Supplier Relationship Management in Small Business

February 10, 2020
Harshna Paroha

Can Supplier Relationship Management be game-changing for your Business? Read the article below to find out.

Today manufacturers work with a wide range of suppliers, making the supply chain increasingly complicated. With tight competition creating a need to cut prices for the consumer, most small and medium businesses are forced to squeeze margins like never before. In order to keep profitability, high SMEs must apply a systematic approach to their sourcing/supply strategy. This is where efficient supplier relationship management has its advantages.

Supplier relationship management (SRM) is a systematic, enterprise-wide assessment of suppliers’ assets and capabilities with respect to overall business strategy. A good SRM strategy not only helps in building strong partnerships of mutual collaboration but also helps in reducing risks of error. Therefore taking a strategic approach to supplier management becomes an important part of improving the profitability of your business.

Why is supplier relationship management important?

For a small business without a good supplier relationship, running your business will feel like driving off-road in your family car; unsteady and risky. If you want to ensure a steady flow of new or improved products to your inventory, strategic supplier management is the key. 

Listed below are the 3 key factors driving supplier relationship management

Reduce cost: Most of your transactions and expenses are with suppliers. When you build a mutually beneficial relationship with your suppliers, you can take advantage of incentives, discounts, special deals and more. Further, a better relationship with suppliers will reduce the additional cost that may arise from delays and errors in procurement.

Encourage supplier-led innovation: Maintaining a good relationship with your supplier will open lines of communication. This will encourage your suppliers to share their ideas for product improvement, supply chain process innovation, and service innovation with you.

Supplier evaluation: It’s also important to evaluate your suppliers and ensure they meet your organizational requirements. Through supplier management, you can identify areas of improvement while engaging with suppliers.

How to manage supplier relationships better

Supplier management is not an easy task, however, it’s not impossible. Here are a few ideas you can consider for supplier relationship management.

1. Segmenting suppliers for SRM

First start by segmenting raw materials or purchased items into two key dimensions, Profit Impact and Supply Risk. Let’s understand this better.

Keep in mind that your profit impact is the impact of the supplied item on the bottom line. Profit impact is high for raw material or items that form a major portion of your final product, such as processed fabric to a T-shirt manufacturer or raw fruits to a juice maker. 

Supply risk is when your supply chain is disrupted by the unavailability of a certain item. Supply risk becomes high for those raw materials that are rare, scarce or whose supply is easily affected by government policy, delivery logistic or even when there are fewer suppliers. For example, the unique fabric or material type like silk that is needed by a saree manufacturer.

Once you’ve classified all of the commodities, components and products as per their profit impact and supply risk, you can then segment your products into the product-purchasing classification matrix as shown below.

  • High-Profit Impact and High Supply Risk: Strategic suppliers
  • High- profit and Low Supply risk: Leverage supplier
  • Low-Profit Impact, High Supply Risk: Bottleneck suppliers 
  • Low-Profit Impact, Low Supply Risk: Non-critical supplies

The image below will help you identify and segment your supplies easily and will also give you a few tips on relationship management with them 

Segmenting your suppliers will help you Plan for Purchase. Through supplier segmentation you’ll be able to identify reliable suppliers and put them into different categories based on their product importance, quality and price, allowing you to make better decisions regarding purchases. Additionally, you can use mobile apps like FloProfit that allows you to keep track of your purchases and payments with instant data, enabling you to manage your supplier relationship better.

2. Move from competitive to collaborative relationships

Once you have segmented your suppliers, you can approach each supplier with a strategy as per their product relevance for your business.  For leverage and non-critical suppliers, you can find many substitute suppliers in the market, so you can have a competitive relationship with them in order to optimize product abundance and profit margins.

You should build collaborative relationships with your strategic and bottleneck suppliers who are difficult to substitute and are important to your supply chain. This requires you to build a strong partnership or and alliance-based relationship approach. 

SRM is going through a major transition, strategy varying from company to company. Gone are the days where simply managing spend and securing the best deal from your supply base was enough. You have to constantly focus on the yield from your supplier base.

With a good SRM strategy accompanied by the right application, you can develop long-term, trusted relationships with your key suppliers. Also, you can plan an exit strategy for your problematic suppliers well in advance.

A Technology-Driven Approach to Supplier Relationship Management:

From a look at the above matrix on supplier segmentation, it is without a doubt that all your suppliers falling in the Strategic Supplier Segment are your most valuable suppliers. This is why many organizations today are using technology to manage these relationships effectively in an effort to give their business a better edge over the competition. 

Small and medium companies have yet to define who a strategic supplier is for their business, before defining how technology can help them develop those relationships. 

While knowing how to segment your supplier should be the first step to maintaining better supplier relationships, learning about what technology you can use to better that relationship is equally important. 

A survey on Procurement 2025 conducted by Efficio in collaboration with Strategic suppliers cooperation with Cranfield University showed that technology is allowing more data-driven decision-making in procurement. As a small or medium business owner, you should consider using technology to transform or improve your SRM efforts. If you want to use technology to accelerate value from supplier relationships FloProfit can be your gateway mobile app. 

FloProfit is synonymous with Tally, which means it allows you to view all your tally data on your mobile whenever you need it. If you use Tally to manage your inventory, complete insight into that data will allow you to identify and classify your Strategic Suppliers and improve relationships with them. 

Today SRM has become about integrating the right practices, resources and technology needed to align your small or medium business with your suppliers to create stronger, loyal relationships. With the right tools fostering supplier relationship management, you will be able to focus better on what is critically more important to your business.

Efforts into identifying your top suppliers and building better relationships will always lead to seamless operations. FloProfit will give you full visibility into your stock details such as your stock items, stock groups, which will include information about closing stock, sales, purchases, top customers, top sellers, godown wise breakage, stock value for the group, the items in the group and a godown wise breakage. You can use this information to segment your suppliers into the 4 key categories mentioned above and efficiently manage relationships with them. 

The ability to view, manage and share information is fundamental to a good SRM. With new technology, you can achieve this efficiently and create an open workspace for collaboration. FloProfit mobile technology can help optimise your business processes so you have 360-degree visibility on your growth. With the FloProfit, business tracking app, you can constantly monitor your outstanding and payments to manage your supplier relationship better.

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