Think about the things retailers compete on most: price, quality, and enough inventory to meet demand. A business’s ability to compete on these things often boils down to the relationships it’s built with suppliers.
As with any relationship, partnerships with suppliers need to be nurtured. The relationship needs to be beneficial not only to your store, but also your vendors.
Preferential treatment, discounted rates, and greater stability are all up for grabs if you’re on good terms. Supplier relationship management (SRM) is the key—and we break it all down for you here.
Unsure where to start? This guide to supplier relationship management explains how to build stronger relationships with your vendors.
What is supplier relationship management?
Supplier relationship management is how a business develops relationships with wholesalers, manufacturers, and distributors. Also known as vendor management, a strong SRM strategy helps you source new products and minimize risk.
SRM programs revolve around four pillars:
- Segmentation. Classifying suppliers by business impact using the Kraljic matrix so resources go to the most important relationships.
- Collaboration. Sharing forecasts, product roadmaps, and environmental, social, and governance (ESG) targets to save money or find new product opportunities.
- Performance management. Tracking KPIs like on-time-in-full (OTIF), defect rate, and carbon footprint.
- Risk and resilience. Using predictive analytics and diverse sourcing to spot supply chain issues early and keep goods moving.
For example, a cosmetics brand launching a refillable lipstick uses SRM software to share real-time sales data with its packaging supplier. The insight enables the supplier to pre-position recycled aluminum, reducing lead times by 30% and ensuring the product remains in stock during a viral TikTok surge.
Why supplier relationship management matters in 2025
Strong relationships with suppliers impact the entire procurement process. It increases the quality of service you get, reduces cost, and bolsters supply chain management, minimizing disruption to demand that could result in shoppers being unable to buy products from your store.
Customer-centric delivery expectations
Shoppers want speed and transparency when buying products online. Baymard’s benchmark found 21% of shoppers abandon their cart if delivery times look slow.
What’s slow? A McKinsey study of more than 1,000 US consumers found that 90% of shoppers are willing to wait two to three days for deliveries, especially if it means saving on costs. At the same time, half of them want to schedule deliveries and track orders in real time.
SRM is how retailers can hit these targets without ballooning costs. If you share demand forecasts and inventory data with high-priority suppliers, you can:
- Shorten replenishment lead times and keep SKUs in stock during spikes.
- Secure service-level agreements (SLAs) like 98% OTIF to fulfill your shipping times.
- Coordinate fulfillment models, such as dropshipping or local warehousing, to place inventory closer to customers.
For ecommerce businesses, aligning with suppliers on delivery KPIs can guarantee that you can fulfill the buy now, get it tomorrow experience shoppers are asking for in 2025.
ESG and CSRD compliance pressures
Europe’s Corporate Sustainability Reporting Directive (CSRD) requires companies above a certain size to disclose information about their activities on the people and the environment.
With reports due this year, they’ll be required to submit data on everything from Scope 3 emissions to human-rights diligence across the supply chain. Parallel regulations, such as the EU Corporate Sustainability Due Diligence Directive (CSDDD), require active monitoring of supplier practices and proof of corrective action.
But this is having a ripple effect far beyond the EU. A 2024 PwC global survey shows that three-quarters of businesses, including non-EU brands, are planning to comply with the CSRD. Non-compliance risks heft fines, shipment seizures, and lost retailer contracts.
With good SRM, you can:
- Map suppliers against ESG risk tiers (e.g., labor, deforestation, carbon intensity).
- Collect verifiable data for reports or digital product passports.
- Invest in improvements to raise both parties' compliance scores.
If you want to meet customer promises and regulatory obligations, SRM is a strategic way to do so.
Benefits of good supplier relationship management
There are three main goals of SRM: supplier risk management, streamlining supply, and maximizing value.
Supplier risk management
One of the biggest risks posed to retailers is stockouts. This happens when suppliers can’t meet customer expectations, often forcing consumers to buy products from another retailer.
Improving your relationship with retail suppliers helps streamline the supply process and upgrade risk management. It minimizes the number of awkward conversations you’ll have telling customers a product they love is out of stock.
