Leading organizations like Toyota have used excellent supplier management as a competitive edge, turning a small regional manufacturer into the largest automotive company in the world. Despite such success stories, many companies still don't include strategic goals such as innovation in their SRM agenda, limiting their focus to total cost, supplier capabilities, quality, price, and delivery. Companies that focus on metrics beyond price reductions will achieve higher savings in the long term.
A comprehensive supplier management program provides a greater understanding of performance, risks, supplier capabilities, and the need for alternates and substitutes, and encourages innovation. Greater value derives from robust supplier management that includes price improvement, enhanced inventory management, improved order-delivery cycle time, risk reduction, and promoting innovation and supplier diversity.
Many organizations also take proactive risk management measures such as technology-driven risk notification and visualization solutions, creating a visual map of suppliers down to the third tier. This provides visibility of the flow of goods across the entire supply chain, flags potential supply disruptions, and enables preventative actions.
The benefits of a robust and effective SRM program extend across the procurement organization:
- Better risk management: more reliable suppliers, fewer production interruptions, stable suppliers
- Reduced costs through supplier consolidation, rationalization, and price negotiations
- Improved supplier performance through KPIs and performance management framework
- Fewer price fluctuations