The Growing Importance of Supplier Relationship Management

As supply chain staff become more and more influential and essential in the functioning of organizations, the need for strategy specifically designed at improving relationships with suppliers to get more output and develop stronger connections has also increased.

Supplier relationship management assesses a supplier’s capabilities. It uses different tools and tactics to determine how well they stack up against other suppliers, giving other partners in the supply chain a means to evaluate the pros and cons of working with various suppliers. The term arose from multiple professionals at management consulting firms after realizing that many problems with the businesses they worked with stemmed from poor supplier relations.

The need to get goods and services in better, faster, and cheaper ways has been a key in developing supplier relationship management as a subfield of the overarching field of supply chain management. Streamlined supply chains require understanding the needs of suppliers, distributors, manufacturers, and consumers to an innate degree and often go into deals with suppliers that contractually can last years to keep consistency. This article talks about some of the market trends occurring in supply chain management as we begin our entrance into a post-COVID world.

One of the significant drivers of improving supplier relationships is reducing the risks associated with making deals and purchasing/selling goods to particular suppliers. In a study done by the APQC, a leading NGO in setting standards for business performance, 80% of professionals surveyed stated that managing supplier risks was an essential aspect of having a good functioning supply chain.

Risks within the supply chain become internal and external sources of risk — those inside and outside a business’s control. Internal risks include (for example) manufacturing risks (a machine breaking down), business risks (a CO leaving and strategy changing), planning/control risks (using inadequate data to make forecasts), mitigation/contingency risks (not having a Plan B when Plan A fails), and cultural risks (trying to avoid giving bad news on KPIs like earnings). External risks include supply risks (a supplier suddenly being unable to supply products), demand risks (the number of goods surpassing well beyond what the company can make), environmental risks (a significant event happening — whether economical, cultural, or political — that causes shifts in supplier capabilities), business risks (say, for instance, a supplier going out of business), or physical plant risks (levels of particular hazardous materials being above acceptable levels).

One of the major pushes in the supply chain sector for many businesses to reduce risk has been to increase the number of suppliers and make contingency plans based on those suppliers. As a result, small companies now will often have two or three, and Fortune 500 companies could potentially have hundreds of thousands of suppliers that they source their goods. Another strategy is to work with other modes of the business, such as transport carriers, data management firms, market research firms, and other areas of the supply chain to properly assess the risks and benefits of partnering with specific firms. By employing some of these strategies, the risks associated with partnering with particular suppliers decreases, and as a result, the bonds between suppliers and customers will grow more robust than ever.