Globalization has swept today’s businesses off their foundations and has rendered the business processes more dynamic, competitive, and complex. Consequently, all organizations engage with suppliers for the provision of various goods and services to maximize business performance. Suppliers form an indispensable part of any business, and hence, managing suppliers is crucial.
To ensure effective supplier management strategy, organizations must develop strategies to source and select suppliers, negotiate contracts, maintain relationships with suppliers, manage risk efficiently, and evaluate performance regularly. It is also important to build trust between both parties and make sure the supplier’s vision aligns with that of the organization’s. By establishing guidelines such as setting clear expectations while holding the suppliers accountable for their performance will help in achieving desired results.
What is Supplier Management?
Supplier managementrefers to all the business processes and activities that deal with the entire lifecycle of a supplier for an organization.
This includes, but is not limited to, identification, selection, and management of relevant suppliers coupled with a practical evaluation of their performance to ensure they are providing maximum value for the organization’s third-party requirements.
Given the complexity of business relationships, the variety of suppliers engaged with organizations and their sheer importance, a definition can only cover so much. Hence, this blog will cover the need for supplier management, its benefits, process, and best practices.
Read our blog on: 8 Unique Phases of Supplier Lifecycle Management
The Importance of Supplier Management?
When it comes to establishing why businesses necessitate supplier management, there are two main pillars we need to recognize:
- To evaluate if the suppliers are performing as per the organizational requirements
- To identify areas of improvement while engaging with suppliers throughout their lifecycle
These two factors primarily highlight why we need it to ensure we are deriving the maximum value from the suppliers for the relevant requirement(s), given the resources invested in the suppliers. To get the most out of a supplier’s service, it is important to track and measure their performance. With regular communication and feedback, an organization develops a transparent relationship with the supplier, which helps in finding areas of improvements with quick solutions.
How does Supplier Management Work?
Global supply chains comprise intricate networks of suppliers providing specialized goods and services. Large enterprises work with thousands of suppliers across geographies and spend categories. Supplier managementencompasses processes that help companies optimize this complex supplier ecosystem.
It starts with identifying the right suppliers through market research and RFPs. Selected suppliers are onboarded through documentation, orientation, and interconnectivity. Their capabilities and output are continuously monitored via performance evaluations. Data-driven insights help nurture collaborative win-win relationships with top strategic suppliers.
Ongoing management spans relationship building through two-way communication, technology integration for seamless transactions, and alignment on goals. Compliance to regulations, codes of conduct and ESG parameters is ensured. Risks are monitored proactively. The aim is to build resilient supply networks delivering maximum value.
With vast global supply bases, automation and digitization are key enablers. Supplier information management centralizes vendor data for real-time insights. Supplier portals ease interactions. Analytics enhances decisions. Robust supplier managementdelivers strategic advantage.
Read our whitepaper for in-depth information: The Why, What And How Of Supplier Management
What are the key factors driving supplier management?
A whitepaper by Zycus on ‘Building Blocks for Improved Supplier Management’ has identified other key factors that are currently driving the need for supplier management:
1. Increasing Operational Scale that results in increasing need for local as well as global suppliers
2. The Increasing Complexity of Supply Chains which also result in a rising depth of the organization’s supplier base
3. Growing Risks in a Supply Chain which can make the organizations more vulnerable to performance failure if their involved suppliers are not managed and evaluated effectively
4. Managing Supplier Data that allows organizations to streamline crucial supplier data to provide meaningful insights for improving supplier management
5. Establishing Long-term Supplier Relationships that will enable suppliers and organizations to meaningfully collaborate and create synergies for maximized performance for the long-run
6. Leveraging supplier relationships in times of organizations or external distress to ensure business performance doesn’t fluctuate
7. An Increasing Competition which implies organizations have to identify and improve aspects of their business processes that can provide them a competitive advantage
8. Matching Industrial Standards of supplier performance so that organizations can achieve best-in-class performance
Key Features of Supplier Management
Some key features of a robust supplier managementcapability are:
1. Supplier Collaboration –Ongoing communication and integration between buyers and suppliers to jointly enhance value. Tight collaboration develops strategic relationships.
