or services. 

3. Increased Confidence in Delegating Tasks to Suppliers

Effective SRM allows your businesses to confidently delegate tasks to suppliers who can handle them better and more cost-effectively. This not only saves time and resources but also lets you focus on the more important aspects of your business. 

4. Minimize Impacts of Supply Chain Disruptions 

Experiencing disruptions can be overwhelming, especially if it has direct impacts on the operations of the business. Hence, it is always recommended to have a backup plan and work with reliable suppliers to avoid unexpected challenges such as natural disasters or sudden market demands.  

5. Increased Efficiency & Quality Control 

As with any good working relationship, effective communication and collaboration with your supplier is a must. Through effective communication, you can streamline your supply chain operations and achieve quality outcomes. 

6. More Stable Pricing  

Let's be honest, market fluctuations can greatly affect the profits of the business. Hence, it is always recommended to have good and strong supplier relationships to make sure it leads to more stable pricing for your company.  

Working with a supplier who’s a good fit for your business can result in long-term cost-savings and increased awareness of competitors’ actions. In return, companies with good supplier management strategies experience less price volatility, which aids in better budgeting and planning. 

7. Competitive Advantage 

Working with the right supplier is important to keep up and gain a competitive edge. When you maintain good relationships with your suppliers, they tend to prioritize your needs and give you access to innovative products and services. Having this collaboration helps you stay ahead of the competition. 

Read: The Role of a Chief Financial Officer in Good Cash Flow Management 

Supplier Relationship Management Challenges 

A good supplier relationship management can be beneficial, but there can be challenges in implementing and maintaining these strategies. Here are a few issues you may encounter when managing supplier relationships: 

Communication Barriers 

One of the challenges of any relationship is communication, much like in dealing with suppliers. Many things can hinder relationships from thriving, such as language, culture and style differences. Hence, you should make sure that there is clear and open communication between your company and its suppliers.  

To limit communication barriers, you should ensure that you have clear communication protocols and technology to help bridge these gaps. 

Data Management 

Many companies struggle with managing data from multiple suppliers. To avoid this, you must invest in technological solutions that can give you accurate and timely data on your supplier interactions. 

Managing Supplier Performance 

Managing supplier performance is not as easy as it seems. To make sure that there is consistency with the quality of the service or products, it’s crucial to measure the right metrics. This will help you monitor and manage the performance of the supplier to make the partnership work. 

Resistance to Change 

Not everyone, especially both the internal teams and suppliers, is keen on dealing with and having a new process. Hence, overcoming this resistance needs strong leadership, clear communication of the benefits, and ongoing training to make sure everyone is on the same page. 

Balancing Cost and Quality 

Lastly, while reducing costs is important, you must ensure that you won’t compromise on the quality of the service or products. Hence, finding balance requires careful supplier selection and ongoing performance reviews to make sure it works on your end. 

The Bottom Line 

Prioritizing supplier relationship management offers many benefits, from cost savings to gaining a competitive advantage. However, it is also equally important to be aware of potential challenges and address them quickly. Investing in SRM practices builds a strong supply chain, making it a valuable investment for the long-term success of the company. 

If your company's CFO needs assistance with Supplier Relationship Management (SRM), we can provide the necessary accounting support to streamline the process.  

With our expertise, we can help your CFO prepare the needed financial reports so you can negotiate better terms, implement cost-saving strategies, and ensure consistent supplier performance, all of which contribute to supporting your broader business goals and financial health. 

You may talk directly to our expert today to learn how we can lend you a helping hand with your finance and accounting tasks. You may also download our Premium CFO Solutions whitepaper to learn how our finance and accounting professionals can help you with your accounting tasks.