Supplier Relationship Management is a relatively new approach that utilizes various processes and tools to improve performance in different areas and offers mutual benefits for both the buyer and the seller. Because SRM relies upon a heavy investment of resources and executive support, it is critical to understand the core concepts of Supplier Screening and Supplier Segmentation. This ensures a consistent formation of practices which can lead the way for creating constructive partnerships with suppliers in the future.
Supplier Screening
Supplier Screening is an effective technique that can be used to categorize suppliers based on how critical they are to the overall operation of the business. Supplier screening is essential in order to quickly judge which relationships need more attention and which suppliers are critical to the success of core business areas. SRM in itself provides the techniques and strategic insight required to manage complicated relationships. The edge that supplier screening provides is a prioritization of suppliers and relationships. Supplier screening also provides an insight into the dependency and reliance of an organization on particular suppliers and allows for future planning and improvement in long term growth.
Supplier Segmentation
Supplier segmentation allows a complete assessment of the feasibility of a supplier and identifies valuable future prospects that can be partners in the long term growth of a business. Each supplier is different and has different priorities. For example, some suppliers may focus more on innovation and new technologies, while others will be more involved in raw material supply. The distinction between these categories is easily identifiable through supplier segmentation.
Suppliers can generally be sorted into 4 categories as under:
Staying on top of latest techniques like Supplier Relationship Management is a certain way to ensure long term growth and success. Understanding techniques such as supplier segmentation and supplier screening can help sourcing professionals implement this technique effectively. Supplier Relationship Management is a powerful tool that can be used in a number of ways to increase productivity and improve supply chain management, such as:
Supplier Screening is an effective technique that can be used to categorize suppliers based on how critical they are to the overall operation of the business. Supplier screening is essential in order to quickly judge which relationships need more attention and which suppliers are critical to the success of core business areas. SRM in itself provides the techniques and strategic insight required to manage complicated relationships. The edge that supplier screening provides is a prioritization of suppliers and relationships. Supplier screening also provides an insight into the dependency and reliance of an organization on particular suppliers and allows for future planning and improvement in long term growth.
Supplier Segmentation
Supplier segmentation allows a complete assessment of the feasibility of a supplier and identifies valuable future prospects that can be partners in the long term growth of a business. Each supplier is different and has different priorities. For example, some suppliers may focus more on innovation and new technologies, while others will be more involved in raw material supply. The distinction between these categories is easily identifiable through supplier segmentation.
Suppliers can generally be sorted into 4 categories as under:
- Critical Category: This category includes suppliers who have increased leverage due to lower market supply. Tight performance management and a firm contract with tight deliverables is the best method to tackle such suppliers.
- Strategic Supplier Category: These suppliers offer core products and services which are essential for the business to survive. There is a need to move beyond performance management here and cultivate relationships with executives to drive future growth.
- Transactional Suppliers: These suppliers offer non critical services and have little leverage due to a low spend level. They are effectively managed at an arm’s length or transactional basis.
- Leverage Suppliers: Suppliers providing non-essential services in a saturated market fall in this category. The recommended strategy in this case is competitive bidding and following up with a single sourcing strategy.
Staying on top of latest techniques like Supplier Relationship Management is a certain way to ensure long term growth and success. Understanding techniques such as supplier segmentation and supplier screening can help sourcing professionals implement this technique effectively. Supplier Relationship Management is a powerful tool that can be used in a number of ways to increase productivity and improve supply chain management, such as:
- Supply chain risk management and risk reduction
- Improved standards of supplier support, services, and delivery mechanisms ensuring consistent standards throughout the network
- The ability to maintain or even improve the standards originally agreed upon during the sourcing process
- Drive top line revenue growth across different markets
- Build up a solid reputation among the client base throughout the world
