Supplier Relationship Management (SRM) is a broad term used to describe the two-way, mutually beneficial relationship formed between an organization and its supplier. It is a strategic and holistic process that, when handled successfully, results in benefits for each side. However, what many fail to realize is the level of integration and the impact of any decision made by either side. This interdependency sets the conditions for a company’s ability to grow in an increasingly competitive market, requiring them to constantly monitor the changing needs and demands of the supplier as well as their own.
Managing the supplier relationship skillfully is an important issue in controlling threats for the business, but it also represents an opportunity. Smoothing out potential disputes and tensions as much as possible by eliminating delays is one way for a business to build healthier links and contracts, while reinforcing, planning, and creating new points for collaboration with suppliers.
The fresh climate based on trust resulting from this approach encourages suppliers’ commitments and enables the organization and third parties to fully benefit from their expertise and innovation capacity. It is also a first step towards responsible policy as presented in the Charter for Responsible Supplier Relations elaborated by France’s Business Mediation public service and National Procurement Council.
With its commitments, this voluntary approach invites companies to recognize that their destiny is now inseparable from that of their suppliers – even if only on the increasing number of topics for which their joint responsibility is engaged – and by optimizing management of that relationship and each interaction between the two, the supplier ecosystem becomes an essential and undeniable lever that supports the company’s competitiveness.
It is estimated that “in the UK alone, around £13bn is owed to small businesses in overdue refunds and up to 50,000 businesses are at risk of insolvency every year because they lack the reserves of larger organisations to cover such delays”.
Many companies tend to focus on performance without always measuring the full impact of any decision on their suppliers. This is turn can have a negative effect on the working relationship between the two, causing additional difficulties and hampering growth.
One trend is particularly damaging; when companies extend supplier payment periods as a strategy to better cover their own working capital requirements. Obviously, it is essential to have an appropriate level of cash on hand and, in some respects, it seems logical to favor inflows or disbursements. However, few measure the disadvantages of delaying payments to suppliers when in truth this is one of the worst things that a business can do to another business.
It is important to remember that suppliers are also confronted with their own needs for liquidity. If they have trouble collecting on invoices, they may find themselves in a very difficult situation. In fact, it is estimated that one quarter of all bankruptcies are the direct result of returns not being received on time.
Therefore, when delayment turns into a regular management practice, it is no longer a cash flow solution but rather a situation that can that risks the effectiveness of the supply chain and the prompt arrival of goods and services. This creates an imbalance that in turn risks the very lifeblood of the company itself.
Did you know ?
In July 2019, Prompt Payment Code signatory British American Tobacco was one of 18 businesses removed from the list after failing to pay vendors on time. The Chartered Institute of Credit Management (CICM), which administers the Code on behalf of the UK government’s Department for Business, Energy & Industrial Strategy, also suspended BT Plc, Centrica, Screwfix, Prudential and various businesses of BAE Systems, among others, for failing to honour their commitment to the Code.
A successful SRM discipline seeks to maximize supplier value in order to gain a competitive advantage in the market. This means that it is critical to develop an understanding of each stage of the invoice process. If you consider that manual accounts payable (AP) process costs account for an average of 60% of turnover for most companies, combined the two offer a strong case for AP automation as a means for how to improve supplier relationship management.
AP automation gives you full control and transparency over your procurement process at any time, from any place. It creates an absolute and accurate association of the various documents that comprise the supplier process including orders, reception, delivery, invoicing, and more. It is possible to access and use each of them in just a few clicks and therefore, possible to answer any question from a manager, customer, or supplier quickly and easily.
Having this type of interaction and communication will help determine the quality of and ensure that the SRM stays positive and healthy so as to meet the business goals of both.