If you’ve spent time running an eCommerce business of any kind, you know how important suppliers are. They are foundational to your business’s profitability, customer satisfaction, and efficient warehousing--just to name a few.
Selling wholesale, selling high demand products, and private label dropshipping all depend on consistent manufacturing and supply. If your supplier isn’t reliable with communication and delivery, your pipeline inventory will dry up, your fill rate will drop, and demand planning will grow much more difficult.
So, what is the nitty-gritty of supplier relationship management, and how can you leverage it for success? Let’s look at the key characteristics of this eCommerce necessity.
SRM: Supplier Relationship Management
Supplier relationship management, or SRM, is the process of strategically managing supply categories for maximum profitability and success. It includes developing mutually beneficial relationships with suppliers, planning business needs efficiently, and making difficult decisions when necessary. It's also an integral part of what is wholesale and learning how to get a wholesale license.
SRM is important because it directly influences the core aspects of your business. First, suppliers are responsible for supplying everything from raw materials inventory to finished goods inventory, depending on what you sell. If you aren’t receiving the quality or quantity of materials needed, contact your supplier to get things straightened out.
Second, supplier activity is closely tied to crucial business outcomes. If your supplier is experiencing material shortages, this is passed along to you, their buyer. This creates shortages at the wholesale directory or retail level, which may produce the bullwhip effect later on.
Importance of Managing Relationship With Supplier
At first glance, supplier relationship management may sound needlessly complex. After all, don’t you just need a supplier or two that delivers products on time?
There are several reasons managing relationships with your suppliers helps your business thrive. The more in tune you are with your key operational partners, the more value you can bring to your customers. More value equals greater profits, which allows your business to continue reaching customers in new ways.
Objectives of Supplier Relationship Management
Getting your incoming shipments down to an exact science with your supplier is something to be proud of. This alone requires precise coordination of information and fast thinking when obstacles crop up.
As you grow comfortable with the occasional fluctuations of supplier relationships, you’ll notice ways to grow your business beyond daily operational success. It’s wise to build reciprocity with companies that you may be working with for decades to come.
Here are some sample objectives of supplier relationship management for your own business:
- Customer recognition. As a small business looking to grow, acquiring new customers is likely near the top of your priorities. Getting orders to customers in a timely fashion is a key part of winning repeat buyers. Your supplier should deliver products quickly such that shipping and handling are a breeze for you.
- Innovative product development. In some instances, suppliers are the companies developing innovative products. Maintaining reciprocal relationships with key suppliers opens the door to powerful collaboration opportunities.
- Logistical optimization. eCommerce software programs and human channels of communication must operate in tandem at all times. One error can create a cascading effect throughout the rest of the supply chain, which is eventually felt by customers. Run periodic checks with your warehouse inventory management software and any 3PL companies you work with to ensure nothing is missing.
- Brand enhancement. Today’s customers look for intuitive brand connections as much as they do functioning products. If you’re starting an eCommerce business, partnering with an established supplier will lend their credibility to you.
- Growth in market share. Depending on what you sell, some geographically advantaged suppliers may be able to help you reach new audiences. Look for suppliers that only work in a specific market if you want to sell to customers who were previously out of reach. You can also find new suppliers in an online marketplace if you’re looking for new wholesale items to sell.
Supplier Relationship Management Activities
Since there are so many different types of eCommerce businesses, the SRM activities you carry out will differ from other businesses. The degree of variance depends on the type of products sold, supplying companies, business size, software used, and other factors.
Despite such variability, there are common supplier relationship management activities you can utilize. Here are some of them:
- A cost-benefit analysis of which products should be purchased and in what volumes to maximize profitability
- Aligning own company’s strategic goals with that of suppliers so both companies benefit
- Reviewing minimum lead times for each supplier, then adding two business days to account for unforeseen events
- Purchasing only MOQs on products where it’s relevant to do so, which simplifies inventory management
Supplier Relationship Management Process Flow
A supplier relationship management process flow is a chart mapping the steps raw goods go through, from your supplier through the final stage of production. It includes raw material procurement, supplier processes, order management and order fulfillment, customer service, and the RMA process.
A process flow can be created as a reference tool or to train new employees. However, it’s most often used to spot what needs fixing or improvement. The size of your SRM process flow expands the more steps you add to it.
Depending on the purpose of your SRM process flow, it may include a warehouse management process flow. This is the visual flowchart for your own warehouse to ensure that work in process inventory and merchandise inventory go where they need to.
Supplier Relationship Management Steps
After you’ve categorized your suppliers and narrowed in on the most valuable ones, it’s time to engage your SRM plan. Having a supplier that sells quality, affordable products is a great start, but this alone won’t offer the competitive edge you’re looking for.
