Guide For Effective Supplier Relationship Management
Table of contents
- What is Supplier Relationship Management (SRM)
- The Benefits Of An Effective SRM
- How To Improve Supplier Relationship Management
- Supplier Onboarding
- Supplier Due Diligence
- Ensure supply chain compliance with Prokuria
Without a proper supplier management process, suppliers may end up feeling suffocated. They’ll see their buyer simply as someone they’re trying to negotiate with that isn’t interested in mutual growth and won’t invest the best of themselves for your company’s expectations. From disrupted supply chains to delayed product launches, and damaged brand image, among others, corporate buyers can suffer significantly, as a result.
Spreadsheets are an easy way to register data, which is why so many procurement professionals choose to use them to the detriment of dedicated tools. However, because they are so easy to use, they are also prone to errors, studies show that 9 out of 10 Excel spreadsheets contain errors. Most of them are human errors that can easily be prevented.
We get why you rely on spreadsheets — they are inexpensive to implement, very easy to use, and flexible. But although these are great strengths, at the same time, they are also great weaknesses. You can’t run a business on a series of spreadsheets. The benefits of onboarding your suppliers in the cloud are incredible. It’s time to move on from Excel Spreadsheets and get some real results!
Here’s why you should ditch Excels and move supplier onboarding in the cloud:
1. Multiple duplicates
Spreadsheets are not designed to be used collaboratively. Yes, they can be linked to central data repositories, but most of the time, they’re not. So you end up with multiple copies of the same document and no master of the data. How can you base your decisions on data if you don’t know which data is accurate?
2. No collaborative working
Let’s reiterate the fact that spreadsheets are not designed to be used collaboratively with another example. Let’s say an employee opens a document and starts editing it. After a while, another employee opens the same document and begins making changes. When they’re done, whose changes will be saved? And who guarantees that the two sets of changes don’t conflict?
3. Impossible data maintenance
It’s very difficult to maintain spreadsheets when there are multiple authors. Each will add their own columns with notes and calculations and, before you know it, the document becomes unmanageable.
Also, there are no logic systems or business processes built into spreadsheets. Yes, you can implement cell protection, lookups, and ranges, but these are not enough to keep your data in check.
At the same time, because everyone can edit spreadsheets as they please, errors can creep in, and it’s almost impossible to track them down and correct — a spreadsheet doesn’t tell you when data is wrong, they simply display the wrong information.
4. Poor security
When using spreadsheets, you can password-protect the document itself, but once someone gains access to the data, it’s impossible to restrict what they can see and edit. Therefore, you cannot grant access to data depending on a person’s role.
The portability of the data is also a security issue considering the GDPR and other regulations.
5. Lack of traceability
Traceability is a big issue that encompasses all the shortcomings we’ve previously mentioned. If you’re using spreadsheets, it’s impossible to determine who, when, and where data has been updated.
If random changes can be made by anyone who gains access to the data, and you can’t see what was changed and by whom, the flexibility of spreadsheets becomes a liability under the GDPR.
Moving supplier onboarding from Excel to the cloud can be a great idea for many companies. By using an online solution like Prokuria, you get all the benefits of being paperless and digital without any negative drawbacks. If you would like to learn more about the Benefits of Moving Supplier Onboarding From Excel To The Cloud, read our great article.
What is Supplier Relationship Management (SRM)
Supplier Relationship Management (SRM) is the systematic approach of assessing suppliers’ contributions and influence on success, determining tactics to maximize suppliers’ performance, and developing the strategic approach for executing these decisions. As part of vendor management, supplier relationship management is where companies segment their suppliers and determine important supply categories, in order to devise strategies capable of managing their suppliers and supplies more effectively.
Supplier relationship management is a complex process that can be broken down into three steps.
1. Supplier segmentation: This is about differentiating suppliers as a means of identifying risks and opportunities.
2. Supplier strategy development: Devising an optimal way to interact with suppliers based on business goals and needs.
3. Supplier strategy execution: Executing the designed strategy, at the previous step, in an effective way to obtain desired results in line with the company’s goals.
