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How do you optimize Supplier Relationship Management for business success?
The best way to optimize supplier relationship management is to treat suppliers like partners, with open communication, trust, and transparency. Both parties must have shared goals and a unified path toward each other’s growth and success.
One of the most important elements of an eCommerce business’ success is its products. They must have a unique selling point and be of excellent quality.
And for this, eCommerce companies need a reliable supplier.
Your choice of supplier will impact all of your operations, the most important of which is your finances. You should partner with one that will give you a great price on products that you can sell for a high profit margin.
Finding a supplier for most businesses seems easy—a simple online search will lead you to several options. However, it is crucial to do due diligence and be circumspect in choosing a supplier because your relationship with them will dictate the future of your company.
You will enter a business partnership with your supplier, and both parties will benefit from the other's success. After all, more sales lead to more orders, higher revenues, better reputations, and continued success for the supplier and business owner.
This is where supplier relationship management (SRM) comes in. It is a crucial part of the supply chain that contributes to the continued success of the business, especially with ecommerce.
What is supplier relationship management?
Research and consulting firm Gartner defines SRM as a business initiative to build a mutually beneficial relationship with suppliers. SRM programs help companies collaborate with suitable suppliers and create long-lasting partnerships.
A single ecommerce company may need multiple suppliers. Diversifying means getting different products from various sources. Through SRM, retailers and online sellers can find the right source for a particular product or raw material and foster a good relationship. SRM also helps businesses map out collaborative programs for each supplier.
Professionals who regularly deal with suppliers can use the strategies under SRM to manage their different relationships. No two suppliers are the same, so there are different ways of dealing with them. And the success of the partnership will lead to business triumphs.
Why focus on supplier relationship management?
Industries shift and change depending on the market and if there are emerging trends and technology. These changes also affect the supply chain, which is why a robust SRM is needed to keep things in order.
Before we discuss managing relationships with suppliers, we first need to find them. How do we do this?
1. Identifying
The first step is to identify the products you want to sell, whether they are evergreen products or niche ones. Once you decide on this, you can comb through the dozens or hundreds of suppliers that can provide these items.
Don’t just choose the first supplier you find. Instead, take the time to research different options and consider their capability, affordability, and reliability.
2. Qualifying
Create an initial list of the top five or ten most promising suppliers you find. Make sure they meet your list of qualifications or criteria that you are looking for in a supplier and business partner. This should pare down the list to two or three best options.
If you plan to sell various products, you should diversify your suppliers to protect your operations.
3. Acquiring
Now that you have identified your preferred suppliers, it’s time to get in touch with them directly. When everything is in order, discuss an equitable deal and sign a contract.
4. Onboarding
At this point, you should set up a line of communication that will make it easy for both parties to collaborate. There should be a system for both parties to determine if supplies are good or if a reorder is necessary. The same system should indicate if there are products to be returned because of damage or other quality issues. It is common for ecommerce companies to use a robust project management system because of the lack of headquarters or brick-and-mortar shops.
5. Managing suppliers
This is where SRM comes in. You need to manage all of your suppliers and the platform where the collaboration happens to ensure a robust business relationship.
By doing so, you will experience the following benefits for your business:
Reduced costs
Setting up deals with new suppliers can be costly, as you have to purchase test products to ensure they are a good fit. It also takes time to develop a productive relationship and develop mutual trust. Maintaining supplier relationships and ensuring their longevity will save time and resources in the long run.
Efficiency
When you have a trusted supplier, an important part of the supply chain will always be taken care of. The process becomes even more seamless as the parties improve their communication and collaboration. And as the relationship strengthens with time, issues become easier to resolve.
Improvement in Quality of Products
Striving to meet customer expectations can be daunting, but you and your supplier will quickly understand what they are looking for. The quality of the products will improve as the process becomes more efficient and the business and supplier become more attuned to the needs of the customer.
Innovation
A better relationship between the two parties saves time and energy, which could lead to opportunities for innovation.
Key strategies for successful supplier relationship management
Business and SRM success can only happen through the implementation of great strategies.
1. Establish clear and transparent communication channels
Effective communication with suppliers is crucial. There are many ways to ensure this—and it is primarily not about the platform you choose but the relationship between the two parties.
Technology is an essential communication tool, and finding the right platform to use will make or break your partnerships. It is best to use a robust project management system to manage collaborations and transactions. With these platforms, businesses and their suppliers don’t need to contact each other directly every time there is an update on orders. Instead, all data will be accessible in real-time on the project management system or app so all parties can keep an eye on what is going on.
Both parties should also choose the best communication methods and schedules for one-on-one meetings and discussions. This way, they know exactly how to contact each other directly when something urgent comes up.
2. Set mutual goals and expectations
Before signing a contract, both parties must already agree on the specific goals they want to achieve. The business agreement should outline the number of orders and supplies to be delivered within a certain period and their deadlines. Each step of ordering and delivery must be outlined clearly.
As an ecommerce business, you may have drafted dropshipping marketing tactics. Share these with the supplier, as they may also contribute to improving the marketing aspect of your products.
