Supplier Relationship Management (or SRM) programs are designed to create a closer working partnership with your critical and strategic suppliers. This should result in better value for both organizations. However, there are mixed opinions about whether the benefits outweigh the potential risks.

Arguments for SRM

– Eliminates waste and barriers for an effective service. Contracts state what has been agreed between the buyer and the seller in terms of what will be delivered and at what price. In practice, waste can result from inefficiencies in the way processes, systems, and ways of working of the two parties come together. An SRM program can identify these sources of waste and eliminate them, creating lower costs and better service.

– Generates mutual dependency. If both parties value the benefits they derive from the relationship created by your SRM program, they come to expect that the relationship will last. This means that in times of shortage, your organization is unlikely to be affected by the need for the supplier to ration their production.

– Promotes investment. If the critical and strategic suppliers to your SRM program see that you create value for them and that the business relationship is likely to be a long one, they are more likely to make investments that increase your capacity and ability to deliver what you need.

– Motivates suppliers to go the extra mile. Remote and adversarial supplier relationships where all problems are seen as belonging to the supplier creates disappointment and disinterest for them and results in a lack of motivation. SRM programs create a shared responsibility and this equity translates into motivated providers who go out of their way to help you.

Arguments against SRM

– Create exit barriers. Long-term relationships with key vendors that create dependency (for example, by investing in shared IT systems) can create a barrier to switching vendors. The risk is that new entrants to the market will be discouraged and innovation from other vendors may be lost.

– Makes it difficult to test the market. It is financially healthy to test current pricing and sourcing solutions from time to time against alternatives. If your SRM program has, in effect, built a bespoke solution, you may not be able to find a comparable alternative to test if you’re still getting value for money.

– Can lead to complacency. A long-term relationship with key suppliers can make both parties very familiar. The result of this can be an acceptance of status quo ways of working with new ideas running out.

– Need to select the right supplier the first time. Obviously, if you’re going to build a long-term relationship with a vendor and implement SRM, it’s vitally important that you make this selection with the right criteria, as it will be increasingly difficult to change vendors if a better one comes along later. Treat your choice of SRM vendors as if you were marrying them. Easy to do but with dire consequences later if the choice was wrong!