Analyst Insight: For supply chains that are more innovative and resilient in the face of disruption, organizations can no longer afford purely transactional approaches to supplier relationship management (SRM). Leading organizations forge strategic partnerships with their most important suppliers, and collaborate with them to drive value and competitive advantage. Given the benefits of this type of SRM, it makes sense to see that awareness and adoption are growing across industries.

SRM is a set of practices that organizations use to ensure that third-party suppliers comply with set contractual terms, service levels and performance objectives. While traditional SRM is mostly a one-way conversation in which buyers dictate their terms to suppliers at the end of the procurement process, many leading organizations have shifted toward more collaborative models of SRM. 

In the face of continued disruptions and materials shortages, leading supply chain organizations work with their most strategic suppliers throughout the procurement process to innovate and plan toward outcomes that are beneficial for both parties. With buyer and supplier sharing risks as well as opportunities, this more mature form of SRM helps ensure that organizations and their supply chains are more resilient and better prepared for disruption.   

Organizations with strong supplier relationships fared much better during the severe disruptions of 2020 and 2021. With better visibility into their most strategic suppliers, for example, these organizations learned about disruptions and could respond much more quickly than their competitors. 

Given these benefits, it’s no surprise to see that awareness of SRM is growing across industries. Through its SRM quick poll, APQC finds that 65% of respondents are now extremely familiar with SRM. This is a big improvement from 2018, when just 40% of those surveyed reported being extremely familiar with SRM. 

Growing awareness of SRM and its benefits is, in turn, driving greater adoption. APQC finds that 71% of respondents today are using SRM, in contrast to 2018, when only 39 % of organizations were. As further evidence of SRM’s growing value for organizations, 69% of those who have not yet adopted SRM are extremely or very likely to do so in the next two years.    

Of course, not every organization that adopts SRM is taking the mature and collaborative approach that is characteristic of leading organizations. But APQC is encouraged to see that the percentage of organizations that use SRM simply as a tool to force supplier compliance is shrinking (from 72% in 2018 to 44% in 2022), while the percentage of organizations that recognize suppliers as a potential source of innovation is growing (up to 46% from 38% in 2018). 

Not every supplier relationship needs to be marked by the kind of collaboration and innovation seen in newer models of SRM. You can buy pens and sticky notes anywhere, for example, so your office supply vendor isn’t the best candidate for intensive collaboration toward mutually beneficial goals. For your most strategic suppliers, however, this type of relationship can make all the difference when disruption hits your business. 

Outlook: Recent supply chain disruptions have reinforced the need for organizations to cultivate strong supplier relationships. Rather than using SRM to strongarm suppliers into compliance with their terms, leading organizations recognize the importance of collaborating with their most strategic suppliers to reduce risk, drive innovation, secure competitive advantage and more. Organizations that form these types of relationships with key suppliers will be able to respond to disruption much more quickly regardless of what the future brings.