Read more on: Supplier Collaboration Networks: A Roadmap to Unlocking Synergy in Procurement
2. Supplier Onboarding –Structured processes for identifying and validating the right suppliers, getting them interconnected, and activating procurement systems.
Read more on: Supplier Lifecycle Management: Best Practices and Technology Tips for Successful Solution Onboarding
3. Supplier Relationship Management –Nurturing win-win partnerships with suppliers by assessing performance and contribution. Developing engagement strategies aligned to supplier value.
Read more on: Supplier Relationship Management: A Comprehensive Guide
4. Supplier Lifecycle Management– End-to-end approach spanning supplier selection, onboarding, performance management, and offboarding. Maximizes supplier value across tenures.
5. Supplier Information Management –Consolidating supplier data across systems provides a unified view of relationships for insights. Enables real-time decisions.
Check out Zycus’ iSupplier – Supplier Information Management Software
6. Centralized Supplier Portals –Digital hubs for suppliers to access procurement systems, submit documentation, track interactions, collaborate on goals, etc.
7. Analytics for Supplier Insights –Data-driven insights using SPM metrics on risks, performance, pricing, help make strategic sourcing decisions.
Effective supplier managementneeds the right processes, technology, and culture of collaboration to maximize supply network value. It delivers a competitive advantage by empowering enterprises to react swiftly to market dynamics and risks.
Read our eBook for more information: Supplier Management Simplified – Improve compliance and reduce risks with 3 essential KPIs
What are the benefits of supplier management?
Now that we understand why need supplier management, let’s look at how it can benefit organizations:
1. Managing a Growing Supplier Base Effectively
The supplier base of organizations is increasing – this is a consequence of a myriad of factors like increasingly globalized business processes that provide access to global suppliers, increasing the complexity of supply chains, increase in the scale of operations of organizations, etc. Due to the increase in the number of suppliers engaged with the organizations, managing the entire lifecycle of suppliers becomes difficult. Having a well-structured supplier managementprocess in place will allow organizations to manage their multitude of suppliers with ease.
2. Achieving Cost Savings and Quality Control
Having strong supplier managementpractices will enable organizations to identify cost savings opportunities in the supply chain and scrutinize the quality of supplier output. This directly impacts and contributes to the company’s bottom line.
3. Improving the Organization’s Supply Transparency
When you have a supplier managementsystem in place, it will allow you to streamline valuable information and data regarding the lifecycle of the suppliers. It enables the organizations to have increased transparency into the number and type of engaged suppliers and how they are performing and helps in identifying areas of improvement and design strategies to improve their performance further.
4. Tracking Compliance to Relevant Parameters
Every supplier has to fulfill specific set parameters to ensure they are fulfilling the requirements of the organization. Using a supplier managementsystem, you can evaluate the suppliers’ compliance with the set parameters and identify the scope of improvement to derive maximum value.
5. Evaluating Supplier Performance
This is possibly one of the essential benefits of having supplier management. You need to know how your suppliers are performing because your organization’s performance is mostly dependent on them. Not only will supplier performance management allow you to evaluate supplier compliance, but it will also give you in-depth insights on their performance. It includes the creation of various KPIs to measure supplier performance, and using these; you can assess the value created by the suppliers.
6. Building Development Programs to Support Suppliers
Once you have evaluated suppliers and identified areas for improvement, supplier managementcan help you design development programs to support suppliers, especially the one that caters to long-term crucial requirements and help improve their performance.
7. Leveraging Supplier Relationship Management
It might not seem so, but the relationships you build with your suppliers can be very beneficial for your organization. When you collaborate with your suppliers and involve them in the process of deciding how to achieve the relevant requirements, you build long-lasting, trust-based relations that can be leveraged in the future. Collaborating with suppliers makes them more willing to understand your business needs and consider strategies on the organization’s terms.
Check out our latest blog: “Supplier Relationship Management Guide 2023” to discover the lasting benefits of successful supplier collaboration.
8. Assessing and Mitigating Supplier Risk
Identifying and mitigating supplier risk is another unequivocally critical benefit of having efficient supplier managementfor your organization. As supply chains and the resultant supplier relations becomes complex, the probability of detrimental supplier risks also increase. Supplier managementhelps in identifying and assessing the impact of the supplier risks and devising appropriate risk mitigation measures.
