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4 common challenges of supplier relationship management
Problems with suppliers can affect a company's supply chain and, eventually, its bottom line. Learn some of the best ways to foster a positive relationship with your suppliers.
Healthy and resilient supply chains rest on strong relationships. But forging strong buyer-supplier relationships is no easy task.
Supplier relationship management (SRM) is as complex as supply chain management itself, and encountering challenges is the norm, not the exception. Here are four of the most common supplier relationship management challenges:
- Focusing too much on supplier performance.
- Securing buy-in and resources.
- Spending too much time on certain suppliers.
- Forgetting to consider the supplier's point of view.
Many supply chain leaders struggle with these SRM challenges. Yet organizations depend on suppliers in so many ways -- for example, how they price goods and services, how timely they are and how they comply with regulations. That's why focusing on this area is so critical.
Here's a more in-depth look at common challenges with supplier relationship management and how to address them.
1. Focusing too much on supplier performance
Underpinning healthy supply chains are the human relations and connections between buyers and suppliers.
Many supply chain leaders equate supplier performance management with supplier relationship management, but the two concepts are different, said Miguel Cossio, senior director analyst with the supply chain operations team at Gartner.
Supplier relationship management is not all about making sure that suppliers meet service-level agreements, although that is an essential component of managing suppliers, Cossio said. Instead, SRM should include cultivating and improving relationships with suppliers.
Supply chain leaders who only focus on making sure that suppliers meet their targets instead of building positive relationships might find their companies in trouble during times of crisis, as a supplier might choose to prioritize a company that has invested more in their relationship.
"Companies realize they're not the customer of choice," Cossio said.
2. Securing buy-in and resources
Strong supplier relationships depend on getting the support and expertise of many people across the organization. Getting either can be an uphill battle.
Others at the organization might resist a new approach because they prefer certain suppliers or don't want the status quo to change, said Amber Schwiesow, vice president of procurement and supply chain at a telecommunications company and a board member with the Association for Supply Chain Management.
Supply chain leaders must demonstrate why their SRM strategy will benefit the company, Schwiesow said.
"[They must] have a procurement plan that ... takes all the bias out of the mix and shows the value [of the plan]," she said.
Securing needed resources to carry out SRM can also be a challenge.
Many organizations do not employ workers who possess the skills for effectively managing these relationships, said Kate Vitasek, a distinguished fellow with the Global Supply Chain Institute at the University of Tennessee, Knoxville's Haslam College of Business.
Employees who work with suppliers need to not only understand procurement processes and practices, but also possess skills like good communication so that they can improve already-good relationships and determine how to repair others if needed, she said.
3. Spending too much time on certain suppliers
An important part of supplier relationship management is determining how much time to invest in a certain supplier relationship. Not all suppliers are of equal value or criticality to the company's business.
Many organizations struggle to identify which suppliers deserve the most attention, Vitasek said. As a result, some companies apply a one-size-fits-all approach to managing suppliers, which drains resources and produces suboptimal results.
Supply chain leaders should place each of their company's suppliers on a continuum, from purely transactional to strategic, then determine the amount of effort to put into managing each relationship based on that supplier's importance to the organization, Vitasek said.
Different supplier relationships will require different amounts of effort, which should be reflected in a company's strategy to improve supplier relationships.
"If you're buying pens, for example, you may not even need a contract," Vitasek said. "But with strategic deals, you need a very intimate, [transparent] relationship where ... you see the supplier as an extension of yourself."
4. Forgetting to consider the supplier's point of view
Supply chain leaders must always consider how decisions will affect the supplier.
Many organizations fail to prioritize suppliers' needs, Cossio said. For example, a supply chain leader might tell suppliers that they want a good relationship, but then demand short-term deals or conditions that favor only the buyer. That approach does not incentivize suppliers to view that company as worthy of their top resources or a potential partner for other endeavors.
"Show suppliers how they'll get value out of these engagements," he said.
Mary K. Pratt is an award-winning freelance journalist with a focus on covering enterprise IT and cybersecurity management.
