Globalization has wiped today’s businesses from their foundations and made business processes more dynamic, competitive, and complex. As a result, all organizations engage with suppliers to provide different goods and services in order to maximize business performance. Suppliers are an integral part of any business and therefore, managing suppliers is crucial. Therefore, this blog will cover the process, key features of supplier management, benefits and challenges it faces.
What is Supplier Management?
What does the Supplier Management process?
- Step 1: Define your goal
Managers should first define the set of goals and expectations they have for each of their suppliers. Setting goals will also help later in the process when executives need to evaluate supplier performance.
- Step 2: Determine selection criteria
Next, business owners should establish criteria for selecting the best supplier that will deliver maximum value. In general, these selection criteria will vary, depending on the organization, the industry and its expectations. However, managers will tend to compare supplier prices, past quality of work, experience, and reputation.
- Step 3: Select a Supplier
The enterprise conducts an assessment of the supplier’s strengths and weaknesses. It is also useful to consider external factors that may affect a supplier’s operations, such as changes in the environment. Then, organizations should choose an effective provider that they believe best fits their goals and delivers the most value.
- Step 4: Cooperation
Once a supplier is selected, proceed to create a contract outlining all the requirements that the supplier must meet. During contract creation, details should be provided on how the contract can ensure suppliers deliver maximum value.
- Step 5: Performance Evaluation
It is important that organizations regularly evaluate supplier performance to ensure that they are meeting set requirements. Creating key performance indicators (KPIs) can help executives measure supplier performance and see if any improvements need to be made.
Key features of Supplier Management
- Supplier Evaluation: The ability to assess and evaluate suppliers based on criteria such as quality, cost, delivery, and reliability. This helps to identify the best suppliers and ensure that they meet the needs and requirements of the organization.
- Contract Management: The ability to manage contracts with suppliers, including the negotiation of terms and conditions, the tracking of performance, and the resolution of disputes.
- Communication and Collaboration: The ability to effectively communicate and collaborate with suppliers to ensure that they understand the organization’s needs and requirements, and to resolve any issues that may arise.
- Supply Chain Visibility: The ability to track and monitor the entire supply chain, from raw materials to finished goods, to ensure that it is running smoothly and efficiently.
- Risk Management: The ability to identify and manage risks associated with suppliers, such as the risk of supply disruptions, quality issues, or delivery problems.
- Sustainability: The ability to assess and manage the sustainability of the supply chain, including the social and environmental impact of suppliers.
Types of Supplier Relationships
Buy the market
This is a so-called “hands-on” relationship, which is a simple, common buyer/seller transaction agreement for specified goods or services. Usually, it only involves contract execution, with little or no interaction other than request communication and implementation.
When one supplier is chosen over others, whether formally or informally, this is known as preferred status. More information is frequently exchanged between the two, and their relationship is generally healthy.
This is a fairly long-term type of contract, defined by growing trust and widespread sharing of information and commercial goals, especially relative to ongoing relationships.
A long-term relationship in which both parties have agreed to work together, often with some exclusivity, with defined commercial goals. Requires a level of close collaboration to realize potential, typically in daily interactions.
In this arrangement, the company fully incorporates the supplier into its enterprise. There is a cohesive culture as a result, and ideally, all information and plans are shared completely. Vendors and organizations are essentially the same things.
Benefits of Supplier Management
- A supplier information management system can reduce the risk of fraud between employees and suppliers.
- Long-term cost savings
- Reduce supply chain delays and improve operational processes.
- Companies can take advantage of fixed or discounted prices or scale up in exchange for longer contract terms.
- Enables buyers to reduce the number of suppliers they purchase from, streamlines the purchasing process, and makes budgeting simpler.
- Vendor performance management not only allows you to assess your suppliers’ compliance but also gives you insights into their performance.
- Design development programs to support suppliers
identify and assess the impact of supplier risks and put in place appropriate risk mitigation measures.
Drawbacks of Supplier Management
- If suppliers do not understand the strategic goals of the company, their needs and requirements may not be met.
- There may be problems with the unavailability of certain products or delays in the delivery of the agreed service, resulting in a weakening of the relationship.
- Contract conflicts can lead to problems.
To sum up, managing suppliers is essential for every company or organization that depends on outside vendors for the supply of goods or services. Organizations may assure the success of their supply chain and accomplish their objectives by managing supplier relationships well. To guarantee that it continues to be in line with the requirements and goals of the company, effective supplier management requires a combination of technology, processes, and people.