As procurement functions mature and gain influence, Supplier Relationship Management (SRM) has become a key pillar of effective business strategy.
It’s not just about cutting costs anymore; SRM is about creating partnerships that drive value, foster innovation, and contribute to sustainable top-line growth as well as bottom-line cost benefits.
Supplier Relationship Management (SRM) is the systematic approach to managing a company’s interactions with its suppliers. It focuses on fostering strong partnerships, optimizing supplier performance, and ensuring effective communication to drive mutual benefits and enhance procurement efficiency. It encompasses various strategies to improve supplier interactions and data quality.
The complete SRM process involves identifying, evaluating, and then managing suppliers to build strong partnerships. It includes both operational and strategic steps such as onboarding, assessing performance, ensuring compliance, and fostering joint innovation or continuous improvement initiatives to achieve strategic goals and enhance overall supply chain efficiency.
A good comparison is to the function of Customer Relationship Management (CRM) in Sales. The concept is essentially the same. Procurement departments want to measure, track and manage their vendor relationships and monitor their supply chain risks.
Using technology to assist them and having reliable data in one single source of truth are both key enablers of success.
An SRM manager handles key tasks like coordinating supplier performance management and fostering communication between suppliers and key stakeholders. They evaluate vendor lifecycle management to mitigate risks and adapt strategies to align with your business needs. Their role involves maintaining supplier relationships, promoting innovation, and ensuring continuous improvement across your supply chain operations.
Many organisations, especially in the mid-market, don’t have sizeable procurement teams. They will incorporate category management and supplier relationship management into a more catch-all Strategic Procurement Manager role. This will require wearing both hats!
The truth is that both Category Management and Supplier Relationship Management are both pivotal when it comes to controlling costs within any organisation.
SRM as a function involves the processes you use to manage supplier relationships, which include for example supplier performance management and risk management. These activities improve supplier quality and reliability.
In a recent McKinsey survey of more than 100 large organisations in multiple industry sectors, companies that regularly collaborated with suppliers reported higher growth, lower operating costs, and greater profitability than their industry peers.
Supplier relationship management software improves access to all of the necessary performance data by providing this all in one, easy-to-use interface. This brings considerable efficiency enhancements vs. relying on a complex ERP system where the data is stored in multiple different places and is difficult to access.
SRM software can offer a toolkit for the complete vendor lifecycle management.
Supplier relationship management (SRM) has gained traction as businesses adapt to evolving market dynamics.
"Optimising supplier relationships remains a focus for CPOs as they strive to foster partnerships that drive innovation, quality improvements, and ESG progress. In these efforts, supplier incentive programmes are being used by a significant 87% of respondents to our survey."
-The 2024 European CPO Report, ProcureCon Europe
One notable trend is the integration of specialist SRM software as a best-of-breed application, as an add-on to an ERP system or one of the established, large Source-to-Pay suite providers.
Best-of-breed applications streamline supplier relationship management processes, allowing you to easily track vendor lifecycle management and better engage with both operational and strategic aspects of supplier management.
A key emerging trend, especially since the COVID-19 pandemic, focuses more on the strategic side of SRM. Supplier risk management and a more proactive approach to cost management remain vital with an uncertain geopolitical landscape and a weakening economy. By leveraging sophisticated software, you can preemptively address potential supply risks and major movements in pricing for key cost drivers. This gives you more peace-of-mind in ensuring uninterrupted operations, as well as being able to proactively engage with your supply base when commodity prices go down.
SRM is also moving towards greater collaboration. In this trend, the emphasis is on co-innovation and transparency, fostering stronger alliances. This collaborative approach aligns with the current trend for procurement to drive supply chain sustainability goals, which encourage shared targets and long-term partnerships.
Operational supplier management has become more data-driven. Real-time data analytics provide insights into supplier performance, informing decision-making. Accuracy and reliability of vendor master data is also of key importance here. These insights feed into effective category management, through reliable spend and financial data from your supply base.
A further area of advancement in operational SRM has been the emergence of AI agents and Co-Pilots, such as Mercu AI from Mercanis. These bots can facilitate the automation of more routine tasks. This frees up time for Procurement Category Managers to perform more strategic activities that have a greater positive impact on business performance.
By utilizing AI in SRM for more predictable, day-to-day supplier management requirements, it can lead to a greater ROI on SRM as an initiative. Unleashing these bots gives back to Category Managers a vital commodity: their time. Instead of being stuck performing essential but otherwise low-value-added tasks, their resources can instead focus on activities which drive real business impact.
Getting started is all about taking action. We’ve outlined below a 4-step approach to get a foundational but effective SRM program off the ground.
1. Nominate one single system to be the go-to single source of truth from which to pull your supplier data:
This will probably be your ERP system. Getting clean data from ERP from a procurement perspective can often be a challenge, but you’ll likely need to tackle this monster first.
2. Get core baseline data on all of your suppliers accurate and clean:
Establish the minimum necessary data points you need to be able to answer any possible internal request, or to react effectively in times of crisis. Remember when the pandemic hit? Procurement and supply chain teams scrambled to try to make sense of unstructured and outdated data in ERP systems. All core baseline data should be aggregated into one, easy-to-use platform - such as Mercanis - where unlike in an ERP system it can easily be accessed and presented.