“We sell a very rare product with few suppliers,” says Nicholas Fiorentino, owner of The Meatery. “Maintaining an excellent relationship with our suppliers is critical to our business. I’m sure you’ve read there are beef shortages. We’ve never felt a moment of that, and I cannot help but credit it to the relationships we’ve built.”
Streamline the supply process
Suppliers are experts in manufacturing and shipping. Lean on their insights to streamline the supply process, reduce waste, and save money.
Let’s say you’re relying on suppliers to provide inventory for your pop-up food truck. Your supplier has a minimum order quantity (MOQ) of 50 units, but you don’t have enough space inside the truck for that many products.
Develop supplier relationships to make them more lenient. There’s a chance they can lower your MOQ to 40, and therefore prevent waste from inventory that can’t be sold due to poor food storage conditions.
Maximize supplier value
Aside from providing inventory, a strong supply base maximizes the value you get from strategic partners. For example, retailers with fast-moving inventory might need faster response times from suppliers. Those they’ve already built strong relationships with might be more responsive, or even provide a direct phone number for their point of contact.
💡 PRO TIP: Shopify POS comes with tools to help you control and manage your inventory across multiple store locations, your online store, and your warehouse. Forecast demand, set low-stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.
Key SRM frameworks and metrics
Kraljic matrix
The Kraljic matrix is the gold standard for seeing which partners deserve white-glove service. It was originally used to map purchases, but has been adopted to segment suppliers by category.
To use the Kraljic matrix, you plot every supplier on two axes, profit impact and supply risk. Then, each supplier falls into one of four quadrants:
- Non-critical (Low impact / low risk): Vendors that are interchangeable and you spend a small amount with, like an office-supply dealer that ships stationery and printer ink.
- Leverage (High impact / low risk): Vendors you spend a lot with and have some bargaining power, like two competing mills that make bulk cotton blanks for a t-shirt store.
- Bottleneck (Low impact / high risk): Vendors with specialized knowledge and little competition, such as a niche fragrance house that produces proprietary scents.
- Strategic (High impact / high risk): Vendors that are critical to your brand strategy and profit margins. Think of an exclusive, certified-organic fabric mill that weaves a signature knit for your sustainable athleisure line.
Plotting partners on the Kraljic matrix helps you determine which deserve your time, budget, and resources. For example, non-critical suppliers may receive 10 minutes of attention per month and are mostly managed through system-generated purchase orders and automated invoicing. A strategic supplier, however, could warrant several hours a month across cross-functional teams, and be invited to an in-person summit each year.
Supplier KPIs
Once suppliers are segmented, you want a system that proves whether each partner is living up to their promises. Group KPIs into three categories:
- Service and reliability. OTIF is the primary metric, but others, such as fill rate and perfect order rate, can also determine a supplier’s efficiency.
- Quality and cost. Track defect rate or return rate alongside landed-cost variance to show whether a “cheap” supplier is quietly eroding margin.
- Sustainability. Add ESG fields like Scope-3 CO₂/ton and living wage compliance. McKinsey found that 92% of brands are using scorecards to ensure suppliers adhere to sustainability standards.
Together, the Kraljic matrix tells you where to focus, and the scorecard shows how well each supplier is performing. This provides a clear, numbers-driven path to stronger supplier partnerships.
The SRM process
1. Segment suppliers
Not all suppliers are created equal. Rank every supplier using the Kraljic matrix. Export 12 months of sales data to score profit impact, and rate risk by lead-time, single-source exposure, and ESG compliance.
💡 Tip: Rerun the matrix every quarter or whenever demand spikes so rising stars don’t slip through the cracks.
2. Collaborate with priority suppliers
Once you’ve identified strategic suppliers, prioritize your relationship-building so you can extract the most value from them. Relationship-building is a two-way street; collaboration is the key to a successful SRM program. Collaborate with your key partners to manufacture, purchase, and ship inventory in a manner that benefits both parties.
“The best advice I can give is to meet people in person if you can,” says Melanie DiSalvo, founder of virtue + vice. “When I worked in fast fashion, my boss always joked that I could get things done that no one else could. Which was true. But I was also the only one who spent a ton of time in the factories, getting to know everyone from members on the sewing line to the owners. When you know someone, and they like you, it’s amazing how many favors they will do for you.”
