Supplier relationship management has become a strategic priority for companies that need more resilient, transparent and collaborative supply chains.
Disruptions such as the COVID-19 pandemic showed how quickly supplier issues can affect operations, costs and customer commitments. Since then, procurement and supply chain leaders have continued to deal with pressure from transportation delays, component shortages, geopolitical risk, tariffs, inflation, sustainability requirements and changing customer demand.
Effective supplier relationship management, or SRM, can help companies work more closely with important suppliers before problems become crises. Strong supplier relationships can improve communication, risk visibility, pricing stability, innovation and long-term planning.
Snapshot of supplier relationship management
Supplier relationship management is a complicated concept, and different people emphasize different aspects.
In essence, supplier relationship management is an alignment of all the people, processes and technology tools that enable effective performance and risk management across the supply chain.
Supplier relationship management is crucial for resilience, said Matt Lekstutis, global managing partner of supply chain consulting for Tata Consultancy Services.
"To respond to uncertainty or disruption in supply requires close relationships with suppliers," he said.
Gartner supply chain analyst Miguel Cossio noted that Gartner defines supplier relationship management as "a deliberate enterprise strategy designed to increase collaboration with the supply base."
"[Supplier relationship management] doesn't happen out of the blue," he said. "It must be a strategy."
Technology alone can't solve SRM issues, but it can help.
Supplier relationship management has become easier with tools like photos and video, supply chain consultant Rich Weissman said. For example, each side can send cellphone images of components to see if two are the same. Video chats can prevent miscommunication and build rapport.
In addition, supplier management software can be helpful for collaboration.
Companies can use these tools to maintain an innovation pipeline and share workflows with suppliers, Cossio said.
Other technologies are also playing a bigger role in SRM. Supplier management software, analytics, supplier portals, traceability tools and AI-assisted risk monitoring can help organizations collect supplier information, track performance, identify emerging risks and collaborate more consistently.
Technology does not replace trust or strategy, but it can give procurement and supply chain leaders better visibility into supplier performance, risk exposure and opportunities for improvement.
The benefits of effective supplier management have become more important as companies focus on resilience, cost control, risk visibility and long-term supplier value. Here are some of the most important SRM benefits for businesses.
Why SRM matters now
Supplier relationship management helps companies move from reactive procurement to more strategic supplier planning. Strong SRM practices can improve communication, reduce disruption risk, support better forecasting and give procurement leaders more visibility into supplier performance.
For decision-makers, the goal is not only to lower purchasing costs. It is to build supplier relationships that support resilience, flexibility, compliance and long-term business value.
More trust
Trust in buyer-supplier relationships mitigates disruption risks for the buyer and supplier.
"[Trust is] the buyer's and supplier's willingness to adapt to each other's behavior and actions," Meena said. "Trust and confidence in each other are essential to work in unsafe and ambiguous conditions."
Building strong long-term supplier relationships requires trust and loyalty from both sides.
"Management needs better communication, coordination, information sharing, and commitment between the buyer and supplier," Meena said.
Lower supplier management costs
Supplier relationship management can lead to a better bottom line. Companies have an advantage during negotiations if they already have a good relationship with their suppliers.
In addition, businesses don't have to spend money on new negotiations if they're staying with the same supplier.
Less price volatility
Supplier relationship management can lead to more predictable prices.
Fixed pricing or scaled gains can be exchanged for preferred minimum order levels, better contract terms or other measures that can reduce pricing shocks, said Dusan Stanar, founder and CEO of tech information sharing portal VSS Monitoring.
"Having a clear and unambiguous price base allows a business to set its own pricing structures with some faith, and that often translates to more loyal, happier customers," he said.
Shorter to-do list
Every business wants to take a few tasks off its daily list. A supplier may be more willing to take on additional jobs when it has a good relationship with the business making the request.
A company that outsources can focus on more of its main tasks rather than getting bogged down in minutiae.
New opportunities for collaboration
Supplier relationship management can benefit a company's long-term planning as well.
Suppliers on good terms with businesses will want to work more with those businesses down the road, Cossio said. This can help the organization over the long term.
When a company has a good relationship with its supplier, the supplier may share ideas, which could also lead to improvements and new business opportunities. In addition, supplier relationship management can strengthen brand image since the supplier will view the company positively.
Better able to weather disruption
A major event like COVID-19 is easier to deal with if a business is already on good terms with its supplier. Communication is more open, and each side is used to working with the other.
In addition, with SRM, a company is more informed about possible supplier-side risk. Companies can incorporate risk assessments into their plans.
Better supplier risk visibility
Supplier relationship management can also support supply chain risk management by helping companies identify supplier risks earlier. Stronger relationships make it easier to discuss capacity constraints, quality issues, financial pressures, logistics delays, cybersecurity concerns, compliance requirements and other risks that could affect the business.
Better risk visibility gives procurement and supply chain leaders more time to adjust orders, qualify alternate suppliers, update forecasts or work with suppliers on mitigation plans.
Improved supply chain management
Ongoing supply chain volatility has made supply chain management best practices more important. Supplier relationship management is a critical component of supply chain management because it helps companies coordinate forecasts, capacity, delivery expectations, risk mitigation and supplier performance.
Disruptions can create a bullwhip effect upstream with suppliers and downstream to end customers. Because of this, businesses need to stay aligned with suppliers on forecasts, capacity, delivery expectations and demand changes.
Tighter alignment and a shared source of truth can help companies improve supply chain elasticity, delivery reliability and supplier responsiveness.
Supplier relationship management is no longer only a procurement efficiency practice. It is a resilience, risk management and growth strategy.
Preferred buyer status
Suppliers could give businesses extra privileges if SRM is effective. This could further help a company's bottom line and put it at the front of the pack for deals down the road.
"In a nutshell, you are trying to increase collaboration with suppliers so that you can become their preferred customer," Cossio said.
Supplier relationship management is no longer only a procurement efficiency practice. It is a resilience, risk management and growth strategy.
Companies that invest in stronger supplier relationships can improve visibility, reduce disruption risk, manage costs more effectively and create better opportunities for collaboration. As supply chains remain exposed to economic, regulatory and geopolitical pressure, SRM gives decision-makers a more reliable way to work with suppliers before problems affect customers.
Editor's note: This article was updated to reduce dated COVID-era framing and include current supplier relationship management considerations around resilience, risk visibility and cost control.
Alan R. Earls is a Boston-based freelance writer focused on business and technology. He has done freelance work for publications ranging from CIO, Datamation and Computerworld to The Boston Globe, The Chicago Tribune, Modern Machining and Ward's Automotive.