Check out our on-demand webinaron Supplier Risk Assessment Program Best Practicesto learn how companies around the world are successfully managing supplier risks and improving their efficiency.
9. Building a Supplier ManagementProcess
Now that we have identified the need and benefits of supplier management, it is necessary to establish a process. The process will guide an organization about the strategies it has to employ to manage the entire lifecycle of the engaged suppliers.
Learn More: ZYCUS SUPPLIER MANAGEMENT SOFTWARE
The 5-step supplier managementprocess
1. Identifying the Set of Business Goals and Objectives
Before you get on-board with your supplier managementprocess, 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. These objectives will also help evaluate supplier performance vis-à-vis the objectives that were communicated to them.
2. 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 recognitions, legal reputation, etc. Organizations also engage in RFQs, RFPs, and RFIs for selecting relevant suppliers, especially when the requirements are significant.
3. 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 weakness and study how the external environment’s threats and opportunities can impact your engagement with the suppliers.
4. 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. We have already established the benefits of meaningful relationship-building with suppliers.
5. Evaluating Supplier Performance
The supplier managementprocess doesn’t just end once you choose the suppliers. After their selection and onboarding, you need to periodically evaluate their performance to 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 also provide insights into areas for improvement to maximize supplier performance. It also tells us how effective our supplier managementprocess is and how it can optimize it further.
Achieve supplier managementexcellence with our eBook: “The Path to Supplier Management Excellence“. This helpful guide focuses on the 3 stages of effective supplier managementand provides actionable steps to help procurement teams streamline and improve their existing processes.
Improving Supplier Management: Strategies and Best Practices
Apart from a well-structured process for managing suppliers, here are the best practices to fortify your supplier management.
1. Implement Supplier Information Management (SIM)
Zycus’ eBook on Supplier Managementdefines SIM a supplier-facing business process that ‘aggregates, collects and maintains the information from all distributed systems, thus providing a consolidated view of supplier data, process status, and relationships.’
Having a supplier information system will enable you to:
- Streamline supplier data from disparate sources to gain meaningful insights
- Collaborate with suppliers to improve supplier relationship management
- Monitor the suppliers’ capabilities to feet current and future demands
- Evaluate supplier risks and identify mitigating measuresRelevant Read: Supplier Risk And Performance Management: Best Practices For KPI Creation
2. Create KPIs to Measure Supplier Performance
While managing supplier lifecycles, it is important to have KPIs. KPIs enable supplier performance measurement to evaluate the value-creation and identify problem areas. Zycus’ whitepaper on ‘Best Practices for KPI Creation for supplier risk and performance management‘ has identified the objective and subjective KPIs and scorecards that can help you measure you help you in managing suppliers.
3. Collaborate with your Suppliers for Effective Supplier Relationship Management
Ensure that you have accurately communicated your business objectives and goals to your suppliers. When the purpose is understood, suppliers can offer propositions that provide maximum value for your business needs. Involve them in the decision-making process to take advantage of synergies. This strategy will help build collaborative relationships with the suppliers. Supplier relationship management can be your key to derive maximum value from your suppliers and make your supply chain efficient.
Download our Whitepaper and Explore in-depth- “The Why, What And How Of Supplier Management“
4. Evaluate Supplier Risks and Identify Mitigation Measures
This is one of the most crucial strategies you need to employ for a well-run supplier management process. It is important to identify supplier risks that plague supply chain, dissolve costs savings, and disrupt performance. The risks you need to primarily look out for are financial, operational, data security risks, and regulatory risks. Analyze the impact of these risks for your supplier management and devise measures that can help mitigate these risks.
Discover the benefits of strategic vendor management and how you can use the right processes and best practices to ensure the success of your organization. Check out our blog post ““.
Supplier Management Tools and Their Importance
Supplier management tools are software solutions designed to streamline and enhance an organization’s interactions with its suppliers. They play a crucial role in efficiently managing supplier relationships, ensuring product quality, and maintaining a reliable supply chain.