On Shopify, you can collaborate at scale with Shopify Collective. This native marketplace feature enables merchants to treat peer brands as on-demand suppliers while maintaining every SKU, inventory count, and payout within the same unified data stack.
3. Build a supplier management strategy
How do you plan to work with your suppliers? How often will you communicate with them? What metrics will you use to measure supplier performance? Discuss those points with each strategic supplier at the beginning of a new SRM strategy.
Krystal Suffling, branch manager at Aspire2, recommends providing genuine, honest feedback on internal processes that benefit both you and the supplier, or that will benefit the supplier in a way that might not occur to them. “For example, if you know there’s an untapped digital marketing side to the business that they’re not seeing, then let them know,” she says.
“Additionally, if you can help to streamline processes that the supplier currently works with you on, then they know you’re not just trying to get on their good side, and they’re usually very appreciative of their feedback.
“I’ve personally helped suppliers with everything from internal shipping processes—using my feedback—right down to simple aspects of their website that I thought could be better optimized (page speed and basic SEO are regular ones I pick up on!”
For each Strategic or Bottleneck partner, draft a one-page Joint Business Plan (JBP) that spells out annual volume forecast, cost-reduction goals, OTIF and defect KPIs, and a shared ESG roadmap. Agree on governance cadence for ops calls and reviews, and document who owns each metric on both sides.
4. Track results
Is your supplier meeting the goals you outlined at the start of your relationship? Continuously monitor supplier performance data to confirm that they’re meeting quality, service, and overall business objectives.
The same applies to your retail store. Evaluate whether you’ve given enough lead time, are meeting MOQs, and have met a supplier’s payment terms. Keeping suppliers happy is the key to minimizing supply interruptions.
💡 PRO TIP: With Shopify POS, you can run your online and retail stores from the same platform without using third-party APIs. Shopify is your system of record—product, inventory, sales, and customer data updates automatically whenever you make a sale online or in-person, and you pay just one straight-forward monthly subscription.
Supplier relationship management software
It can quickly become overwhelming to track relationships with suppliers, especially if you’re working with several, all of which supply different products with minimum order quantities, prices, and lead times.
Your SRM software should offer the following features:
- Supplier information portal to store key supplier data, such as their name, email address, and phone number.
- Contract management to create, sign, and save supplier contracts that are easily accessible by both parties.
- Real-time inventory management visibility so suppliers can accurately forecast demand ahead of time.
- Onboarding workflows that bring new suppliers up to speed with your business objectives, KPIs, and expectations.
- Accounting tools to request purchase orders, track invoices, and manage cash flow.
- Supplier performance management tools, such as scorecards that track the most important metrics and grade each supplier on how often they’re meeting expectations.
Some top options include:
Shopify
Best for: Retailers that want vendor management baked into their unified commerce stack.
Why it stands out: Built-in vendor fields, Stocky app for supplier profiles/POs, Bill Pay for automated invoices, plus thousands of marketplace apps if you need portals or advanced score-cards. All data syncs with inventory and sales in real time.
You also get access to Shopify Collective, which lets you partner with other brands as suppliers. Retailers can source, sync, and dropship SKUs from partner brands in a few clicks—no EDI files, spreadsheets, or up-front inventory buys—so every order still flows through a single unified commerce stack.
For example, Bala used Shopify Collective to create The Movement Store, a curated marketplace of complementary products from partner labels.
In one day the team synced select SKUs from eight new brand partners without buying inventory up-front, merchandised the items with its editorial imagery, and launched joint social campaigns. The results:
- 8 partner brands onboarded
- Products synced in under 24 hours
- 45% of Movement Store sales came from net-new customers
Pricing: Included with Shopify plans (Stocky requires POS Pro).
SAP Fieldglass
Best for: Large enterprises managing complex external workforces and service-based procurement.
Why it stands out: Contingent-workforce oversight, SOW tracking, risk/compliance controls, deep SAP ERP integration, robust analytics. Ideal when contractors and service providers make up a big slice of spend.
