Like CRM, SRM (Supplier Relationship Management) plays an important role in business management. It helps organizations manage and analyze relationships with suppliers in a structured way.
Companies depend heavily on vendors for raw materials, spare parts, and services. Therefore, strong supplier relationships support stable production and business growth.
SRM systems collect and organize supplier information. These systems track supplier performance, delivery timelines, product quality, and pricing trends.
As a result, businesses gain better control over procurement activities and supplier performance.
Goal of SRM
Every business depends on trust, quality, and financial stability. SRM helps organizations maintain these factors while working with suppliers.
The main goals of SRM include :
- Maintain consistent product quality
- Ensure timely and adequate material supply
- Build trust between suppliers and the organization
- Ensure suppliers receive payments on time
- Encourage suppliers to prioritize urgent requirements
- Monitor supplier performance regularly
- Strengthen long-term partnerships with reliable vendors
These goals help businesses maintain smooth operations and improve overall efficiency.
Advantage of Implementing SRM
Implementing SRM systems offers several advantages for organizations.
First, companies gain better visibility into supplier performance. Managers can analyze vendor data and make informed procurement decisions.
Second, organizations can forecast raw material prices more accurately. This helps them plan production and control manufacturing costs.
Third, strong supplier relationships reduce delays in material supply. This improves production stability and reduces operational risks.
Moreover, effective supplier management helps reduce unnecessary inventory. Companies can avoid excess stock and minimize the risk of dead inventory.
As a result, organizations save capital that would otherwise remain blocked in unused materials.
How Suppliers are Categorized in SRM
For organizations, though supplier is very important but not a primary constraint to think on. Primary factor is still the material and profit.
- Suppliers are categorified based on the material category and are –
- Material that plays the significant or critical role in production like Raw Material and Main spare suppliers are categorified as Class A category suppliers. Class A category material plays most important part in product costing and quality hence very tightly controlled for their quality, inventory and price band.
- Material that plays important role but does not require very specific checks and control are classified as Class-B items so as the supplies supplying the material. Class B material also plays significant role in product quality and plant maintenance segment.
- Material that is being used as an accessory and does not impact quality or quantity of product manufacturing falls in Class-C category. Suppliers, suppling such material also plays a nominal role in organization’s product costings.
How SRM helps Management
- SRM managing strategies are crafted based on above classification for Suppliers. Some policies are kept common for all while some are totally based on Supplier classification.
- Real time data helps Management in getting strategic decisions.
- Management can very effectively observe the relationship graph of any supplier based on multiple input parameters like delivery, quality, price and availability factors.
- Supplier history analysis will help management in understanding supplier performance
- Strategic relationship with suppliers helps management in managing fund planning
- Risk analysis management against dead inventory and fund blocking.
- No loss of contact during leaving of some key executive, handling strategic procurement.
- Based on ABC analysis of Inventory, management very effectively get to know which are the most important vendors for the organization. Now more emphasize can be given to these vendors.
How SRM helps Purchase Executives
- Have real time data of Supplier contact information
- Have complete detail of communication held with the supplier against particular Purchase Order.
- Good relationship gives added advantage during odd hours like in present pandemic situation.
- Market is volatile and good analysis and relationship helps in planning and managing strategic material in much advance.