Supplier management is the process that ensures maximum value is received for the money that an organization pays to its suppliers. Because these supplies play a part in the smooth running of an organization, it’s important for both supplier and organization to engage properly and effectively.
Establishing a proper relationship, managing the requirements, and communicating clearly with suppliers is essential to the organization, which means a comprehensive supplier management policy is required.
Types of supplier relationship
- Buy the market – Typically, an “arm’s length”-style relationship, that’s a straightforward, commonly-found buyer/seller transactional arrangement for named goods or services. Usually, it involves contractual fulfillment only, with little or no interaction beyond communicating the requirement and fulfillment.
- Ongoing relationship – A formally- or informally-recognized status where one supplier is selected in preference over others. There tends to be more sharing of information and a comparatively solid relationship between both parties.
- Partnership – Traditionally, a longer-term contract than the above, partnerships are defined by their increased trust and extensive sharing of information and commercial goals, especially compared to ongoing relationships.
- Strategic alliance – A long-term relationship in which both parties have agreed to work together, usually with some sort of exclusive arrangement, with defined commercial objectives and targets. Whether the arrangement is formal or informal, there may also be incentives between the two. Requires a close degree of collaboration in order to realize potential, typically day-to-day interaction.
- Backward integration – This relationship involves the organization owning the supplier outright as part of their business. As a result, there is a unified culture and, ideally, full sharing of information and plans. Essentially, supplier and organizations are one and the same.
What is supplier relationship management?
Supplier relationship management (SRM) is the systematic approach an organization takes in assessing supplier contribution and influence on success, identifying tactics to optimize their performance, and developing the strategic approach in order to carry what has been identified.
What is supplier lifecycle management?
Distinct from supplier relationship management, which largely focuses on post-contract management of suppliers. Supplier lifecycle management (SLM) is the end-to-end approach used to manage higher value or strategically important suppliers, from selection through to completion of the relationship. The most important point of the process is to recognize the value suppliers can offer so that the benefits can be integrated with your procurement processes.
What is supplier information management?
Supplier information management (SIM) refers to the process in which a business captures, stores, updates, and analyses all supplier data in a single location. This data takes the form of critical trading information, as well as necessary accreditations and certifications required to trade with the buyer.
Through this, it serves to strengthen supplier relationships and improve compliance, while also reducing the workload for the buyer.
What does the supplier management process flow involve?
- Step 1: Qualification – Qualification involves the evaluation of suppliers to determine if they are capable enough to provide the necessary goods or services to the standards set by the buyer.
- Step 2: Onboarding – The necessary information about the chosen suppliers is then collected as part of the onboarding process. Internal processes and systems have to be changed or updated accordingly, while relevant stakeholders are to be informed so that the company recognizes the new supplier and can begin trading with them.
- Step 3: Segmentation – Supplier segmentation is the process of classifying suppliers into specific supplier quadrants based on a pre-defined set of metrics such as supply risk, supply criticality and total spend amongst others.
- Step 4: Collaboration – Close collaboration between vendors and suppliers improves the relationship and commercial value through process and performance advances and product or service innovation.
- Step 5: Evaluation – The final step is used to measure a supplier’s performance and ensure they meet the terms laid out by the contract, and is based on a number of metrics including delivery time, price, production, quality, and service.
- Reduced risk – An up-to-date supplier information management system can reduce the chance of fraud, such as invoice fraud, between staff and suppliers, while also providing the added benefit of eliminating supply problems in a way that minimizes risk.
- Reduced costs – A supplier relationship management program has the potential for long-term cost savings
- Increased efficiency – As the relationship progresses and communication improves, suppliers, gain a better understanding of the businesses they work with. This means decreased delays in the supply chain and an improved operational flow.
- Minimized price volatility – In supplier relationship management, companies can take advantage of fixed or discounted pricing or scaled increases in exchange for longer contract terms, minimum order levels, and other qualifying criteria.
- Consolidation of the supply chain – A consolidated supply chain allows buyers to reduce the number of suppliers they purchase from, streamlining the purchasing process and makes budgeting more straightforward.
- Poor communication and lack of transparency – If the supplier doesn’t understand the company’s strategic goals, their needs and requirements may go unfulfilled.
Similarly, the inability to maintain an open, transparent relationship between supplier and company can massively hinder the progress that both parties make.
- An overworked supplier – Since suppliers work with multiple organizations at any one time, there may be issues with the unavailability of certain products or delays in providing the agreed service, weakening the relationship as a result.
- Maintained nurturing – It’s important that even during times of success, a business maintains a relationship with the supplier. Include them at every milestone and keep them abreast of any plans for future changes in the business, as well as recognizing previous successes to avoid souring the relationship.
- Contract conflicts – A biased contract that isn’t in sync with the needs of both parties can lead to problems. It’s imperative that harmony between both supplier and organization is reached when the time comes to put pen to paper.