CH 7 Supplier Relationship Management

Supplier Relationship Management (SRM)

• Definition: SRM is the strategic planning and management of all supplier interactions to maximize the value of these relationships.

  • It involves defining the needs from suppliers and managing the connection to meet those needs.

  • Focuses on key strategic suppliers to improve profits and reduce costs.

Supplier Relationship Management Framework

• Key Components of SRM:

  • Procurement: Engages in planning, sourcing, making, delivering, and enabling.

  • Strategic Sourcing: Implemented for suppliers providing large volumes or critical products/services.

  • Supplier Interactions: Essential for intensive interactions in engineering and logistics.

Keys to Successful Strategic Partnerships

• Shared Vision and Objectives: Partnering companies must have aligned goals that extend beyond tactical issues to foster a strategic path.

• Building Trust: Trust is critical; it must be earned and maintained for effective collaboration.

• Personal Relationships: Development of personal connections among key personnel at both firms facilitates communication.

Mutual Benefits and Needs

• Win-Win Situations: Both parties should benefit, akin to a marriage where compatibility is crucial.

Change Management

• Companies need to manage change as new partnerships evolve effectively.

• Top management support is vital for successful partnerships.

Capabilities of Key Suppliers

• Suppliers should possess appropriate technology and capabilities to meet quality, cost, and delivery expectations.

• Information Sharing is Critical: Establish both formal and informal communication lines to ensure fluid information exchange.

  • Keep sensitive information confidential.

Continuous Improvement Initiatives

• Plan-Do-Check-Act Process: Framework used to implement improvements iteratively.

  • Plan: Identify opportunities for change.

  • Do: Implement change on a small scale.

  • Check: Analyze results.

  • Act: Scale successful changes or revise ineffective ones.

Performance Metrics for Suppliers

• Metrics must be measurable, easily understood, and relevant to gauge supplier performance effectively.

  • Utilize S.M.A.R.T. criteria: Specific, Measurable, Achievable, Relevant, Time-oriented.

Benefits of Strategic Partnerships with Suppliers

• For Buyers:

  • Access to top personnel, operating efficiencies, lower costs, higher quality, influence on investments, and increased innovation.

• For Suppliers:

  • Insights into buyer plans, efficiency gains, stable commitments, and opportunities for product showcase.

Supplier Evaluation Process

• A structured assessment to identify reliable suppliers based on objective criteria rather than perceptions.

  • Regular feedback helps maintain relationships and avoid misunderstandings.

Key Metrics for Supplier Performance Evaluation

• Includes cost performance, product quality, delivery, financial stability, compliance, and ethical practices.

Evaluating and Selecting Suppliers

• Selection of key suppliers involves a focus on capabilities rather than just purchase cost.

• Excellent suppliers are expected to drive out costs without compressing margins unfairly.

Weighted-Criteria Evaluation System

• This system helps in scoring suppliers based on mutually agreed-upon criteria, translating to certification grades (Certified, Preferred, etc.).

Supplier Certification Programs

• Purpose: Differentiate strategic suppliers from others and monitor quality assurance methods.

  • Internal and external certification (ISO standards) can enhance credibility.

  • Benefits include reduced inspection times and recognizing excellence.

Developing Suppliers: Supplier Development Programs

• Technical and financial support to enhance supplier capabilities should aim for lower total supply chain costs, better quality, and timely deliveries.

• Focus on providing necessary tools and knowledge to make suppliers successful.

Strategic Supplier Knowledge Engagement

• Early Supplier Involvement (ESI): Integrate suppliers into product development for innovative solutions.

  • Value engineering can drive down costs and improve quality.

Supplier Recognition Programs

• Recognize and reward high-performing suppliers to motivate and enhance loyalty.

  • Helps to align suppliers with corporate values and creates barriers for competitors.

Trends in Supplier Relationship Management

• Alignment with Sourcing: Many companies integrate supplier strategy with sourcing approaches to optimize negotiation.

• Cross-Functional Engagement: Leading supplier relationships involves teams from both buyer and supplier companies.

• Innovation Focus: Collaborations that prioritize innovation yield better return on investments.

• Investment in Soft Skills: Emphasizing respect and candidness improves supplier relations, fostering growth.

Notes on the external and internal certification programs

Process steps for supplier development

Recognition programs

5 key points for SRM systems