Effective Vendor Relationship Management - The Dos and Taboos
In my first months with the Commodity/Category Management Procurement organization, I was invited to the Strategic Supplier Awards, an event focusing on Supplier Relationship Management (SRM). The event showcased executives from numerous suppliers, culminating in awards recognizing suppliers based on strategic value to the company.
Prior to joining the Procurement team, I had limited understanding and appreciation for SRM. However, witnessing the motivation and inspiration displayed by these suppliers sparked my comprehension of its significance. As time passed, I grew more informed about the merits and pitfalls of SRM.
From company to company, and industry to industry, suppliers are perceived and managed differently. Transactional suppliers enter into agreements with minimal effort put into building relationships. While Preferred or Tactical suppliers experience higher valuation, with increased customer effort directed towards the partnership. At the pinnacle lies Strategic Suppliers, partners who provide meaningful contributions to the client’s value while receiving reciprocal support for their success.
Collaboration, synchronization, and mutual strategic development characterize relationships between customers and Strategic Suppliers. This relationship often evolves as new suppliers strive to become Preferred/Tactical, while Preferred/Tactical suppliers aim for Strategic status. The prestigious title of Strategic supplier is continually earned and maintained through demonstrating consistent performance.
A well-managed Strategic Supplier Relationship Management (SRM) program aims to promote the success of both customers and suppliers. To achieve this, various Do’s and Don’ts should be considered:
DO’s
Key elements in an effective SRM program are:
- A formal, visible process to progress suppliers through the relationship management continuum
- Designating a Relationship owner and an Executive sponsor for every supplier
- Establishing a Communications strategy, relationship development roadmap, comprehensive understanding of the supplier organization, and clear, standardized metrics to measure and track performance
- Implementing a proactive governance process and genuine, not contrived relationships
- Expecting suppliers to contribute to, and advance, the company strategy and performance
- Recognizing suppliers visibly
DON’Ts
For an SRM program to succeed, avoiding certain practices is crucial:
- Maintaining business integrity, keeping distance, and objectivity
- Not designating suppliers as strategic for false reasons, as it undermines the program's credibility
- Not allowing strategic suppliers to remain stagnant
- Not holding strategic suppliers accountable and removing them if necessary
- Not expecting a one-sided relationship, offering mutual benefits
- Not abusing the relationship, jeopardizing its longevity
- Ignoring the relationship, failing to communicate regularly
- Allowing strategic suppliers to take advantage of the partnership
- Neglecting new prospects due to existing strategic suppliers
Effective SRM fosters strong, mutually beneficial partnerships between customers and suppliers that support strategic growth, risk management, and innovation. By following the recommended do’s and don’ts, organizations can transform transactional interactions into strategic alliances that facilitate long-term success.
- Within the procurement industry, the prestigious title of Strategic Supplier is continually earned and maintained through demonstrating consistent performance, as a well-managed Strategic Supplier Relationship Management (SRM) program aims to promote the success of both customers and suppliers.
- To achieve this in the business world, an effective SRM program should implement a proactive governance process, expect suppliers to contribute to the company strategy and performance, establish a Communications strategy, and recognize suppliers visibly.
- However, it is crucial to avoid maintaining business integrity, allowing strategic suppliers to remain stagnant, or neglecting new prospects due to existing strategic suppliers, as these practices can jeopardize the longevity of supplier relationships and the success of the investment in the suppliers.