The Benefits Of An Effective SRM
Modern businesses work with a wide range of suppliers while their supply chains are becoming increasingly complicated. The increased need to cut prices for the consumer also means that margins need to be tightened by as much as possible. To maintain profitability and drive efficiency, companies need to turn to SRM as a controlled and systematic approach to sourcing the goods and services needed to run their business.
1. An optimized procurement process
Most processes, no matter how well-thought-out, can be improved. A positive supplier relationship leads to the sharing of ideas and feedback which can be used to improve operations and go-to-market times. In time, this will lead to lowered costs.
Procurement professionals are finally acknowledging that developing partnerships with their main suppliers can deliver significant benefits to both the buyer and the supplier.
Up until now, organizations were neglecting SRM because their main focus was on nurturing customer relationships and reducing costs. Now, organizations have recognized the considerable benefits a good supplier relationship management can bring.
Research made by PWC showed that there is a positive link between good buyer relationship management and the following positive outcomes:
· an increase in market share;
· responsiveness to market changes;
· increased return on investment;
· shortening order fulfillment leads times.
2. Reduced costs
There are usually significant costs involved in setting up deals with new suppliers, but a supplier relationship management platform can eliminate most of them.
By entering a mutually beneficial relationship with key suppliers, an organization can strive for cost savings in the long run. Good relationships with suppliers will not only deliver cost savings, but they will also reduce availability problems, delays, and quality issues (which means a better service for the consumer).
3. Reduced waste and minimized price volatility
Waste can be created due to inefficiencies in how the processes between the buyer and the supplier are established.
Contracts set out what has been agreed upon in terms of what should be delivered and for what price. An SRM platform can identify sources of waste and eliminate them, further lowering costs and improving services.
Additionally, businesses can use supplier relationship management in order to take advantage of fixed pricing or scaled increases in exchange for minimum order levels, lengthier contract terms, or various other criteria. In doing so, businesses minimize price volatility, which can often scare consumers. By having a clear and unambiguous cost base, companies can set their own pricing structures, which often translates to happier and more loyal customers overall.
4.Improved efficiency
As the relationship between an organization and a supplier develops, communication will also improve. As the supplier gets to know more about the organization they are working with, that enables them to increase the efficiency of their service.
Order issues are reduced, and in case they do arise, the strong relationship between the two will make it easier to solve the issues.
5. A strengthened supply chain
As suppliers and buyers work together, this allows both parties to better understand the inner workings of the other.
In some cases, both parties will be able to adapt their working practices and operations to better accommodate the other, which can lead to further efficiencies and operational advantages.
A strengthened supply chain allows buyers to reduce the number of suppliers they purchase from — streamlining the purchasing process and making budgeting a far simpler task.
How To Improve Supplier Relationship Management
Having long-lasting, trusted relationships with suppliers should be a primary goal of any organization that strives to succeed in the market. However, it’s also important for businesses to understand why some relationships go bad. Among these reasons, we can include things such as:
· Promising too much and delivering too little. This is a typical situation where expectations don’t meet reality.
· Having a communication gap. This is where things get derailed when crucial information isn’t funneled correctly or there’s no clear communication path. Even small misunderstandings can lead to major disruptions.
· Agreed-upon terms are not respected. This includes things such as wrong delivery terms, overdue payments, price lists not agreed, and more.
· Inconsistency. Things such as skipping regular meetings, phone calls, or performance reviews, which means that there’s no more personal interaction.
Knowing who you’re doing business with and ensuring both your organization and your partners are compliant is not just a legal requirement — it’s also an internal requirement that protects your bottom line.
Traditionally, procurement organizations only needed to ensure they comply with the law and satisfy regulators. Today, because supply chains have become global, that’s no longer enough — you need to also make sure you satisfy your end-users, prospects, the press, investors, and other suppliers.
And that’s where supplier onboarding and supplier due diligence comes in.
Supplier Onboarding
Supplier onboarding is the process of collecting the information needed to approve a company as a supplier and enabling your organization to conduct business, purchase goods and services, and make payments to that company.This is the first step toward supplier management. Without it, you won’t be able to increase your efficiency, reduce your risk and costs, and achieve a higher ROI. By creating a supplier onboarding process, you can avoid most of the pitfalls resulting from poor supplier management.
