When you think about your business, what does it come to mind? Do you first think about your customers? Working towards great customer relationships should be any company’s aspiration and objective, since customers are the driving force behind any thriving business. But have you thought about your suppliers?
Even though they are in the background of your business, they are just as important as your customers – and implicitly your relationship with them, as well.
Below we will elaborate on how and why supplier relationship management is critical for your business and what EDI tools have to do with it.
What is supplier relationship management?
In the ‘80s a new concept emerged to pinpoint this need to have well-cared after supplier relationships – it is called ‘supplier relationship management’. Basically, this speaks about the need to effectively manage your supplier relationships through thoroughly-planned strategies.
This concept aims to identify and manage potential risks with your suppliers, and finally to minimize them by following a series of steps. Your first step would be to assess the risks involved in the relationship with a certain supplier, the second would be to develop a business strategy that takes these risks into consideration and the third one is to take action and implement it.
Why is Supplier Relationship Management useful?
Take a moment to think about your products or services and the underlying supplies that you use to produce them. Let’s say that for one reason or another, you could not obtain them from your supplier. Think of the impact this would have on your business! Would you be able to fulfill your customer orders? Perhaps you would, but with a considerable delay, after rerouting and finding a different supplier.
Of course, this would be as bad if you were the supplier and had to rely on a handful of clients which may or may not go with your products and services for as long as you produce them. They may encounter financial difficulties down the line or they may simply choose to move their business elsewhere.
So what is a better way to minimize these risks? Supplier relationship management is the perfect tool.
There is a perfect example that describes what can go wrong when you don’t manage your supplier relationship as you should. GT, Apple’s supplier of screen components announced that they had come up with something that would enable Apple to cut back on its costs and produce more screens. Apple was, of course, thrilled with the proposition and massively founded its supplier to start work on its much talked-about innovative features.
However, as soon as the product left the assembly line it was clear that it had some defects that would not lead to anything good. The supplier tried to solve things on its own, while Apple stood back without intervening on-site. The problem was not solved and Apple withheld its payment to the factory, which eventually had to file for bankruptcy. This is precisely why there needs to be a clear strategy regarding your supplier relationship.
How are Supplier Relationship Management and Supply Chain Management connected?
You may be tempted to think that if you are already managing your supply chain, you must also be covered when it comes to the relationships you have with your suppliers.
Unfortunately, this is a misconception that many companies tend to hold at face value instead of getting informed on what the differences between the two concepts are. For starters, supply chain management covers all the moving parts that travel from the wholesaler to the retailer and ultimately to the consumer. We are talking about everything from information to actual materials and finances. But no more than this. Your relationship with the suppliers needs to be separately managed, with its own unique strategy. By having proper supplier relationship management in place you obtain greater visibility in the supply chain, you get higher supplier performance and even untapped market opportunities.
How does EDI impact your supplier relationship management?
In order to achieve all these objectives, you don’t need to dig the market for special technologies. On the contrary, such technology already exists and managing supplier relationships is just one of the side-effects to the already comprehensive list of benefits it has. We are referring to EDI and you may have heard of it.
Companies that have implemented EDI are able to streamline their processes, as well as to communicate faster and easier with their suppliers. Let’s say that you agreed with the supplier to have a certain part made for you.
If until now you would simply let them know via email and held your fingers crossed for someone to see it and take action as soon as possible, now you would know that your requests have arrived to your supplier swiftly. Through the tools it comes with, EDI enables information and data to travel quickly by eliminating format discrepancies (the EDI translator adapts the data so it is readable to both parties).
EDI helps eliminate risk for every party involved, including the customer, who is no longer disconnected from the order process, but now has real-time information regarding delivery of their product. Their visibility into the supply chain also increases. Customers can access this information on their own or can be notified by the supplier itself, so that they can react in a timely manner and reroute if the case may be.
The list goes on
Supplier performance is also improved thanks to EDI since automation facilitates sending and receiving information faster and more accurately. This way, there is no need for re-keying information or manually filling out invoices. Instead, they can focus on higher-value tasks that can further increase profitability.
What is more, all the advantages brought by EDI can be translated into cost cutbacks offered by the supplier to the customer. This way, customers can buy more and faster, enabling suppliers to have less stagnant stock in their warehouse. On top of all this, time savings also enable suppliers to ship out faster.
If you are a supplier and use EDI, you’ll also have considerably more opportunities on the market. Many of the major retailers out there have already adapted to newer technologies, such as EDI, and in most cases they only work with business partners that can in turn implement EDI, as well.
As you can see, suppliers and customers can both benefit from supplier relationship management, by streamlining trade between them and making it more consistent. By implementing EDI, not only will your company increase profitability and streamline its processes, but also improve its supplier relationships. If you’d like to find out more, give us a call and we can find a solution that fits you company’s business needs.
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