Pricing: Quote-based.
Coupa
Best for: Companies that want automated onboarding, self-service portals, and AI-driven risk alerts in one spend-management hub.
Why it stands out: Vendor self-service, InfoSec/GDPR/anti-bribery risk scoring, diversity tracking across 2 M+ certified suppliers, real-time compliance alerts, performance scorecards tied to purchase and invoice workflows.
Pricing: Quote-based.
Oracle SCM Cloud
Best for: Enterprises already invested in the Oracle ecosystem (e.g., NetSuite ERP) that need end-to-end supplier lifecycle control.
Why it stands out: Comprehensive profile records, structured pre-qualification, automated performance evaluations, bid and sourcing tools, and seamless linkage to Oracle procurement/ERP modules for true 360-degree visibility.
Pricing: Quote-based.
💡 Are you an Oracle NetSuite user? Connect your system to Shopify through the NetSuite ERP Connector.
Supplier relationship management challenges
Supplier relationship management is essential, but it is by no means easy. Let’s examine some of the common SRM challenges.
Lack of visibility
Suppliers aren’t part of your retail business, but they’re one of the most important assets. That said, lack of visibility into your suppliers, such as their commitments to other retailers and their capacity, can be a challenge.
“Trust is essential in any relationship, but it can be tough to build trust with a supplier,” says Helen Armstrong, founder of Apsley and Company. “Just like any relationship, supplier relationships need to be nurtured through timely communication. This cannot be easy to do when managing multiple suppliers and trying to run a business simultaneously.”
Similarly, most retailers don’t give suppliers visibility into their own inventory. Demanding a short turnaround time for a product that’s low on stock is a recipe for confrontation.
Focusing too much on cost
It’s important to source products that you can sell at a higher price in your retail store. But when you’re managing suppliers, remember that they’re operating businesses, too. Bartering on price can put pressure on the relationship.
If your supplier sells high-quality products, consider being more lenient on price. “It is OK to not get the lowest price in exchange for having the best mutually beneficial relationship,” says Nicholas Fiorentino, owner of The Meatery.
Unclear KPIs
Supplier relationships often go amiss when the parties have different expectations. This is largely due to unclear key performance indicators (KPIs) and metrics. For example, if you expect products to be dispatched within three business days of placing an order, but your supplier thinks five days is normal, it can cause friction.
Tips for better supplier relationships
Set clear objectives
Earlier, we mentioned that when you manage supplier relationships, the connection can become frayed when both parties are unclear on what’s expected of them. As a supplier relationship manager, you should share your business objectives before working with any supplier to avoid miscommunication in the relationship.
If you’re gearing up for a huge Black Friday sale, for example, set clear objectives with your supplier base beforehand that outline how many units you need and within what timeframe. It will ease tension if you’re both working toward the same goal.
Similarly, if your retail store is prioritizing cost savings after a slow quarter, communicate that with your supplier. They’ll appreciate a heads-up if demand is changing, and if the relationship is strong, they may be able to offer solutions, such as a discount or reduction in MOQs.
💡 PRO TIP: When you use different platforms to run your online and retail stores, inventory discrepancies are more likely to happen. This can lead to more frequent inventory counts to reconcile differences and ensure stock levels are accurate.
Pay suppliers on time
Would you be likely to continue doing business with a customer who continually pays late? Chances are, the answer is no. Your suppliers would say the same. Make a conscious effort to pay all suppliers according to the terms agreed in your contract.
“Not skipping a payment demonstrates your respect for them and your awareness of their requirements,” says Dean Lee, head of marketing at Sealions. “If you accumulate enough relationship currency over time, you might be able to receive exclusive discounts for making a payment.”
Cash flow management is a struggle for most retailers. Accounting software, inventory forecasting, and incentivizing customers to pay for products in full can provide extra leeway so that suppliers will be paid on time.
Use detailed contracts
A contract is a legally binding agreement between your retail store and a supplier. It holds both parties accountable for the quality of products bought and money exchanged. As part of yours, include key supplier data like:
- Lead times
- Shipping times
- Product quality
- Payment terms
- Contract length (i.e., how long you agree to buy/sell inventory)
“Miscommunications lead to misunderstandings, which lead to lost money and conflict,” says Nick Huber, founder of The Sweaty Startup. “As a business owner, your job is to be understood. The way to do that is by following up important conversations with a record of what was said. Concise communication by email is the way to do that!”
