When you think about your business, what do you think of? Do you think about customers? Establishing excellent relationships with customers should indeed be among the aspirations and goals of any company, as customers are the primary force driving any successful business. But do you also think about suppliers?
Although they are behind the scenes of your business, suppliers are just as important as customers – and therefore, your relationship with them.
Image source: https://www.procurious.com/blog-content/2016/08/Supplier-Relationships.jpg
Below, we will elaborate on the ways in which supplier relationship management is critically important for your business, as well as the role that EDI can play in this regard.
What does supplier relationship management refer to?
In the 1980s, a new concept emerged that precisely addressed the need for having harmonious and strong relationships with suppliers – it was called ‘supplier relationship management.’ In essence, it described the need to efficiently manage relationships with suppliers through well-developed strategies.
This concept aims to identify and manage potential risks in supplier relationships and, ultimately, to minimize them by following a series of predefined steps. The first step you should take is to assess the risks associated with a specific supplier relationship. The second step is to develop a business strategy that includes and addresses these risks, and the third is to implement this strategy.
How can a supplier relationship management system help you?
Think for a moment about the products or services you offer, as well as the raw materials and supplies you need to produce them. Let’s say, for some reason, you couldn’t obtain them from your supplier. Consider the impact this could have on your business. Could you still fulfill your customers’ orders? Probably, but with significant delays after reconfiguring your supply chain and finding another supplier to provide the necessary materials.
Of course, the situation would be just as challenging if you were the supplier relying on the orders of a few customers whose commitment is not guaranteed indefinitely. They might face financial obstacles along the way or simply choose to work with someone else.
What is the most suitable method for minimizing the risks of a supplier relationship?
A supplier relationship management system is certainly the perfect tool to minimize potential risks.
There is a perfect example that describes how a relationship between a supplier and its client can fail. GT, the supplier of Apple for mobile screen components, announced some time ago that they had an innovation that would allow Apple to reduce production costs and, therefore, produce more screens. Apple, of course, was delighted with the offer and heavily financed its supplier to start work on the much-acclaimed concept.
However, as soon as the product came off the production line, it was clear that it had certain defects that hindered the project’s completion. The supplier tried to address the situation on their own, fearing the loss of such a large client like Apple, while the latter preferred a more hands-off approach, with minimal on-site intervention. Ultimately, the issue wasn’t resolved, and Apple withheld payment from the supplier, which had to declare bankruptcy. This is precisely why there needs to be a clear strategy for supplier relationships.
What is the connection between supplier relationship management and supply chain management?
You might be tempted to believe that if you already have a supply chain management system in place, you’re likely covered when it comes to supplier relationships.
Unfortunately, this is a misconception that companies often don’t attempt to unravel. Firstly, supply chain management encompasses all the moving parts that flow from the manufacturer to the retailer, and ultimately to the consumer. It’s all about information, materials, and finances, and nothing more. Supplier relationships need to be managed separately, with their own strategy. Operating with a supplier relationship management system provides greater visibility into the supply chain, improved supplier performance, and new market opportunities.
What is the effect of EDI on supplier relationship management?
To achieve all of these objectives, you don’t need to scan the market for new technologies. On the contrary, such technology already exists, and supplier relationship management is just one of the many secondary benefits it offers. We’re talking about EDI – a technology you may have already heard of.
Companies that have implemented EDI have the ability to streamline processes and communicate more quickly and easily with their suppliers. Let’s say you’ve agreed with a supplier to create a specific component for you.
If in the past, you would notify your supplier via email and hope that someone would see it and act on it as quickly as possible, now you have the certainty that your request has immediately reached the supplier. Through the tools it provides, EDI allows information and data to circulate swiftly by eliminating format discrepancies (the EDI translator translates the data to be readable for both parties).
EDI eliminates risks for all parties involved, including the customer, who is no longer disconnected from the order processing stage but now has real-time information about product delivery. They will also have greater visibility within the supply chain. Customers can access this information on their own or be notified by the supplier, allowing them to react promptly and reorient, if necessary.
The list of benefits continues
The supplier’s performance is also improved through the implementation of EDI, as automation enables much faster and more accurate information exchange. Therefore, there is no need for data re-entry into the system or manual invoicing by employees. Instead, they can focus on more critical tasks to boost profitability.
Furthermore, all the advantages brought by EDI can translate into cost savings for the supplier, which can be passed on to the customer. This allows customers to buy more and faster, while also enabling suppliers to maintain less stagnant inventory. Additionally, suppliers can deliver more quickly.
If you are a supplier using EDI, you will have more opportunities in the market. Many of the major retailers have already adapted to new technologies, including EDI, and in most cases, they will only work with business partners who have also implemented EDI.
As you can see, both suppliers and customers can benefit from a supplier relationship management system by streamlining their trade. By implementing EDI, your company will increase its profitability and streamline its processes – in addition, it will also enhance relationships with suppliers. If you want to learn more, give us a call, and together we can find a solution to address your company’s needs.