Supplier relationships are critical to any organisation. As
they influence product development costs, inventory levels, manufacturing
schedules and the timeliness of delivery of goods and services, Suppliers can
directly impact the financial performance and profitability of a buying
enterprise.
Many leading companies have realized that it is worthwhile
investing to make sure these relationships are managed effectively and
efficiently. In recent years, companies have invested in supply chain
management (SCM) software to automate procurement processes, improve delivery
times and reduce the cost of doing business. Nowadays, market trends, such as
increased global competition, shorter product lifecycles and the outsourcing of
business processes, require organization to improve collaboration with their
supplier base and to examine methods of further reducing the costs associated
with supplier relationships.
Supplier relationship management (SRM)
represents an evolutionary extension of supply chain management, driven by the
need for enterprises to better understand their suppliers' long-term financial
and operational contribution to the top and bottom lines. It also represents an
opportunity to improve the accuracy and speed of buyer-supplier transactions,
while improving collaborative working practices to the benefit of both parties,
driving continuous improvement and lowering total cost of ownership. It is the
next step in managing the supply chain more effectively.
Primarily, SRM tools have been developed to reduce the total
cost of ownership (TCO) for procured goods, while creating competitive
advantage for an organization through deeper relationships with its
suppliers. Another trend that highlights the need for
effective supplier relationship management is the move by enterprises to
outsource key functions, from design to product assembly to after-sales
service, in order to improve competitiveness and financial performance.
It is obvious that procurement represents the single largest
expense for most organizations. Therefore, the development of relationships
with the best suppliers is key to the company success as it ensures timely
delivery, product quality and best prices.
Different mechanisms can be used in order to reduce
procurement costs. For instance, catalogs, auctions and request for proposals
are often put in place to reach that goal. However, if the Customer
Relationship Management systems of each player are not interconnected, not
enough suppliers will respond, catalogs will not be completed of auctions. In
this case, the company cannot achieve the reduction cost expected.
It seems that one of the first concerns of IT initiatives was
the development of supplier relationship through EDI and e-procurement
solutions. To that purpose, EDI and e-procurement solutions help to exchange
data (e.g contract, order, delivery coupons) between customers and suppliers.
However, they do not really tackle the main relationship management supplier
issues such as the understanding of suppliers needs, behavior or performances
measures.