Just like you’re nurturing relationships with customers, you should also nurture your relationships with your suppliers. A supplier onboarding process will not only help you strengthen business relationships, but it will also help you:
- mitigate risks;
- streamline processes and increase efficiency;
- ensure compliance with regulations;
- develop a positive reputation in the industry;
- increase ROI;
- reduce redundancies;
- track data and workflows;
- automate basic tasks;
- reduce time to approve and activate new suppliers;
- cut out intermediaries and reduce human error.
Building an efficient supplier onboarding process with Prokuria
Prokuria helps organizations gain better control over their procurement processes and achieve major time and cost savings through automation. Using our cloud-based supplier onboarding solution will save you hours of manual work collecting documentation and filling in the information in different spreadsheets and systems.
At the same time, we can help you ensure compliance, segment and approve suppliers, and customize your supplier registration platform. Our solution covers the entire sourcing and supplier management process, addressing all the needs of the Procurement Departments.
Supplier Due Diligence
What is supplier due diligence?
Simply put, supplier due diligence refers to the actions an organization takes to know its partners. This involves making the relevant inquiries to determine whether a third party, existing or prospective, is honest and legitimate. The process is not very exact, though — you can be as thorough as you want or need to be.
However, keeping in mind that there is such a thing as being too diligent. If you’re asking too many questions, you might be offending your partners.
Why supplier due diligence is necessary
Supply chains today are longer than back in the day. They’re also global, which leaves them exposed to a plethora of threats such as trade wars, bankruptcies, cyber-attacks, extreme weather, or volatile foreign exchange markets.
This makes mitigating supplier risks a lot more difficult, but not impossible. For that, a trend has been growing in the direction of ensuring visibility and transparency into the supply chain. Procurement organizations need to be vigilant and monitor risk using accurate, timely data on exactly who is behind the businesses they work with.
There are main 4 drivers that need to be taken into consideration when you talk about due diligence:
Regulatory.
Taking legally required steps to prevent corruption and money laundering. Almost all developed countries have some kind of regulation for this (e.g. UK Bribery Act or the US Foreign Corrupt Practices Act (FCPA), so it’s important to protect yourself against being linked to bribery or other forms of corruption and money laundering via a business partner or a subcontractor within the supply chain.
Financial
Working with suppliers who lack the necessary integrity can lead to heavy financial penalties and even prison sentences.
Reputation
Companies that are linked to any kind of crime risk severe damage to their reputation. Even if the company itself meets ethical and legal standards, inappropriate behavior by business partners can still damage its reputation. The most common example in recent years has been well-known companies whose suppliers have been found to be involved in practices such as dubious or illegal working conditions in China.
Strategic
The quality of your supply chain is of strategic importance for the overall business. Having a clear picture on the risks you have and possible troubles head will help you prevent before is too late other bigger and possible fatal problems.
This may seem overwhelming and too grandiose project, however like with any other process you should start from your actually needs:
· Understand compliance concerns
· Define corporate objectives for due diligence
· Define the due diligence policy (main information required, owners of the process, flow)
Supplier due diligence framework
The due diligence check enables you to protect yourself by checking the assumptions and conditions of a mutual relationship with the respective vendor and identifying relevant risks. But what form of due diligence is appropriate? How thorough you should go, and most importantly at what cost. Here is a simple mapping of the framework.
If you should go with a simple or enhanced due diligence is always a question of time, cost and the risk involved. There is no point of allocating extra-cost hours on a small, one-time contract, but on your most important supplier, that you depend 80% of the time on delivery dates you should go the extra-mile.
A manual due diligence process can quickly become problematic if a company has insufficient resources or cannot access relevant and up-to-date information. You should therefore make use of appropriate technology to automate checks, support due diligence investigations and ensure continuous risk monitoring.
Ensure supply chain compliance with Prokuria
Prokuria helps organizations gain better control over their supplier relationship management. Using our cloud-based solution will save you hours of manual work collecting documentation and filling in the information in different spreadsheets and systems.
