Supplier Relationship Management (SRM) defines a company’s efforts to assemble a comprehensive solution, to enable the use of existing information about the supply base and procurement history, in order to effectively respond to customer demand. This involves consolidating and classifying data to provide an understanding of supplier relationships, including on-time delivery, quality of product delivered, and costs.

A typical add-on third-party product implementation could take several months, and the cost of the software could range from $250,000 to $750,000. For companies running multiple systems, this is also a data integration issue, which accounts for the popularity of third party solutions to provide the analytics, and the costs connected with them. Due to difficult economic conditions, some companies are currently backing away from third-party solutions which require integration with multiple existing systems, since product upgrades may necessitate redoing parts of the integration, and looking again towards the providers of their current ERP systems for solutions, and simply using Fax and Excel to exchange information.

SRM software should seek to identify, classify, quantify and rank supplier performance, based on delivery and cost conformance, quality rejections, and other factors. The software could also identify a company's redundant suppliers, providing the opportunity to increase negotiating ability with those that remain as primary sources. Some companies may seek to trace Vendor Returns, by Supplier or Part or Commodity Code. Procurement and collaboration strategies developed through SRM can directly impact the bottom line.

SRM can also lead, electronically, towards active Supply Chain Collaboration, to share information, and mutually beneficial business processes, including product design and engineering, strategic sourcing, procurement, and supply management, with all members of the Supply Base. This leads towards automation of purchasing itself, where a change in Customer Demand "ripples" down the Supply Chain. The problems here are interfaces with legacy systems, and conversing with multiple Supply Chain partners – hence, the growth in XML, and the formation of the XML Schema, to facilitate transaction handling between partners, in established formats. Some companies provide "switchboards" to connect your Supply Chain partners, and handle the messaging and alerts, on a lease basis for their services.

Some objectives of SRM:

Classify Purchased Parts by Commodity Code, and identify those which are "critical", due to single-sourcing, Lead Time, use in multiple higher-level products, and so on.

Detailed spending by Supplier, Part Number, Commodity Code, Time Period, and ability to rank the results in a "scorecard" or "decision support" form, by weighting the separate factors as a portion of the 100% ideal, or stressing specific performance attributes, as needed. Some ERP packages already have a "Quality" Module, or something similar, to perform this, but often are concerned with overall Supplier performance, rather than breaking it down finer by Commodity Code, or other criteria. In addition to the overall "scorecard", detailed reporting should be available to Purchasing and Accounting. Purchase Price Variance measurement is a part of this, as well.

Select optimal Suppliers via rankings for quality, and delivery to schedule, and cost adherence.

Minimize Supply Chain risks by identifying alternate sources. Perhaps differences in logistics, or Lead Time, are substantial. The automotive industry recently suffered in terms of Just-In-Time deliveries, as trucks were delayed at the borders.

Work towards more unified Purchasing decisions with partners, along with cost consolidation, and strengthen strategic relationships, via the creation of a collaborative planning and engineering environment.

Provide management information by Geographic Region, Time Period, Part Number, Commodity Code, or Supplier. You should be able to obtain reports of all products purchased from any individual supplier, by Date or Part Number or Commodity Code, or any combination thereof.

Improved procurement strategies might involve consolidating suppliers for a particular Commodity Code, or adding suppliers (if there are too few for critical goods and services). Much of the information can be applied in negotiations for lower pricing or pre-inspection or better delivery, if the company’s purchases are a large percentage of that supplier's annual revenue.