Despite the many benefits, it’s rare for middle market businesses to have contracts with suppliers or even a supplier relationship management program in place. Many businesses of this size don’t consider it to be a priority and supply chain managers don’t want to put the time and effort into creating such a program. And when the economy is stable and business is good, that’s an understandable stance to take. But economic growth or decline, tariffs, and issues like those presented in the transportation crisis of 2018 can threaten your entire supply chain.
Whether it’s a supplier that can no longer meet your demand or an increase in spot pricing to the point that it threatens your profit margins, a change in your supplier relationship can cause your entire supply chain to collapse and your bottom line takes a hit.
In order to protect profit margins, avoid risks, and ensure the quality of your products remains high, you need a supplier relationship management program.
A supplier relationship management (SRM) program is a two-way partnership between your business and any third-party suppliers of goods or services. Its purpose is to stabilize costs, ensure the quality and quantity of goods, and reduce risk to your business.
It’s reliant on continuous dialog between companies and a mutually agreed upon scorecard that allows you to regularly evaluate your suppliers and vice versa.
“Think of an SRM program like marriage counseling after having been married for a long time,” says Philip Franz, Vice President of Supply Chain and Operations at FortéOne. “It needs to be a two-way street in which you assess your supplier’s performance and they have the opportunity to assess yours.”
Not only do middle market business lack an SRM program, but many don’t have a contract with their supplier that sets pricing and guarantees the delivery of a product or service. Business are counting on their suppliers to continue delivering goods and services without any assurance that it will happen. Because supplier risk has not been assessed, these businesses also haven’t identified secondary and tertiary suppliers for their key products.
This becomes problematic if any one of these three scenarios occur.
The benefits of an SRM program are huge and greatly outweigh the hassle of putting it together. The most obvious benefit is that you have a solid relationship with suppliers built on regular communication and the desire to support one another. It will also likely result in a contract that guarantees the delivery of their product at a locked price, which is more cost-effective for you.
“An SRM program and contract with your suppliers lowers the risk of suppliers not being able to give you what you need to conduct business,” explains Franz. “By exploring that relationship and setting expectations, you can rest assured your supplier won’t fail you. Or you can at least know what to expect so you can find secondary or tertiary suppliers to backfill what your primary supplier can’t fulfill.”
To get started, it’s vital to do a risk assessment of existing suppliers to make sure they can meet your needs in the future. Once you’ve identified primary suppliers, reach out to write contracts and create a balance scorecard. This scorecard should contain agreed upon criteria that needs to be met by both you and your supplier.
From there, you should meet with your designated suppliers quarterly—or at least twice a year—to review the scorecards and create a plan for correcting any issues that come up.
If you need help setting up or running your SRM program, contact the experts at FortéOne to eliminate supplier-related risks and protect your bottom line.
Contributor: Philip Franz