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9 Ideas To Reduce Costs Using Supplier Relationship Management

At a time when costs need reduction but healthy Supplier Relationships are paramount, here are 9 ways to reduce costs using Supplier Relationship Management.


There isn’t a procurement pro on the planet right now who isn’t looking at ways to reduce costs.  But this comes at the end of a year where we’ve all been sorely reminded that strong supplier relationships are paramount … especially during a crisis.

Common practice is to look at procurement categories with large amounts of spend and start searching for ways to reduce that spend. One of the more routine approaches is to run an RFP, inviting incumbent suppliers along with potential new partners to help drive competition for your business, with the end-goal to ultimately reduce cost.

But what if your cost base has already bottomed out? What if you are buying a good or service that is difficult to come by, thereby putting the power in the suppliers’ hands? How are you able to reduce your spend in a category where all the signs are pointing to a cost increase?

In order to answer these questions, we must start at the beginning by looking at Supplier Relationship Management.

What is Supplier Relationship Management (SRM)?

Supplier relationship management is the discipline of strategically planning for, and managing, all interactions with third party organisations that supply goods and/or services to an organisation in order to maximize the value of those interactions. In practice, SRM entails creating closer, more collaborative relationships with key suppliers to uncover and realise new value and reduce the risk of failure.

Getting back to the initial goal of cost savings, the question becomes ‘when cost savings is a critical driver in supplier selection, how do you balance the collaborative relationship with low cost?’

The key is internal alignment between procurement and the business units. Supply Chain leaders must be able to explain why vendors who may not be the low-cost option for reasons like customer service, on-time deliveries, payment terms, reporting, etc. are actually the best overall value option for the business.

Category leaders must be able to explain how new suppliers versus incumbent suppliers will impact the company. There are too many cases where the grass appears to be greener on the other side. Sometimes, by selecting a low cost, new supplier, operational differences get lost in the shuffle and the transition becomes a disaster.

Why is Supplier Management Important?

In plain simple terms, it creates a competitive advantage. Whether you are the procurement or the supply chain leader for your organization, having a strong supplier management system will maximise cost-reduction opportunities, value driven services and overall systematic efficiencies, which otherwise would not be achieved. 

Supplier Relationships

As stated previously, a critical component to any company’s success is their ability to maintain strong working relationships with their suppliers and vendors. Supplier relationship managers should always look to avoid complacency. You should never be satisfied with the idea of “if it’s not broke, don’t fix it” and be always be looking for opportunities to improve the relationship, streamline processes or procedures, or change costing models. Relationship Managers should always be looking to challenge the status quo.

Another key to strong supplier relationships is to open the lines of communication and not be afraid to ask the question, “what we can be doing better?” Here are some quick ideas how you, as a customer to your key suppliers, can help enhance your relationship and make those suppliers want to compete for your business.

·   Trust and Loyalty (treat them as more than just vendors)

·   Improve technology and automation

·   Adhere to payment terms

·   Develop communication plans

·   Differentiate between price versus value

·   Have a dedicated Supplier Relationship Manager (SRM)

·   Internal alignment between Procurement and Supply Chain Category leaders

Putting Supplier Relationship Management to Practice

Now let’s look at a specific category – supply chain and logistics – and see how we can apply some of this thinking.

How to Become a ‘Shipper of Choice’ within your Supply Chain and Logistics Network

Logistics spend often plays a role in a company’s effort to reduce costs. Logistics spend can be a substantial percentage of accounts payable, at both the direct and indirect categories. When looking to reduce spend in shipping, taking the low-cost approach can potentially cause more headaches than the savings are worth.

What are some key goals of the shipper?

·   Avoid Disruption

·   On-Time Delivery

·   Low Cost

·   Damage Free

What are some key goals of a carrier?

·   Finding the right shipper

A carrier has a valuable commodity and finding the best shipper to partner with to utilize that commodity is very important for maintaining a good operating ratio. There is a finite amount of space within the global logistics network. What would make a carrier want to move your products versus someone else? Prior to any cost negotiations, a shipper should be looking for ways to make their freight something a carrier wants in their network. They will fight for your business because they value you as a partner, and vice versa.

What can a shipper do to ensure carriers will want their freight?

·   Effectively label freight

·   Safely and adequately package freight

·   Provide accurate descriptions of the freight

·   Use standardized dimensions when possible

·   Use quality pallets

·   Provide ample lead-time when possible

·   Be flexible on your end while remaining consistent in your process

·   Provide a clean, safe and overall attractive driver facility

Achieve Supply Chain Savings: Cost Reduction Negotiations

Once the proper groundwork has been laid and a solid foundation is in place, the relationship developed between a procurement and supply chain organization and its suppliers is now, finally, ready to discuss cost optimisation. By going through the Supplier Relationship Management process, you are now well equipped to conduct cost negotiations. Here’s 9 talking points to reduce costs and build the relationship with your suppliers:

·   Contract length

·   Reduced future cost increases with caps

·   Better discounts or incentive tiers

·   Rebates

·   Volume Thresholds

·   Delivery Costs

·   Payment Terms

·   Ancillary Charges

·   Everything Else (Better reporting, more transparency, communication plan)

One of the keys to entering these negotiations is to come to the table prepared to discuss these types of cost savings opportunities. If your main goal is to just hammer down the unit price, then there is a good chance your supplier will not be overly receptive to that approach. Listen, collaborate, compromise and develop a partnership that will ultimately be a win-win for all those involved.

In conclusion

Top suppliers are always looking to do business with companies who value the partnership and are willing to make improvements in order to make the relationship smooth and efficient.

This type of partnership will lead to your suppliers offering the best possible discounts and pricing and give you the peace of mind that you are getting the most out of your supplier.