There are smaller factors in SRM that contribute to--or detract from--long-term business success. A successful SRM strategy includes understanding what makes an excellent supplier and knowing how to mutually leverage that relationship.
Here are the core supplier relationship management steps to be aware of:
- Categorize your suppliers. Excellent supplier relationships begin by categorizing them. Categorization examples include product type, profitability level, and delivery speed. You can use whatever makes sense for your business. The goal here is to create clarity on the immediate pros and cons your suppliers bring to the table. You can skip this step if you only use one supplier.
- Evaluate supplier performance. This is where differences between suppliers are readily visible. Write down all the transaction and communication details of your relationship with each supplier. Are the deliveries of one supplier chronically late? Does a different supplier include discounts on a regular basis? These details point out the suppliers that value their relationship with you versus those that don't. Use this info to prioritize win-win relationships in your supply chain.
- Demonstrate value as a customer. Relationships are a two-way street, including in the business world. Responding quickly and professionally to all requests is as valuable to your supplier as it is to you. If you work with any companies that sell quality goods but their communication doesn’t seem to match, ask them about it. You may discover areas of your own business that you can improve.
- Improve your supplier-buyer relationship. When it comes to getting the most out of your supplier-buyer partnership, the details are exactly as you’d imagine. It involves proactively communicating what you want to accomplish through your business relationship, including specific needs. For example, if you frequently order a part in bulk that your supplier doesn’t offer a discount on, ask them about it. By demonstrating your consistent demand for a product that makes them profitable, they may be willing to cut you a deal.
- Strengthen supplier quality and performance over time. As you learn which suppliers provide the most value to your company, continue adding reciprocal value. This can come in the form of sending letters of appreciation, prioritizing your communication with them, and other non-bribing ways of expressing gratitude.
Supplier Relationship Management Strategies
Everyone wants their business to become more profitable, but few people want to put in the work for it. To increase eCommerce sales, it’s important to look in areas that you’d otherwise ignore, like your supplier relationships.
There are several supplier relationship management strategies your business can succeed with. Let’s look at some of the top ones:
- Communicate clearly from day one. This includes everything from your attitude towards a new supplier to the details of your contract. You don’t want any liability risk or potential for manipulation to take place. If you’re using one, make sure your wholesale purchase agreement includes the information both parties need to make a sound decision, including the wholesale products' details.
- Make your company effortless to work with. There are practical ways of making your business an appealing client to suppliers. This includes having a clearly defined reorder point--the inventory level at which fresh products are reordered. Your supplier will learn they can depend on your lead time--the period between placing an order and receiving it.
- Seek to align buyer and supplier incentives. Taking the time to discuss top goals and how to reach them with your supplier is essential. It’s a step few businesses will ever take, but it sets them apart from the rest. First, identify what’s holding you back from peak efficiency and create a basic plan to resolve the issues. Second, reach out to your supplier and ask them what obstacles they’re facing. See where your priorities align and make a written agreement to cooperatively meet them.
- Be proactive when problems arise. In the unlikely event that something goes wrong, don’t hesitate to communicate that. An attitude of proactive resolution shows that you don’t want anyone to take a loss, whether it’s your own business or another’s. It also strengthens your credibility and improves your industry knowledge.
Supplier Relationship Management Templates
If SRM still feels complex or intimidating, there are various supplier relationship management templates to leverage. This allows you to focus on your answers so you don’t need to reinvent the wheel or wonder if you’re leaving anything out.
SRM documents can be extensive for large companies and enterprise-level operations. Your document can be customized for your needs.
A good SRM template includes the following sections at a minimum:
- Product sourcing manager contact info
- Supplier profile (contact information, financial stability, account manager)
- Supplier financial competence evaluation
- Supplier performance criteria
- Supplier comparisons and final choices
Top Supplier Relationship Management Software
When learning about SRM for the first time, it’s good to have your first draft written on paper. This gives you the freedom to consider as many ideas as you want without the risk of repercussion.
Once you have the hang of things and want to automate more of your work, you should consider supplier relationship management software. These tools track data like invoicing issuing time, invoice accuracy, average order quantity (AOQ), and applicable discounts. All of it is done automatically so you can review information periodically and make decisions faster.
Here are some of the top supplier relationship management software providers:
- GEP SMART
- Oracle Supply Chain Management
- SAP Ariba
- APEX Portal
Taking Positive Relationships to The Max
It can take days or weeks to create a supplier relationship management plan, depending on the size of your business. Once it’s done, you’ll have clear methods on how to remain profitable, efficient, and innovative well into the future, even if you're still learning how to find vendors.
Creating an SRM strategy puts you among the most well-organized businesses. Continue investing your energy into the relationships generating ROI and you’ll be unstoppable. Learn more about how BlueCart can take your supplier relationships to the next level by requesting a demo now.