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Supplier Relationship Management and Its 5 Primary Tasks

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SDI is, at its core, a supply chain management company that is exclusively focused on creating client value through the efficient and effective management of the MRO supply chain. The MRO supply chain is a highly complex, fragmented and evolving segment of the business that is a core enabler of business operations.  It can impact both the top line and bottom line of many businesses.
In order to effectively manage the supply chain there must be a Supplier Relationship Management (SRM) strategy.  But first, let’s explore what  SRM means and what it includes.

Definition: Supplier Relationship Management (SRM) is a systematic, enterprise-wide assessment of suppliers’ assets and capabilities in view of the organizations overall business strategy, a determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of the supplier relationship management process is to develop two-way, mutually beneficial relationships with strategic supply partners. This relationship delivers greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement.[1]

Supplier relationship management encompasses five primary tasks:

  1. Segmenting the Supply Base
  2. Measure & Improve Supplier Performance
  3. Become a Better Customer
  4. Collaborate with Suppliers
  5. Improve Supplier Quality

1. Segmenting the Supply Base

As an MRO Service provider, one key aspect of SDI’s offering is that we are brand and supplier neutral in our approach, focusing solely on delivering value to our customers in the execution of their MRO supply chain.  This differs from a distributor, whose primary business and revenue models are focused on selling specific lines of products to clients – regardless of need or expanding inventory levels. A supplier neutral approach allows us to fully align to our clients’ business goals in an unbiased way while developing deep supplier relationships – rather than eroding value through immature and fractured supplier relationship management strategies that are not focused on value delivery.

Another factor impacting the overall size of the MRO supply chain is the vast nature of the commodities included under the MRO umbrella. In the case of SDI, nearly 40 such commodities exist. This is further compounded by the high demand mix of MRO parts required for increasingly complex production lines – a 60% turnover rate  leads not only to a higher incidence of obsolete inventory, but also to proliferation of the supply base.

SDI’s active supplier base has ebbed over time, growing with new clients and supplier entrants and shrinking through focused efforts on identifying those suppliers with whom the greatest value creation opportunity exists. As a way to counteract supply base growth, SDI engages in a process of supplier segmentation, seeking to identify those suppliers with whom we can work with to achieve greater levels of value creation for our customers.  Segmentation of suppliers is one way to help ensure the proper alignment of resources within an organization and thereby manage for value versus managing solely for performance.

2. Measure & Improve Supplier Performance

Another important task involved in supplier relationship management is the performance of the supplier. Performance is much more than compliance.  Establishing strong contract relationships and ensuring buyer and supplier compliance to those agreements is one part of delivering value. However, if not properly contained, it can distract from the ultimate value created from a supplier partnership.  Value from a supplier partnership comes through innovative and collaborative activities that focus on solving the customer’s problems. Within SDI, we recognize that in our customer’s eyes, we are only as good as the suppliers with whom we choose to do business. If our suppliers fail to deliver, then SDI has failed.

Supplier performance objectives and measurements must focus on, and be tied to, the overall objectives of the business. In SDI’s case, this means not only meeting, but also exceeding our customers’ expectations for the proper management of their MRO supply chain.

3. Become a Better Customer

The MRO supply chain is multifaceted, fast moving and complex. Creating and delivering value requires an MRO Service Provider to be capable of harnessing the vast resources, capabilities and innovations existing within the supply chain.  Very few companies (probably less than 5%) receive top performance and privileged access to their supplier’s best ideas, newest innovations and best resources.

In order to become a suppliers Best Customer, it’s critical to have a deep understanding of the supplier’s perspective, business objectives and needs.  Valuing what is most important to the supplier and seeking to minimize distractions or impediments to those factors will go a long way toward moving an organization up the ladder to Best Customer status.

Segmenting suppliers and focusing the necessary time and resources on those preferred, strategic or partner suppliers will help to drive the necessary relationship development and maturity that can yield Best Customer status.

4. Collaborate with Suppliers

Collaboration is something we hear a lot about, but we may not always be able to clearly define it or even recognize it properly in the context of day to day business dealings.

So, let’s define it: Collaboration is working with others to do a task and to achieve shared goals. It’s a process where two or more organizations work together to realize shared goals. This is more than the intersection of common goals seen in co-operative ventures, but a deep, collective determination to reach an identical objective.

Within the MRO Supply Chain collaboration can lead to improvements in supply availability or delivery. It can support improvements in overall inventory management, helping to improve customer financials. It can support the identification, review and approval of alternative parts that reduce replacement costs, improve productivity and support reductions in the total cost of ownership or improve overall equipment effectiveness. Gain a fresh perspective on your operations and streamline efficiencies with SDI’s MRO supply chain evaluation.

5. Improve Supplier Quality

Within a focused and collaborative supplier relationship management strategy there is significant opportunity to bring about improvements in supplier quality. In part this is an outgrowth of investment in regular meetings with the supplier that focus on all aspects of business performance. Further it can be enabled through the sharing of data related to product failures within the various client environments. This data can be effectively captured when an MRO Service Provider has invested in tools specifically designed to address the warranty, service, reparability and maintenance of MRO items.

To learn more about SDI’s approach to supplier relationship management and what makes us different than our competitors, stay tuned for next months’ article, or contact us today.

[1]           “Maximising the Value of Supplier Relationships”. CIO Leadership. 9 November 2009.

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