Supplier Management is the process of coordinating and controlling materials and services supplied by suppliers to a company. It involves the review and selection of potential suppliers; evaluation and monitoring of current vendors; and ultimately, the removal of vendors who do not perform up to expectations. Supplier management is essential for any successful organization that depends on outside suppliers for vital goods and services.
Supplier management is a subset of Product Lifecycle Management (PLM); as it helps manufacturers to securely collaborate with and oversee their suppliers, as well as the products they purchase from them. Supplier management also ensures that a business gets the maximum value it is spending on its suppliers.
The management of suppliers is a crucial aspect of any business. It involves identifying, selecting, and managing suitable suppliers and thoroughly assessing their performance to ensure they provide the best value to the business.
Some benefits of supplier management include reduced risk that is by using an up-to-date supplier information management system. Moreover, suppliers can reduce the chances of fraud, including invoice fraud, while at the same time eliminating supply problems as efficiently as possible. When a supply chain is consolidated, buyers can reduce the number of suppliers they work with, streamlining the purchasing process and making budgeting easier.
Supplier management can also increase clarity in the supply chain, subsequently minimizing the risk of reduced productivity and human error. Events spurred by the COVID-19 pandemic highlight the importance of strong relationships between manufacturers and their suppliers. Heightened visibility allows all parties involved to hold each other accountable, raising the standard for quality and efficiency.
Supplier Management Process
- Identifying the set of business goals and objectives
Before you get on-board with your supplier management process, it is important to identify the set of business goals and objectives for which suppliers are required. It will highlight what every department requires from third-parties so that you can map the relevant suppliers to every need without duplicating efforts and resources.
- Identifying relevant selection criteria for choosing suppliers
Once you know the objectives and requirements that necessitate supplier engagement, you need to define the selection criteria for choosing suppliers that will provide maximum value for the requirement.
While the selection criteria depend on the type of the organization and its requirements from suppliers, standard measures include pricing, quality of past work, industrial recognition, legal reputation, etc.
- Evaluating and selecting suppliers
The next step is to evaluate all relevant suppliers based on the selection criteria you have identified. Majority of the organizations evaluate the suppliers based on the pricing they have quoted. However, it is equally important to factor in the other criteria that you have identified.
Assess the quotations and proposals given by the potential suppliers and ensure you are deriving maximum cost savings opportunities. Analyze the terms and conditions to see how well the suppliers are planning to meet the organizational requirements. At the same time, make sure you have done a thorough, holistic analysis of the suppliers’ strengths and weaknesses and study how the external environment’s threats and opportunities can impact your engagement with the suppliers.
Negotiating and Contracting with the selected supplier(s)
Now that you have chosen the relevant suppliers, you need to execute the contracting process to get them onboard finally. Ensure that you involve all relevant stakeholders in the contracting process to gain valuable insights on how the contract can ensure maximum delivery of value. In a lot of business cases, the contracting process is executed by the finance/procurement team with the senior executives of business units whereas the groups that will work with the suppliers on a day-to-day basis are not consulted.
Collaborate with the suppliers to ensure that the negotiation process runs smoothly with minimal roadblocks.
Evaluating supplier performance
After supplier selection and onboarding, you need to periodically evaluate their performance and see how well they are fulfilling the set objectives and requirements. To ensure practical evaluation, make sure you have established KPIs to measure performance. This will provide insights into areas for improvement to maximize supplier performance. It will tell us how effective our supplier management process is and how it can optimize it further.
Advanced, cloud-based supplier management software can help enterprises to ensure traceability and real-time visibility of supplier performance.
A comprehensive set of supplier management tools within the software suite helps an enterprise to manage supplier information, supplier connections and supplier performance, and drive greater value across the enterprise.