3. Implement collaborative processes for mutual benefit
The success of your business is the triumph of your supplier, and vice versa. Because you both have a stake in the process, there should be thorough and productive collaboration. This is a matter of integrating various processes so you can work as one unit.
Using a project management system is one way to ensure your continued success. It is also much easier to establish and check on each other’s workflows using software. The synergy between suppliers and buyers’ different roles and responsibilities will benefit both parties.
4. Evaluate and assess supplier performance for continuous improvement
Your supplier's performance will directly affect your business. Your brand reputation is on the line, which is why it is necessary to continually evaluate and assess supplier performance. You have to remember that many ecommerce platforms will penalize your company if service is not at par with their standards. Every ecommerce company aims to be at the top spot of search engines. When your business has too many returns and negative comments, chances are high that you will be relegated to a lower rank.
The collaboration between your ecommerce supplier and your business may not be perfect or seamless in the first few weeks or months. But there should be constant improvement until all key performance indicators (KPIs) and other parameters have been hit.
Optimizing communication and collaboration with suppliers
As earlier mentioned, communication is critical in SRM. This doesn’t mean you have to check in every day. However, both parties should be aware of the progress in the supply chain and the status of every order.
Leverage technology for efficient communication and information exchange
Technology certainly makes communication and collaboration much easier. But with hundreds of digital products on offer, you should choose the appropriate tools for your specific use case.
Cloud-based tools
In the digital age, you should use cloud-based tools for all business operations. It uses less storage and ensures easy collaboration to minimize supply chain errors and delays. Most ecommerce companies don’t have the space to store files.
With cloud-based communication, you can update and share data in real-time, and all parties will be aware of the update as it happens. You can also access the same information during regular meetings and discussions.
Automation and integration
Automation and integration solutions will also make communication more efficient. These advances will minimize repetitive manual tasks that are also prone to errors.
The following can be used to further enhance supplier communication:
- Artificial intelligence
- Machine learning
- Application programming interface
- Electronic data interchange
- Internet of things
Emphasize a proactive and responsive approach to supplier inquiries
As a business owner, it is your responsibility to anticipate your clients’ needs. Anticipate the need for certain products and inform your supplier right away. This way, when demand increases, you will quickly get what you need. The great thing about maintaining an online store is that algorithms can help you anticipate and analyze emerging trends and changing consumer demands.
This proactive approach means understanding customer demands and communicating this to the supplier so they can manage their own workflow to meet expectations. This is important whether you are selling wholesale products or individual items.
Encourage a collaborative relationship to foster innovation and problem-solving
You become more collaborative when you treat the supplier relationship as a partnership rather than cold transactions. As such, you will become more in sync as the partnership progresses.
You may eventually realize that you can do more with your supplier in terms of innovation and unique selling proposition. You can easily collaborate on solving emerging problems and further strengthen your relationship.
Performance metrics and evaluation SRM
How good is your SRM? Just like almost everything in business, there are performance metrics by which you can gauge this:
Key performance indicators for supplier evaluation
It is not enough that suppliers provide hot products for you to sell. Item quality, timeliness, and communication also matter.
Setting specific KPIs will help justify the relationship with the supplier and the resources spent on the business relationship. These KPIs must be a balance of qualitative and quantitative and should align with your business objectives.
For example:
- Does the supplier deliver orders on time? How often are deliveries delayed? Do they take measures to avoid late deliveries in the future?
- Are the products of good quality? How many failed quality control?
- Does the supplier have any initiatives for improvement or innovation?
- Does the supplier answer queries immediately? How quickly do they respond?
- Is the supplier compliant with your contractual terms?
You can provide value in the answers to determine if the supplier is performing well and delivering what you need.
Regular assessment of supplier performance
Evaluation of suppliers isn’t a one-time event. Just because you are satisfied with their performance for some time doesn’t mean it will be the same in the next month or two.
Assessments take time and effort. To create a truly valuable and actionable valuation, you must develop specific criteria, KPIs, and measurements, which can be quite complex.
Ideally, you should evaluate supplier performance every quarter, much like other important business reports. However, if you have niche products, which may mean you only have one or two suppliers, then a bi-annual assessment will do.
Data-driven insights about supplier relationships
Cutting-edge SRM platforms provide data-driven insights that will help businesses in their decision-making processes. These digital tools provide accurate and up-to-date information that is easy to process and understand.
The information gleaned from these platforms can help ecommerce with the following:
- Supplier selection
- Contract negotiation
- Resource allocation
- And more
Risk management in supplier relationships
Disruptions in the supply chain will always happen, and they are often difficult to predict. An important part of SRM is identifying and mitigating certain risks in your niche so the result isn’t disastrous.
Identifying and mitigating risks in the supplier ecosystem
First, identify the risks that may arise when partnering with third-party suppliers. How? Some are known risks in the supplier ecosystem, while others can only be learned through experience.
The next step is to assess these risks and weigh the consequences of each in terms of inventory, expenses, potential losses, etc. Then, you can implement measures to manage the consequences—your primary goal should be to remove or at least minimize any disruptions to prevent financial losses.
