How to build an SRM strategy to get superior quality at the lowest price?

Managing supplier relationships is an end-to-end process in procurement: the cost of purchase, the delivery timeframe, the quality of goods and services, as well as compliance are interconnected with the way you communicate with your suppliers in terms of contracts and agreements. This article elaborates on these SRM strategy issues and considers whether automation of procurement processes can help in solving them.

1. Evaluate all the risks

Evaluate all the risks of working with this or that supplier, especially if you have a complex supply chain network. Ask your suppliers for references, or even a portfolio of their previous projects. Try to find out how long they are in business, assess their areas of expertise, ask how they handle various challenges in the supply chain, what they did the last time to handle the disruption, etc. Analyze their price proposals, their practical experience, their capabilities to process your orders, and their financial sustainability. Accredit your suppliers and create a preferred suppliers list in order to eliminate the unsustainable suppliers from your business.

Take into account all the aspects, not only prices. Some suppliers may not have competitive price proposals, but they can guarantee 100% on-time delivery and a flexible refund policy. It can be much more convenient to work with a reliable supplier, rather than to work with a supplier that can only offer the lowest price. If your supplier will cause a disruption, the entire supply chain network could be at risk, which may affect the delivery of products or services to the customers.

Assessing the profile of the suppliers, along with establishing strong long-term relationships with them, will minimize the risks of any emergencies and disruptions to your business.

2. Clearly state all the details when you sign agreements with the suppliers

If you buy from a particular supplier(s) on a regular basis, you need to sign long-term agreements (e.g. Contracts). Discuss everything that two parties expect from each other. It could be a description of the products or services, prices, delivery terms, payment terms, communication, etc.

This can be a simple agreement or a complex contract with multiple additional agreements depending on the business requirements of the parties. A well-documented contract will reduce the chance of confusion or disputes. It’s a good idea to create a flowchart or deck to explain the process of working with contracts to your team so everyone knows their responsibilities.

3. Price is what you pay, and value is what you get

There is nothing better for increasing your revenue than receiving high-quality goods and services at the right price. If you have financial flexibility, use it. You can buy in bulk and bargain for a better price. If you have more inventory in order, you would be able to negotiate with the seller to get a larger discount. In order to simplify the communication with suppliers and the negotiation process overall it is highly recommended to have the right e-sourcing software in place.

Convenient e-sourcing software enables the managers to elaborate on the following issues in SRM strategy:

• Ensure that the cost of its goods and services is the lowest possible for a given quality

• Creating a pool of sustainable suppliers

• Eliminating the risks of cooperation with the unsustainable supplier through recording the interaction with suppliers and scoring him in a single database

• Document and clarify not only the main terms of delivery but also the additional agreements within the contract in a digital form

• Executing PO processing, including sending them to suppliers in a single system

• Perform the supplier cost analysis through a consolidated dashboard with dozens of built-in reports

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.