4 Tips To Improve Supplier Relationship Management: A Supply Chain Consulting Perspective
Supplier relationship management (SRM) is a critical component of supply chain management that focuses on building and maintaining strong, collaborative relationships with suppliers. Effective SRM can lead to improved operational efficiency, increased customer satisfaction, and a competitive advantage. In this section, we will delve into the fundamentals of SRM and its significance in the supply chain.
SRM involves a range of activities, including supplier selection, contract management, performance monitoring, and continuous improvement. By implementing a robust SRM strategy, companies can reduce costs, improve quality, and increase innovation. Moreover, SRM can help companies develop sustainable supply chains that are resilient to disruptions and changes in the market.
To measure the effectiveness of SRM, companies can track key metrics such as supplier performance, lead times, inventory levels, and defect rates. By monitoring these metrics, companies can identify areas for improvement and implement changes to optimize their SRM strategy.
In terms of key metric areas, we recommend focusing on the following three areas:
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Supplier Performance: This includes metrics such as on-time delivery, quality ratings, and lead times.
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Inventory Management: This includes metrics such as inventory levels, stockouts, and overstocking.
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Cost Management: This includes metrics such as total cost of ownership, cost savings, and return on investment.
By tracking these metrics, companies can gain insights into their SRM strategy and make data-driven decisions to improve their supplier relationships.
Gain insights into the fundamentals of supplier relationship management and its significance in the supply chain.
Tips For Supply Chain Continuous Improvement Success
Most people are familiar with Lean / Six Sigma continuous improvement activities in manufacturing, but did you know many of those principles apply to supply chain as well?
Continuous improvement is essential for developing a resilient supply chain that can adapt to changes and disruptions in the market.
A supply chain continuous improvement program should be able to identify and drive improvements to costs (materials, transportation, storage), non-value-added work (human capital optimization), the use of cash (inventory), and service to customers.
There is generally untapped cost-reduction opportunities in supply chain, considering the cost-impacts within material cost, transportation cost, warehousing cost, overhead (people) cost, and variable production cost. These costs are not always easily visible, so a CI program should focus on gathering information to summarize total supply chain spend, including the cost of raw materials, as well as the value of opportunities to improve.
CI Methodology for Resilient Supply Chain
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Lean: Many supply chain issues are rooted in process, data integrity, information flow, communication, decision-making, or roles/responsibilities. There generally isn’t enough of the right data to identify variability in the process for six-sigma to be effective.
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TIMWOOD: Looking for opportunities to reduce non-value-add time, activities, transactions, or money spent is the most effective approach. Optimized headcount utilization, reducing the need for inventory, and purchasing tactics that leverage discounts are some of the most common improvements.
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Inventory: Lacking supply chain/communication processes will result in improper inventory positions, whether over or under-stocked. There is an optimal inventory range for all SKUs – see below.
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Purchasing: There are ways to better manage buying to garner better-pricing. Strategically managing suppliers (when they are strategic), leveraging buying groups, order quantities that get discounts, payment terms that get discounts, etc.
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Planning: Supply Chain Planning is the process/tool that is used to reduce variability in the end-to-end supply chain. This allows for optimal inventory levels, better labor planning, better machine uptime (due to better-managed maintenance), and optimized capacity utilization. Improvements in Planning (communication is a big part of this) will drive improvements in supply chain performance. Investing in digital capabilities can further enhance supply chain planning by providing real-time data and predictive analytics to optimize inventory levels and capacity utilization.
Key Metric Areas
We recommend 3 key metric areas for any supply chain. There are many sub-metrics within these areas that can be selected based on the strategic and tactical objectives for the company.
Service: This is how you define service to your customers. The most useful is OTIF (mentioned above) as it will drive stocking levels in a statistical calculation. But you may also use a customer satisfaction coefficient, customer retention, perfect order index, etc
Cost: It is important to measure supply chain costs over time in order to understand where there are opportunities to improve. Also ensuring that your material and transportation/logistics costs are keeping pace with the market rates is important (so you’re not over-paying). Working with logistics companies can help ensure that your transportation and warehousing costs are competitive and aligned with market rates. Cost of materials, services, indirect materials, transportation services, storage (warehousing), technology subscriptions, and overhead (SG&A) are very important to ensure you understand and control
Cash: This refers to the working capital tied-up in order to purchase and produce inventory. It can be measured in a variety of ways:
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Cash Conversion Cycle – This is how many days your money is “tied-up” before you get paid by customers. It consists of your Days Payable Outstanding (DPO), Days Inventory Outstanding (DIO), and Days Sales Outstanding (DSO). The lower this number, the better
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Days of Supply – this is a volumetric that shows how many days of forecasted demand you have in inventory
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Turns – How many times per year your inventory is turning (this is financial calculation so use in tandem with Days of Supply if your inventory value changes frequently)
Optimal Inventory Management Analysis Example
Optimal inventory means the target range of stock (min/max) to hold that maximizes service to customers (target OTIF %) and minimized working capital investment (money tied-up in inventory).
This can be statistically set (a confidence interval) by using the TRLT, Forecasted demand in the TRLT, TRLT variability, demand variability in TRLT, and target service level.
This is a data-driven, statistical calculation based on actual business inputs. It can be used to understand the optimal targets and, more importantly, why those targets are not achieved – whether it’s due to too much or too little inventory. From there, root-cause analysis and corrective actions can be performed to get inventory levels back into focus.
Additionally, optimal inventory analysis can be used to create scenarios that allow you to see how your needs for inventory (and cash to pay for it) will change based on changing operating parameters. What happens if your demand changes? What happens if you create efficiencies in production and your TRLT diminishes? What happens if you change your targeted service level to customers? Use this fun exercise to test your theories!
Digital technologies can be leveraged to perform these statistical calculations and provide real-time insights into inventory levels and performance.
Our Advisors are passionate about helping your business grow and optimize profit margins. Reach out for a free consultation to learn more about where your company may have opportunities to improve.
Assessing and Building Stronger Supplier Relationships
Explore strategies for evaluating current supplier relationships and methods to strengthen them for mutual benefit.
Assessing and building stronger supplier relationships is critical to achieving a competitive advantage in the supply chain. In this section, we will explore strategies for evaluating current supplier relationships and methods to strengthen them for mutual benefit.
To assess current supplier relationships, companies can use a range of tools and techniques, including supplier scorecards, performance metrics, and feedback surveys. By evaluating these relationships, companies can identify areas for improvement and develop strategies to strengthen them.
One approach to building stronger supplier relationships is to adopt a collaborative mindset. This involves working closely with suppliers to identify opportunities for improvement and implementing joint initiatives to drive innovation and cost savings. By adopting a collaborative approach, companies can develop trust and build stronger relationships with their suppliers.
Another approach is to invest in digital tools and technologies that enable real-time communication and collaboration with suppliers. This can include platforms for supplier management, contract management, and performance monitoring. By leveraging these tools, companies can streamline their SRM processes and improve their supplier relationships.
In addition, companies can implement continuous improvement initiatives to drive innovation and cost savings in their supplier relationships. This can include initiatives such as lean manufacturing, total quality management, and six sigma. By adopting a culture of continuous improvement, companies can drive innovation and cost savings in their supplier relationships.
Overall, building stronger supplier relationships requires a strategic approach that involves evaluating current relationships, adopting a collaborative mindset, investing in digital tools and technologies, and implementing continuous improvement initiatives. By adopting these strategies, companies can develop sustainable supply chains that are resilient to disruptions and changes in the market.