Some common types of supplier management software include:
- End-to-End Supplier Management Portals
- Supplier Information Management
- Supplier Performance and Risk Management
Supplier management toolsare essential for organizations seeking to streamline their supplier management processes. They enhance efficiency, reduce risks, and enable better decision-making by providing valuable insights into supplier performance. In today’s competitive business environment, effective supplier management toolsare necessary for maintaining a resilient and responsive supply chain.
In a nutshell
In this blog, we have taken a look at one of the crucial aspects of business functioning – supplier management. The way economies are becoming more global, involving suppliers in your business processes has become inevitable. An effective supplier management process not only allows you to derive maximum value for your business requirements; it also gives you a competitive edge. It enables you to achieve cost savings through improved goods and services quality that determine the bottom line. If is time to put your suppliers in the front seat and drive your organizational performance.
Read our blog on: Benefits of Procurement and supply function in an organization
Food for Thought
There has been burgeoning of ‘Supplier Lifecycle Management’ – What is it, and how does it differ from supplier management? For long, suppliers were in the back seat as mere recipients of the company’s objectives and strategies for supplier management. Supplier Lifecycle Management brings the suppliers to a more dynamic and central role in the entire process. Being at the heart of procurement, suppliers need to be actively involved in the value-creation of supply chains.
Supplier management is an essential part of ensuring maximum value for an organization’s money. With the right supplier lifecycle and risk management tools, you can make smarter procurement decisions and streamline processes for improved compliance. Request a demo today to see how Zycus can help you achieve your goals!
FAQ’s
What are the Keys to Supplier Relationship Management?
There are many different key factors to supplier relationship management, but some of the most important ones include:
- Defining and communicating clear expectations to suppliers. This includes setting expectations around quality, delivery times, and price.
- Maintaining open communication with suppliers. This helps to ensure that both parties are always on the same page and can work together to resolve any issues that may arise.
- Building long-term relationships with suppliers. This allows for a more trusting and collaborative relationship, which can lead to better quality products and services.
- Continuously monitoring supplier performance. This helps to identify any potential problems early on so that they can be addressed before they become major issues.
- Putting systems and processes in place to manage supplier contracts. This helps to ensure that all contractual agreements are being adhered to and that both parties are held accountable for their commitments.
What are the Supplier Management Activities?
There are many different activities, but some of the most common include:
- Evaluating and selecting suppliers
- Developing and maintaining supplier relationships
- Negotiating contracts and pricing with suppliers
- Managing supplier performance
- Resolving issues with suppliers
Supplier management is a vital part of any successful business, as it helps to ensure that you are getting the best possible products and services from your suppliers at the best possible prices. By taking the time to develop strong relationships with your suppliers and manage their performance effectively, you can keep your business running smoothly and avoid any potential disruptions.
What is a Supplier Strategy?
A supplier strategy is simply a plan that outlines how you will work with suppliers to achieve your desired outcomes. It takes into account factors such as cost, quality, delivery, and risk.
Creating a supplier strategy is important because it helps you to optimize your procurement efforts and improve your overall supply chain performance. By having a clear plan and understanding of your goals, you can more easily select and manage the right suppliers for your needs. Additionally, a well-executed supplier strategy can lead to cost savings, improved quality, and other benefits for your company.
What is the Purpose of Supplier Management?
Supplier management is the process of assessing supplier performance, defining and setting expectations for quality and delivery, and maintaining relationships. The goal is to ensure that suppliers meet or exceed the buyer’s expectations in terms of quality, delivery, and cost.
There are many benefits to effective supplier management, including improved quality and delivery of goods and services, reduced costs, and improved relationships with suppliers. In addition, by managing supplier performance, buyers can reduce the risk of disruptions to their own operations.
Related Read:
- 8 Unique Phases of Supplier Lifecycle Management
- Supplier Relationship Management: A Comprehensive Guide 2023
- Supplier Risk And Performance Management: Best Practices For KPI Creation
- Supplier Information Management Software
- Supplier Management Automation
- A 5-Step Process to Effective Supplier Management
- Diving deep into Supplier Management Solutions with Zycus
- Taking a 360° Approach to Supplier Management
- Supplier Performance Evaluation – A Quick Checklist