3. Segment your suppliers:
Not all suppliers are created equal. Some are crucial to your operations, whereas others are purely transactional. Segmenting suppliers helps you focus resources where they matter most. Criticality of the supplier must also be considered as well as annual spend. Examine the impact a supplier potentially has on both your top and bottom line.
4. Apply the pareto principle to the problem:
A small percentage of your supply base will cause you the majority of your delivery and quality issues. Do you want to have a “worst-of-the-worst” hit list as part of your SRM strategy? Likewise, only a small percentage of suppliers will have a big enough potential impact on your business to warrant the resources necessary to invest into strategic partnerships.
A successful SRM strategy doesn’t happen overnight. Here are some best practices to help you implement SRM effectively.
Define what you want to achieve through SRM. Are you aiming for cost savings? Risk reduction? Improved product quality? Establish clear objectives, and ensure that your stakeholders are also aligned with these goals.
SRM isn’t just the procurement department’s responsibility - it thrives on collaboration across departments like quality assurance, production, and finance. Involving these teams ensures a holistic approach that aligns supplier management with overall business goals.
Practical Example: Imagine a manufacturing company launching a new product line. The procurement team works with quality assurance to establish supplier quality standards and compliance criteria, while production ensures that suppliers can meet volume and timing requirements. Simultaneously, finance reviews the supplier’s financial stability to mitigate risks. By involving all these departments in the SRM process, the company not only selects the most suitable suppliers but also ensures seamless execution from sourcing to production, avoiding costly disruptions or delays.
Open and regular communication builds trust. Do this in an innovative way. Use different types of media and types of content. Keep suppliers informed about any changes in your business or market. Likewise, encourage them to communicate any challenges they’re facing.
Equip your wide team and stakeholders with some SRM basics. A team that understands SRM principles will be more effective in managing supplier relationships and handling potential challenges.
SRM is a dynamic process. Regularly assess your approach, review supplier performance data, and adjust your strategy as needed. Continuous improvement is key to long-term success.
To ensure a successful approach to SRM, it’s also vital to engage with and listen to your supply base, as well as establishing a feedback loop from internal stakeholders who have key relationships with critical and strategic vendors.
Here is a four-point guide to a collaborative SRM approach with your suppliers:
As businesses navigate a rapidly changing landscape and geopolitical instability, the future of Supplier Relationship Management promises to be dynamic and transformative. Embracing digital innovation will be crucial. Advanced SRM software will continue to play a pivotal role in automating processes and providing real-time insights.
In this context, the role of Artificial Intelligence (AI) cannot be overstated. While many organizations are grappling with the complexities of AI adoption, it is clear that there will be no way around it. AI is set to revolutionize the SRM function, enabling predictive analytics, automating routine tasks, and offering unprecedented levels of transparency and efficiency. For businesses ready to embrace this change, the opportunities are limitless.
Expect a stronger emphasis on sustainability and ethical practices, as these become non-negotiable elements of successful supplier partnerships. By fostering transparency and co-innovation, you'll also build resilient supply chains that can withstand global challenges.
Ultimately, a strategic approach to SRM will be indispensable. Prioritising long-term value creation over short-term gains will ensure your business remains competitive and agile, ready to seize opportunities and tackle challenges head-on.
"This area is clearly challenging and will be very active, with 80% to 85% of all companies surveyed planning to enhance their supplier relationship management (SRM) capabilities in an area likely poised to be as foundational as strategic sourcing."
- Deloitte 2023 CPO Survey
Supplier Relationship Management (SRM) is a strategy focused on optimising partnerships with suppliers to gain competitive advantages. By fostering strong supplier interactions, businesses can enhance supplier quality and reliability, reduce costs, and drive innovation, which collectively contribute to improved operational efficiency and a stronger competitive position.
SRM as a function involves processes like supplier performance and risk management to enhance supplier quality and reliability. SRM software, on the other hand, helps automate these tasks to improve efficiency and brings all of the necessary data into one platform, allowing organisations to perform their SRM requirements more effectively.
Collaboration in SRM is essential for fostering trust and driving innovation. By working closely with suppliers and internal stakeholders, businesses can build stronger alliances, promote transparency, and engage in co-innovation, which ultimately leads to top and bottom line growth, as well as a more resilient supply chain.
Current SRM trends include increased integration of SRM software for automating supplier performance management, a growing focus on risk management to address supply chain disruptions, and the shift towards data-driven decision-making with real-time analytics. There's also a trend towards incorporating sustainability metrics in key supplier partnerships.
Supplier Lifecycle Management (SLM) is a comprehensive approach that integrates with SRM processes to manage suppliers effectively at every stage of their lifecycle. SLM ensures that all aspects of supplier interactions are optimised, from initial engagement to performance evaluation, aiding in the achievement of long-term strategic goals.
An SRM manager is responsible for coordinating supplier performance management, fostering effective communication with suppliers, ensuring continuous improvement across supply chain operations, and aligning supplier strategies with organisational goals to maximise value and minimise risks in supplier partnerships.
Fabian Heinrich is the CEO and co-founder of Mercanis. Previously he co-founded and grew the procurement company Scoutbee to become a global market leader in scouting with offices in Europe and the USA and serving clients like Siemens, Audi, Unilever. With a Bachelor's degree and a Master's in Accounting and Finance from the University of St. Gallen, his career spans roles at Deloitte and Rocket Internet SE.
.webp)
.webp)
.webp)
