Modern manufacturers work with a wide range of suppliers, and supply chains are growing increasingly complicated. The growing need to cut prices for the consumer means margins are being squeezed like never before.
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And in order to maintain profitability and drive efficiencies, these companies are turning to supplier relationship management as a controlled and systematic approach to sourcing the goods and materials they need.
There are several benefits associated with supplier relationship management, and they all culminate in a healthier bottom line.
There are usually some significant costs involved in setting up deals with new suppliers, but a supplier relationship management programme can eliminate many of those costs.
By cooperating in a mutually beneficial relationship with key suppliers, a company can strive for cost savings over the long term.
Good working relationships with suppliers will not only deliver cost savings, they will reduce availability problems, delays and quality issues - and that means a better service for the consumer.
As a defined and establish supplier relationship develops, communication improves. Suppliers gain a more complete understanding of the businesses they serve, and this allows them to meet their needs more effectively. Delays in the supply chain will decrease, and the flow of operations will greatly improve.
And when issues in the ordering process do arise, the healthy working relationship between supplier and client will make such issues easier to resolve.
Minimises price volatility
Nothing spooks consumers more than huge fluctuations in market prices. In some cases, these fluctuations are as a direct result of increase volatility of commodity prices. However, by adopting the principles of supplier relationship management, companies can often take advantage of fixed pricing or scaled increases in exchange for lengthier contract terms, minimum order levels or various other qualifying criteria.
Having a clear and unambiguous cost base allows a business to set its own pricing structures with some certainty, and that often translates to happier, more loyal customers.
Consolidation of the supply chain
As specific areas of both the supplier's and buyer's business work together, this allows both parties to better understand the inner workings of the other. In some cases, both parties will be able to adapt their own working practices and operations to better accommodate the other, and that can lead to further efficiencies and operational advantages.
The consolidation of the supply chain may allow buyers to reduce the number of suppliers they purchase from - streamlining the purchasing process and making budgeting a far simpler task.
Outsourcing certain activities
A successful supplier relationship management programme will often create a trusting partnership between a buyer and a supplier. In some cases, this may result in many key activities being transferred to the supplier on a permanent basis. This may include entrusting a supplier with the management of inventory levels and some elements of customer service.
Continual improvement of operations
A long-term relationship between supplier and buyer allows for the free-flow of feedback and ideas. Over time, this will create a more streamlined, effective supply chain that could have a positive impact on both costs and customer service.
The areas of product development, instigating new ordering processes and inventory control can become a joint venture, and that can deliver a range of financial and operational benefits to both parties.
An integral component of many ERP software solutions is supplier relationship management. Working together with its suppliers, a company can tailor its supply chain to meet its individual needs. Processes can be consolidated, costs can be reduced and the end product for the consumer can be improved. Through a combination savings and efficiencies, companies can create a healthier bottom line despite underlying weakness in their sector.