Supplier Relationship Management is key to developing a long-term PARTNERSHIP with your key vendors!

What key insights and strategies have you taken from 2020? Share your experiences and hear from the most innovative thinkers on the planet at the Global Big Ideas Summit on November 18.

How Some Strategic Sourcing Technologies Fall Short

Moving to a true strategic sourcing plan can bring increased efficiency and huge cost savings. But why do so many fall short of this? Technology is evolving rapidly making many once cutting-edge solutions obsolete. Finding the right fit can be a struggle – this article has everything you need to know about sourcing tech.


Strategic sourcing is not a particularly new concept, but the market is evolving rapidly. Applications have become increasingly sophisticated and in the near to medium term future we will see more strategic spend management via advanced analysis and AI-based sourcing with more “fuzzy” intelligence that increasingly guides the user to the optimum solution.

TechTarget defines strategic sourcing as follows:

Strategic sourcing is an approach to supply chain management that formalizes the way information is gathered and used so that an organization can use its consolidated purchasing power to find the best possible values in the marketplace and align its purchasing strategy to business goals. 

One reason that organizations often struggle to achieve true strategic sourcing is that the tools they are using, such as reverse auctions and eRFXs, which once represented the cutting edge of sourcing technology, are too limited in scope and lacking in integration, both with other procurement modules and with third party software suites. This is especially problematic when it comes to large events and bundling items in which there are many variables and business objectives.

In its recent Market Guide for eSourcing applications, Gartner Group identified four phases of the evolution of eSourcing:

Basic RFQ and RFI (request for quote/information)

This is where things started back in the nineties. Specifications had to be very precise and buyers generally sought the lowest price and/or best delivery availability. Early digital sourcing platforms were primarily designed for indirect sourcing of categories such as IT hardware, computers, office furniture and supplies, where there are multiple suppliers with little differentiation. This worked just as well for non-strategic direct categories (materials and components used in production). Purchasing teams could therefore shop around to find the fastest, cheapest option available, and so long as the tool could take into account cost breakdown models, resource costs, taxes, and one-time costs like setup and onboarding, there was a good chance that projected savings would be realized.

Standard eSourcing 

Standard eSourcing then built on RFQ capabilities to support more complex RFIs and RFPs (request for proposals). According to Gartner, “They are typically used to solicit supplier responses and pricing for strategic spend categories. Specifications may or may not be clearly defined.” At this stage eSourcing becomes more strategic, multiple stakeholders are included in the buying process truly creating a strategic team. The modules are increasingly deployed as part of an entire suite which also includes spend analysis, CLM and supplier management. Also, we see distinct solutions for indirect and direct (or bill of materials (BOM)) categories. As Gartner states, “more advanced analysis and capabilities require integration with PLM and BOM. This is often better suited for vendors that specialize in direct spend or those that support all spend categories.” 

These applications also typically support various auction formats, multi-round bidding, response scoring and proposal analysis. A further aspect is that the detail level of direct procurement requires special capabilities in software, and all of these needs to integrate seamlessly with the ERP/MRP system.

Advanced sourcing optimization (ASO)

ASO is the current state of the art for handling complex category bidding that must analyze large volumes of data points. This is best represented by JAGGAER’s Sourcing Optimizer, capable of analyzing thousands of data points using algorithms to determine the optimal award decision quickly. This makes it suitable for highly complex sourcing events such as multimodal transportation, where there are hundreds of potential scenarios and dozens of rules which buyers use to try to identify a “sweet spot” with the optimum number of suppliers for an optimum number of scenarios. Users do not always know exactly what they are aiming for in such events, as they need to navigate through complexities such as limited knowledge, tradeoffs and time limits.

Artificial intelligence in sourcing

AI-based sourcing is where we are headed. This emerging technology will integrate itself across all aspects of sourcing. In the coming years AI will transform sourcing and will have the ability to automate entire sourcing events. This will be a very attractive option for handling the vast majority of sourcing functions that are high volume-’low cost’ and can be accurately recommended from AI. This will free up professionals’ time to focus on the high value sourcing events as well as the larger sourcing strategy.

One direction that is already clear is the development of preference-based extensions to advanced sourcing optimization, enabling the user to add fuzzy preferences on top of the firm rules already entered. In a transportation event, the AI technology explores possible solutions to narrow in on the best options. The user can go through several iterations to get the ideal result. On top of this advanced decision support, AI-based sourcing will include increased automation, eliminating much of the routine involved in sourcing.

Sourcing for CapEx Events

We have mentioned indirect and direct sourcing, but capital expenditure projects offer a third type of sourcing event with dramatically different requirements. They are project-based, meaning that many different purchase orders and contracts need to be bundled together and tracked against a common project budget. Furthermore, these events are extremely complex and detailed, and they have long timeframes. Projects may last multiple years. Any sourcing platform for CapEx needs to be able to track events over time.

Capital expenditure projects also often involve many different supply bases in one project. Consider a building project that involves a concrete foundation, steel framing, glass work, electricity, and more. Then there’s paving for the parking lot and landscaping for the surrounding areas. It’s essential that the digital tool can track multiple types of expenses in one solution. Plus, many items might be sourced weeks or months in advance. The solution should support this kind of detailed project planning.

For all of these reasons, strategic sourcing is challenging for major CapEx projects. There is also ample scope for the integration of artificial intelligence to predict and reduce costs, schedule and reduce cycle times while increasing customer satisfaction and managing regulatory and CSR data. It is important that all providers should be compliant, and the sourcing process needs to capture this information. Having the right strategic sourcing approach and the appropriate tools to support that are vital.

What are your thoughts on how technology is creating an opportunity for more strategic sourcing? Let us know in the comments!