Why and how to start using an SRM software?
Suppliers, like customers, are strategic business partners. Yet relationship management practices are often very different for sales and procurement. Supplier relationship management (i.e. SRM) tends to get the short end of the stick. Poorly managing supplier relationships can mean actual loss and cost for the company. In this post, we talk about why you should use a supplier relationship management (SRM) system, what will happen if you don’t and how to get started.
For sales, there are countless options of Customer Relationship Management (CRM) software e.g. Salesforce, Pipedrive etc., to make sure that every piece of information about current and potential customers is systematically stored. Additionally, these tools help to manage the sales pipeline and budget revenue streams.
In Procurement, maintaining and updating supplier information is often undervalued and certainly not seen as such an important part of “housekeeping” as maintaining customer records.
When you look at hard data, according to CAPS & Bain research, external purchasing is the single largest expense category for most firms and covers close to 50% of total revenue. A manufacturing company with annual revenue of 100M € will spend nearly 50M € to purchase various goods and services in order to keep production running.
4 main types of external purchases
- Direct goods — tangible goods that are required to manufacture items or provide services to customers. These goods are typically part of BOM (Bill of Material) so these are purchased from suppliers and used directly in the production of the final product.
- Direct services — when it comes to direct services, these can mean anything from subassemblies and subcontracting works to transportation or 3rd party manufacturing.
- Indirect goods — a good way to distinguish them from direct goods is that indirect ones are not part of BOM. They are not necessarily required to provide services or manufacture items for customers. Indirect goods examples include office supplies, computer hardware, transportation equipment, furniture, etc.
- Indirect services — various additional services that companies may need. Some examples: marketing services, IT, legal & management consulting, research and development, travel, transportation, capital, financial advice, etc.
Why is it important to manage supplier relations?
Purchasing has such strategic importance in keeping the business going and generating revenue all the while managing the company’s expenses. If the relationships with suppliers go sour, both parties can face significant loss of time and money. So building and managing good supplier relationships has great value for the whole company.
But remember, relationships with suppliers are never one-sided. They’re based on mutual agreements. In the best-case scenario, there is a win-win situation and both partners are satisfied with their business relations.
A company that wants to improve its supplier relations, should first set clear improvement objectives and find out which solution would provide the most value.
Supplier relations improvement objectives
- Gain greater visibility into supplier relationships and performance.
- Accelerate the procurement processing time.
- Store and maintain all supplier information including contracts, certificates, memos, conversations, sent RFx’s, etc. in one place.
- Move discussions and emails out from purchasers personal inboxes into one central account.
- Monitor supplier spend and decide volume allocations.
- Crawl supplier information from the web and get notifications about significant events.
- Support supplier negotiations by using everything mentioned above.
- Keep potential suppliers on the radar.
Top 5 reasons why business relations get bad
- Over-promising and under-delivering — a typical situation where expectations don’t meet reality.
- Communication gap — things get derailed when information is not funnelled correctly or there is no clear communication path. Small misunderstandings can quickly lead to major disruptions.
- Agreed terms are not respected — e.g. overdue payments, wrong delivery terms, price lists not agreed.
- Performance is not meeting expectations.
- Inconsistency — skipping regular meetings, phone calls or performance reviews means losing the personal touch.
Typical costs related to bad supplier relations
- Administrative costs
- Quality cost
- Wasted time
Supplier relationship management system (SRM system) is an investment
A good supplier relationship management system (i.e. SRM) keeps your supplier relationships working and avoids negative scenarios and extra costs. SRM systems help manage data, pull information from various sources, and consolidate all relevant pieces under a supplier account.
ProcurementFlow.com keeps all supplier-related information in one efficient SRM (Supplier Relationship Management) system. Our structured supplier database covers all purchasing needs.
- Maintain supplier information — keep supplier information & contact details up to date.
- Store all contracts & price lists in one location — one place for all supplier documents
- Communication with suppliers is linked with supplier card — messages sent to supplier with responses, mentions and comments are all seen in one place and updated automatically.
- Supplier portal — personalised supplier portal for suppliers to fill and submit eSourcing events in minutes.
Automating your supplier communication gives you greater visibility and keeps all necessary relevant information at hand. All previous communications, events and contracts are stored and any new piece of information captured in real-time. E.g. when a supplier participates in an eSourcing event or is sent an RFx, this too will be immediately visible under their account.
This way you can keep your suppliers’ communication clear, proactive and concise. Are you ready to upgrade your supplier relationship management? With ProcurementFlow you can digitise your procurement in a day.
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