4 Pillars of an Effective Supplier Management Program

Building out a supplier relationship management (SRM) program doesn’t have to be intimidating. Explore the four pillars of a successful SRM program and best practices for driving supplier performance.

Effective supplier management has never been more necessary for procurement leaders looking to mitigate risk and ensure continuity for the business. More than a year of unpredictable demand and volatile supply chains has exposed the need for tighter collaboration and more strategic supplier partnerships.

In a study by Harvard Business Review, 95% of business leaders reported that their sourcing and procurement processes were disrupted because of the pandemic. And while the vast majority of procurement leaders agree that supplier management plays a key role in business continuity planning, only 21% report having strong supplier data analysis capabilities. 

Add to these challenges recent human rights legislation and steadily increasing inflation, and procurement leaders’ list of responsibilities is ever-expanding. On the one hand, legislation like the General Data Protection Regulation and Australia’s Modern Slavery Act are requiring sourcing teams to gather more supplier data than ever before to ensure responsible sourcing practices. And on the other, the U.S. Consumer Price Index is the highest it’s been in over a decade, leading to increased costs for suppliers and procurement teams alike. Plus, with supply chain issues expected to last through early 2022, procurement leaders must be empowered to make data-driven decisions to alleviate stress on their value chains. Teams with effective supplier management programs can better communicate with their vendors, plan strategically for the future, and drive necessary innovation. 

“How our procurement professionals are trained to tap into supplier-led innovation … is a big priority [that requires] the right infrastructure to work with suppliers ... and develop the right level of trust that we are using our suppliers’ expertise in the right way.”

Shashi Mandapaty Chief Procurement Officer, Corporate Tier Johnson & Johnson

In a world where remote and hybrid work has become the new norm, keeping in sync with supplier partners spread across geographies is no easy task—yet it is critical to the business. So how can procurement leaders partner with their suppliers while also balancing business needs? 

4 Pillars of an Effective Supplier Management Program

Leading procurement teams that prioritize supplier relationship management (SRM) are better equipped to adapt to uncertainty and thrive despite disruption. With unpredictable supply chains and changing consumer habits, it’s essential that sourcing leaders build their SRM strategy with the following in mind.

  • Open collaboration: As the “glue” between suppliers and stakeholders, procurement leaders must ensure that their SRM program prioritizes collaboration. One way to do this is to provide both suppliers and stakeholders a central hub where they can communicate their needs and criteria. Too often, essential information can get lost in lengthy email chains. By eliminating this process, procurement can open up lines of communication and stay up to date in real time. 

  • Simplified compliance: Without a dedicated process, keeping track of supplier compliance can be near impossible. And with increasing penalties and financial risks for businesses out of compliance, it’s imperative that sourcing leaders get a clearer view into not only their suppliers, but their extended value chain. Many leaders have simplified their compliance process with automation, using templated forms to gather and aggregate large amounts of compliance information from their suppliers. 

  • Increased visibility: It is no longer enough to understand your tier-one suppliers. Procurement teams must now have in-depth knowledge of their suppliers’ own value chains in order to effectively plan for the business. In addition, procurement teams can’t afford to be in the dark when it comes to contractual obligations and renewals. Teams that embed visibility into every step of their SRM process have a more holistic view into their supplier impact and can better allocate resources.

  • Data-driven relationships: Procurement leaders who can have metrics-based conversations with their suppliers can better pinpoint areas for improvement and drive results. The first step in leading these conversations is aggregating historical performance to understand trends and growth opportunities. With a base layer of supplier data, teams can then work with stakeholders to gather qualitative feedback and understand how their supplier partners can better serve the business. 

While the vast majority of procurement leaders agree that supplier management is a key driver of business continuity, 4 out of 10 report that they do not include supplier management in planning. As 2021 comes to a close amid supply chain issues that some people fear will put a damper on holiday cheer, business leaders should put better supplier management tools at the top of their wish list. 

“In a rapidly scaling company, it’s essential to have the ability to quickly shift your processes as the company grows. With Workday Strategic Sourcing, I can easily make changes to our system that are in effect the next day.” 

Vice President of Procurement Financial Services Company

Best Practices for Building an SRM Program

Procurement teams with robust supplier management systems are partnering with their suppliers to achieve key business goals like supplier diversity, strategic cost savings, and more spend under management. How can you build out your program and set it up for success? 

  • Involve key stakeholders early: Even the best SRM program means nothing if stakeholders aren’t engaged. Make sure to involve key partners early in the process to understand their needs for an SRM program. Working with stakeholders early can also help you determine which categories to score performance against and identify mandatory supplier information like Sarbanes-Oxley compliance, historical financial information, and more. Lastly, involving business stakeholders early gives you a chance to create process evangelists who can help spread awareness of the new program and drive business engagement. 

  • Centralize supplier data: It’s essential to gather a base layer of data before building out your program. For many companies, supplier data can be stored in a variety of locations, including separate databases, email chains, desktops, or even desk drawers. By aggregating your existing data, you can gain a more holistic understanding of your existing supplier process and identify gaps. 

  • Prepare internal and external training: Effective change management can make all the difference in ensuring a new process is adopted by both stakeholders and suppliers. Successful SRM rollouts often involve multiple training sessions to help educate your partners on how to use the new program and how it benefits them. As an added bonus, these training sessions can help you strengthen relationships with other business units by increasing engagement and spreading awareness of procurement. 

Building an SRM program from scratch can be intimidating, no doubt. In one case, a leading financial services company had to reverse-engineer its SRM program using existing slide decks containing supplier performance data. 

But, as the company scaled, it was able to centralize and automate this data, leading to better visibility across the organization as well as actionable insights into supplier relationships. In other words, with the proper preparation and proactive engagement with the business, you can create an effective strategy that strengthens relationships and drives performance. 

Interested in learning practical tips for creating an SRM program from scratch? Check out this Guide to Supplier Management and explore the seven steps you can take to ramp up your SRM. 

More Reading