SRM and tariffs: Supplier relationship management provides dream ticket to control purchasing in a complex international landscape

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Spend Matters welcomes this guest post from Steve Treagust, the Global Industry Director for Finance at IFS, a provider of business software solutions.

Purchasing is a core part of any business. That means software that can address the whole purchasing value chain and integrate closely with key areas of an organization is a real bonus for companies looking to expand their operational flexibility with suppliers.

Applications such as supplier relationship management (SRM) provide the answer, limiting non-value-added work, offering real-time insight and playing a key role in helping companies come to grips with purchasing in a complicated, unstable global market.

Consider the dream ticket of a customer relationship management (CRM) application that can streamline and record high-frequency and intricate interactions with suppliers, and then having that communication connected to relevant supplier quotations and agreements throughout your organization. This is precisely what an enterprise resource planning (ERP) with an embedded SRM solution can offer.

Developed supplier interactions

An effective SRM solution enables users to track supplier communications such as formal RFI/RFQ processes that end up in supplier agreements or purchase orders. The application will address requisitions to order via delivery monitoring and goods arrival, controlling direct and indirect materials — including support for authorizations. Users can then use supplier schedules to project forecasts and call-offs in repetitive environments.

Adjust to trade policy changes & collaborate with supply chain partners

Businesses operating globally must be able to adapt to sudden changes in trade policy. SRM can help you prepare more effectively for this by combining purchasing, the supplier and the end customer into a single view. Using SRM, businesses can decide to lock-in future pricing agreements with suppliers in regions potentially impacted by protectionist trade policy.

It is also possible to collaborate with supply chain partners to divide problems triggered by tariffs or non-tariff barriers. This then enables you to resolve key buying questions: Is the vendor going to absorb that added cost, or is it going to be passed on to the customer or split up among the supplier, your company and your customer?

Because required information can be captured by ERP alongside SRM, this enables the landed cost of the item to be calculated, put into inventory value and then, having evaluated basic cost realities, a decision can be reached on what action should be taken.

Think about the bigger picture

A good SRM application provides companies with the timely information they require to negotiate with and make more informed decisions about vendors, which is critical in a rapidly changing global trade environment. It also offers benefits to the supply chain team, allowing them to manage by exception. Systems can be configured to enable most purchases to proceed with little intervention, but they may opt to subject certain purchases to greater review — such as purchases above a certain amount.

Business processes are typically divided among different people for regulatory and risk management purposes, and the right SRM should allow companies to stop a single person from creating a supplier record, approving a purchase order to them and then receiving the product. These preventive integrity controls can be automated using data on each user’s role and permissions.

Part information by supplier for better decision-making

Part information can also be managed to improve decision-making. A part may be expedited by choosing a different shipping method — or the same part may be obtained from a different supplier for a shorter lead time, at a lower cost but with the inconvenience of performing inspections internally. This dovetails with materials requirement planning (MRP) for required lead times. It should accommodate complex purchasing and scheduling functions, including scheduling by part and supplier, supplier splits, project- or progress-based billing, and costing via landed cost. But in a global environment, being able to identify part information by supplier may help a manufacturer mitigate emerging risks among suppliers that may come under sanction, or those located in politically or economically unstable regions.

Purchasing — part of the business furniture

Purchasing is a central operational task for businesses, so an SRM application must be part of a close-knit, end-to-end ERP system that allows purchasing and supply chain teams to drive more value for users in their organization and around the world. SRM should make administrative purchasing tasks more seamless through automation, but it should be recognized as an effective tool to maintain compliant and low-risk purchasing on a global scale, particularly during times of growing volatility.

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