Supplier management is essential to the delivery of quality products to the end consumer—even though its importance might not be so obvious.
Benefits of well-executed supplier management include streamlined production, improved supply chain functionality, and vertical interaction of branded products and services.
What is supplier management?
Supplier management is the process for creating and administering relationships with external organizations that provide materials and services.
High-quality supplier management allows for business needs to be met through best practices such as strategic sourcing, supplier compliance, and supplier lifecycle management.
This ongoing process ensures that maximum value and functionality are delivered across the organization.
Why does supplier management matter?
Suppliers need to be actively involved in the creation of new product supply chains, especially those with multiple complex, time-consuming, and costly components which are dependent on one another to function seamlessly.
Being at the heart of procurement processes, suppliers play a central role in the entire production cycle.
Key factors driving the need for supplier management are:
- Globalization - Increasingly complex business operations have resulted in the need for both local and global supply chain partners.
- Increased Competition - This helps to maintain a competitive advantage for both buyers and suppliers.
- Value of Long Term Supplier Relationships - Suppliers and companies are incentivized to collaborate and create long-term synergies for optimal performance.
What are the benefits of supplier management?
From strategic sourcing to supplier onboarding and success, having a high-quality supplier management process will bring:
- Increased supply chain adaptability - Enables a quick response to unexpected changes in the market, new business needs, and emerging strategic alliances and allows you to quickly qualify, onboard, and manage new suppliers.
- Effective collaboration - Requires automated workflows and secure data sharing, which improve overall supplier performance as well as the bottom line.
- Reduced costs - Drive real-time productivity by streamlining supplier collaboration.
- Enables supplier risk management - Mitigate risk by automating and optimizing the transaction process. Enable cross-platform transparency to minimize vendor management disputes while maximizing cost savings.
What does the supplier procurement process look like?
Sourcing new suppliers can be a daunting task if you're not prepared. Here's what a typical effective supplier procurement process looks like:
- Identifying business goals and objectives
Before starting the process of managing suppliers, it is essential to identify the business workflows, goals, and objectives which suppliers are required for. This will let you know what every department in your organization requires from external vendors while also creating a suitable benchmark for supplier performance - were they able to accomplish the objectives that you communicated to them?
- Identifying selection criteria for choosing suppliers
Determine how you will pick suppliers that offer the best value for what work needs to happen. Work with a procurement team of experts to make this decision.
Any evaluation should go over pricing, sourcing, the quality of past projects, the supplier’s reputation within their industry, and current legal standing. Additional selection criteria will vary depending on the type of organization, as well as its requirements for the strategic sourcing of new suppliers.
- Evaluating and selecting suppliers
Now that you’ve decided how to select the suppliers you need, it’s time to evaluate all relevant options. Best practices for supplier management encourage evaluating by pricing first.
However, do not make the mistaking of letting price outweigh any of the other selection criteria. Analyze all received proposals to see how well various suppliers plan to meet organizational requirements. You should also consider external threats and opportunities as a risk mitigation strategy. This will determine how these factors may affect supplier engagement.
- Negotiating and Contracting with the selected supplier(s)
Executing the contract management process well is the most important step when onboarding chosen supplier(s). Make sure to involve all key stakeholders in every step of this process. Collaborate with your suppliers to ensure that any further negotiations go smoothly as key partnerships get established. Ideal agreements will allow both parties to hold each other accountable.
- Evaluating supplier performance
After selection and onboarding, continue the process of supplier management by evaluating performance periodically. This will allow you to gain insight into how successfully they are fulfilling business objectives and contract requirements.
Establish precise Key Performance Indicators (KPIs) as metrics to tell you how efficient supplier management is, as well as reveal how to improve it further.
What are some challenges of supplier management?
The global nature of supply chains poses unique challenges to organizations looking to increase profitability while minimizing disruptions. Additionally, suppliers and buyers often have competing desirable outcomes for any business interaction, including:
- Timely Billing and Payments - Suppliers want to get paid and buyers want to improve their quarterly cash flow by stretching out payments.
- Shipments and Delivery - Buyers have tight deadlines while suppliers often get short notice.
- Performance - Quality and accuracy are two metrics for the purpose of evaluation on both ends.
Remember that the first goal of supplier management is to create a partnership that benefits both parties. Even if your objectives are being accomplished, this needs to be done in a way that is mutually advantageous for both you and your supplier(s) to promote repeat business and a longterm mutually-rewarding relationship.
What are some strategies to improve supplier management?
The supplier management process is a complex and multi-faceted one. Communication is the first step in any successful supplier relationship.
Case studies have proven that any issues you are experiencing are also adversely affecting your relationships with suppliers. For example, if you often have to make last-minute design changes, your supplier may complain that you give short notice on orders. This could cause suppliers to be unable to deliver orders on time or up to quality certifications.
Investing in spend management can also improve supplier management through analysis of company spending across the organization.
What's the future of supplier management?
As supplier lifecycle management undergoes further digital transformation, change is bound to occur. This will result in significant changes to best practices for effective supplier management.
Available resources like expert-led webinars and podcasts empower organizations to learn how to drive and sustain profits while leading successful supply chain transformations.
Effectively automating and streamlining key processes, such as onboarding of new suppliers, sharing of product data, and evaluation of product quality and supplier performance, directly affects bottom line performance and company success.
See how Propel significantly streamlines product development timelines between companies and their suppliers through our Product 360 platform.