Establish consistent communication lines
Retailers often fall into the cycle of only talking with suppliers when they’re placing new orders (or worse, rectifying a mistake). That doesn’t help build relationships that benefit both parties.
Regularly communicate with your suppliers—even if there is no agenda. For example, you could:
- Wish them a happy holiday throughout the festive season
- Ask whether they’re planning to launch any new products or services
- Offer to help with something you’re skilled at (e.g., marketing or advertising)
“Suppliers appreciate it when we show interest in their process, lead times, and where and how they source raw materials,” says Yedra Lopez Gragera, business operations at OpenStore. “Merchants that take the time to understand the ins and outs of their suppliers are going to collaborate better and have a more constructive relationship overall.”
Continuously monitor risk
Worker protests, environmental changes, and political conflicts often come without warning. But when you continuously monitor risk, any issues can be brought up with your supplier before they impact supply.
Let’s say that a once-reliable supplier is falling behind on their lead times. Predicting risk in advance gives you plenty of time to find a solution—be that scheduling a meeting with the supplier to discuss why they’re falling behind, or looking for another supplier who can meet your requirements.
💡 PRO TIP: Analyze your POS data in tandem with your ecommerce data to be more cost effective with your inventory, measure your store’s impact on online sales, repeat purchases, lifetime value, and more.
Improve supply relationship management for your business
Suppliers are the lifeblood of any retail store, especially those with whom you’ve built strong relationships. Mutually beneficial partnerships can offer price stability, increase innovation, and provide a constant supply of bestselling products.
Use the techniques we’ve shared here to build strategic supplier relationships. Just a few extra hours per month can make a huge difference to your bottom line.
Read more
- What Is Economic Order Quantity and How Can I Calculate It?
- 8 Benefits Of Outsourcing Order Fulfillment for Your Retail Business
- A Simple Guide to Cycle Counting in Retail (+ Best Practices & Benefits)
- Inventory Accuracy: How to Identify & Solve Discrepancies in Stock Levels
- A Complete Guide to the Retail Inventory Method (RIM)
- The Complete Guide to Purchasing Product Samples
- How To Source Fabric For Your Clothing Line Business
- 10 Ways On-Demand Manufacturing Can Help Retailers Streamline Their Operations
- The Retailer’s Guide to the Weighted Average Cost Method
Supplier relationship management FAQ
What is meant by supplier relationship management?
Supplier relationship management (SRM) is a strategic approach to managing an organization's interactions with the people and organizations that supply the goods and services it uses. SRM involves creating and maintaining mutually beneficial relationships with these suppliers in order to improve the quality and cost of the goods and services they provide.
What are the 5 key points of SRM?
Supplier relationship management boils down to five disciplines that keep your supply base resilient and efficient:
- Prioritize suppliers using a risk-versus-profit matrix so you can instantly identify who deserves hands-on attention.
- Collaborate closely with top-tier vendors, sharing forecasts and product plans to expedite launches and reduce lead times.
- Set measurable targets like on-time-in-full, defect percentage, and carbon output—and review them regularly.
- Mitigate risk early by dual-sourcing bottlenecks, tracking compliance, and acting on poor performance.
- Continuously refine the program by updating segmentation and KPIs quarterly and applying lessons learned to future planning.
What is supplier relationship management with an example?
Supplier relationship management (SRM) is a business practice that involves managing interactions with third-party organizations that supply goods and services to a company. For example, a company might sign a year-long contract with a supplier and actively work to build a strong, collaborative relationship throughout that period to improve outcomes.
Why is SRM important?
SRM is important because it helps organizations manage and improve relationships with suppliers. This can lead to cost savings, improved product quality, more reliable delivery, and better communication and collaboration overall.
What are the 3 steps in supplier chain relationship management?
The three fundamental steps in supplier chain relationship management are:
- Supplier identification
- Supplier qualification
- Supplier selection