Make sure to consider risks beyond the financial: you can experience quality issues for your products, which will affect your company’s credibility. A bad reputation is always risky in private labeling or when manufacturing isn’t done in-house.
Strategies for contingency planning and effective risk mitigation
Now that you know the potential issues that may arise from third-party suppliers, it is easier to map out contingencies.
Long-term supply plan
With the creation of a long-term supply chain plan, you can anticipate the months or weeks when you need to bulk up supplies based on historical data and do the opposite for lean periods. Preventing over and understocking will ensure efficient operations and little to no wasted resources.
Strengthen social media presence
Keeping your eyes and ears open on all social media platforms will help you prepare for upcoming trends and events that could affect your supply chain. And when you have a memorable presence on these platforms, you can develop a relationship with your customers. This is very important in mitigating risks.
For example, if there is a disruption in the supply chain, you can alert customers instantly so they will know they need to wait a bit longer for their orders. Being proactive with communication ensures more leniency from customers.
Balancing risk and reward in supplier relationships
As the adage says, don’t put all your eggs in one basket. The best way to balance risk and reward in supplier relationships is to diversify the sources for your products. However, this doesn’t mean that you get various suppliers for one type of product—this would lead to inconsistencies.
However, different types of products should come from different suppliers. This way, a disruption in one niche will not affect the others too much.
Partnering with multiple suppliers for your business means balancing different relationships. To manage this, you need robust supplier relationship management tools and software.
If you have taken on a dozen or more suppliers, it is best to prioritize the ones that will most benefit the company's overall success.
Examples of successful supplier relationship management
The best way to showcase best practices in SRM is to provide you with examples. Some of the most successful and recognizable companies in the world have top-notch SRMs that can be simulated by any company.
Levi’s
The denim company is one of the most popular jeans retailers in the world. It made $570 million in net profit in 2022. It helps that the brand is always willing to change with the times and adjust. Its latest innovation is the use of artificial intelligence to help process online orders faster and more efficiently.
When it comes to its SRM, Levi’s implements a centralized approach to procurement to mitigate risks and threats. It means that the brand leverages technology to ensure a centralized supply chain where there is a principal authority that makes sourcing and purchasing decisions. In theory, it sounds like a drawn-out process but technology keeps it fast.
The advantage of the centralized system in SRM is that the company can mitigate threats and risks, as well as prevent wasted resources on unapproved suppliers. It can also track which suppliers are doing well in the supply chain and which ones are lagging behind.
Procter & Gamble
The multinational health and personal care manufacturing company has been in the game for over 185 years. It had global net sales of $82 billion in 2023. Part of the reason for its longevity is its great SRM.
The brand focuses on the following strategies in strengthening its SRM:
- Identifying and nurturing supplier relationships.
- Streamlining supplier base.
- Promoting collaboration and innovation.
Procter & Gamble has also institutionalized criteria for supplier selection to maintain high standards and deliver only the best products for its customers.
Procter & Gamble was among the companies that didn’t suffer during the pandemic with ecommerce sales growth of around 50% during the first year of the pandemic.
Common pitfalls in supplier relationship management and how to avoid them
Some of the most common issues in SRM emerge due to a lack of organization and the ability to adapt and pivot when crises arise. However, to deal with these problems, contingency plans must be in place.
Much of the success of SRM will be dictated by processes before the supplier contract has been signed. After all, prevention is better than cure.
The following are the most common pitfalls in SRM that should be planned for well in advance:
1. Poor communication
Miscommunication is one of the easiest things to blame when something goes wrong in the supply chain. Let’s say only 300 items from a wholesale order of 3,000 arrived. The supplier may say that only 300 were ordered from them.
But when you have effective communication channels and tools, it would be impossible not to spot the discrepancy. This is why a project management system must be in place where both parties can track progress in the supply chain in real-time.
2. Lack of partnership
Toyota and Procter & Gamble, two of the biggest brands in the world, have shared the importance of collaboration in SRM. Treating the supplier as a partner will strengthen the relationship, and fostering a collaborative environment will help develop trust.
There should be open communication and transparency at every step of every project. More importantly, there must be a shared goal so both parties will take the same path to business growth. They must feel that the success of one is also the success of the other and act like it is so.
3. Inefficiency
The proper use of technology can improve efficiency in the supply chain. A robust performance management system that tracks supplier performance based on established metrics must be employed.
Also Check Out: 16 Best Dropshipping Suppliers
So what next?
Just because hiring a supplier is transactional, it doesn’t mean that you will always be right. The supplier is crucial to the success of your ecommerce business and vice versa. This mutually beneficial relationship must be treated as a partnership to foster trust, collaboration, and innovation.
To do this, the company must have a solid and reliable SRM that stems from a detailed plan, organization, and the use of appropriate technology.
So, where do you start? Start by finding dropshipping ideas and getting in touch with suppliers from the SaleHoo directory. The directory contains thousands of vetted suppliers of more than 2.5 million products. And, of course, if you have any eCommerce related questions, please reach out to our award winning 24/7 support team.
