Procurement teams worldwide are looking for new ways to enhance their procurement capabilities and functions. But it goes without saying that the key to a successful procurement process relies on managing your supplier relationships effectively.
The reality is that supplier relationship management is no longer a novel notion, as over 31% of CPOs are pledging to reorganize their firms’ supplier relationships. Below are some of the key benefits of effective supplier relationship management that can positively impact your procurement team.
1. Improved Problem Solving
When you consider your suppliers, not just your vendors but your partners, it leads to developing a healthy relationship with them. This fostered relationship further precedes open communication between your procurement teams and the suppliers.
It is impossible to overstate the importance of excellent communication with your suppliers. Effective communication may provide you a significant edge as it speeds up the problem-solving process when suppliers are open about availability problems, delays, quality issues, and other concerns.
This gives procurement teams ample time to deal with the communicated problem, which allows for swifter resolution. Hence, helping them to stay at the top of the competition.
Open communication also helps in the free flow of feedback and ideas, which brings us to our next point: Improved Innovation.
2. Improved Innovation
Innovation is not just about launching new products that were not available in the market before. It also entails changes in existing products and processes that provide an organization with a competitive advantage in the market.
Suppose your procurement team has a supplier management system and a good working relationship with your suppliers. In that case, suppliers will work more closely with your procurement team to identify ways that can help enhance your procurement operations. Your procurement team can gather insights to bring innovation to the existing supply chain with their knowledge of the market.
Moreover, long-term suppliers are more likely to develop institutional knowledge of the manufacturer’s unique pain points and processes, bringing ideas to fill in the gaps, thus enhancing innovation.
3. Identifies Wastage Points
Inefficiencies in the processes that connect the buyer and the supplier might result in waste. Waste can be in the form of overprocessing, overproduction, defects, waiting, transportation, and so on.
One way to minimize this waste is again having open and transparent communication with your suppliers, who can collaborate with your procurement team to identify these wastage points. Another way to avoid waste is through the SRM platform, which can detect and remove waste sources, cutting costs and enhancing services.
For example, a robust SRM platform can help you identify which suppliers have the lowest defect rate, deliver right on time, and are located nearest to the delivery address. This makes the life of your procurement team easier and makes the process more efficient.
4. Streamlined Processes
Purchasing software enabled Supplier relationship management helps streamline the procurement function as your procurement teams have all the correct information to run the processes. This leads to improved operations, which lowers the chances of any delays and discrepancies.
Since your processes are running effectively, it further improves your go-to-market times, reducing the time between the conception of the product to its delivery in the market.
Improved supplier relationships can also help your procurement teams to focus on customer preferences and contribute to enhanced customer services. Once you know what your customers want, you can deliver their desired products and services by closely working with your suppliers.
5. Controlling Cost Levels
If your suppliers do not have a good working relationship with your procurement teams, they will likely switch. This means that your procurement team has to start from the beginning, i.e., looking for a new vendor in the already saturated market. This involves various costs such as advertising costs, onboarding costs, logistical costs of a complex supply chain, or other significant losses that might incur if the new supplier is not reliable.
In addition, healthy relationships with suppliers can contribute toward fixed pricing or scaled increases in exchange for minimum order levels and lengthier contract terms. This can help businesses cut costs and reduce pricing fluctuation, which otherwise can be frightening to customers.
Hence, through a vendor management system and effective supplier relationship management, procurement teams can help companies create their price structures with an unambiguous cost basis, which results in more loyal consumers and increased market share.
Improved supplier relationships can help procurement teams meet their procurement and organizational objectives and help them avoid costly procurement issues such as interrupted supply chains, delayed product launches, and a compromised brand image. The above-mentioned points are not only the benefits of supplier relationship management but also prove why it is highly critical to maintain a healthy relationship with them.
Prasanna Rajendran is the Vice President at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.