Supplier management is the process of finding, obtaining, and managing an organisation’s resources and suppliers.

The process involves buying the goods, data, services, and other resources the organisation needs to operate, as well as building and maintaining relationships between the buyer and suppliers.

Supplier management is a combination of supplier information management (SIM), supplier lifecycle management (SLM), and supplier risk and performance management (SRPM).

When is supplier management needed?

Supplier management is needed for two key reasons:

• To allow organisations to evaluate if their suppliers are meeting their requirements

• To identify areas for improvement in the supplier lifecycle

Through effective supplier management, organisations can ensure they are getting the maximum value from their suppliers. This is achieved by tracking and monitoring their performance, regular communication and feedback, and building open, transparent, and mutually beneficial relationships.  

Even in organisations with a supplier management process in place, there is often room for improvement. This can be achieved using the following approaches to supplier management:

Value mapping

When it comes to supplier management, many businesses focus on cost savings. However, there are many more factors to consider. By mapping the organisation’s values, it is possible to look beyond cost and consider other drivers such as revenue growth, asset utilisation, and risk reduction.

Top-down approach

The responsibility of supplier management often lies with the procurement team, but all internal stakeholders must be on board for the process to work.

A top-down approach, where implementation of the process starts at the top and moves down through the organisation, helps ensure that all stakeholders understand the process and the potential benefits it can offer.

Spend optimisation

Supplier relationship management practices such as collaborative analysis, process re-engineering, demand management, and total cost modelling can deliver cost savings while optimising spending.

Risk mitigation

Supply chain disruption can be caused by a range of factors, including quality issues, price volatility, and dependency. However, with an effective supplier management process in place, businesses can manage those disruptions and reduce the associated risk.

Through supplier risk segmentation, for example, businesses can identify potential risks and work to mitigate them.

ROI

Procurement teams often find it difficult to build a business case for their supplier management process, which can result in a lack of stakeholder buy-in and funding.

Calculating the benefits of the supplier management process and highlighting the positive financial impact it will have can help address this.

Investing in effective, efficient supplier management processes offers a host of benefits for businesses, including:

Cost savings

Implementing an effective supplier management process allows businesses to identify opportunities for cost savings in the supply chain. This will directly impact their bottom line.

Transparency

A supplier management process allows businesses to streamline the data and information they hold in relation to the supplier lifecycle. As a result, they can have better, more transparent insights into the performance of their suppliers, which will allow them to identify opportunities for improvement.

Compliance

Through supplier management, businesses can monitor how their suppliers comply with agreed parameters.

Performance

Supplier management enables businesses to know how their suppliers are performing, providing in-depth insights. This allows them to monitor performance against relevant KPIs.

Risk

Effective supplier management allows organisations to assess and mitigate supplier risk by identifying and assessing the impact of potential risks and developing measures to prevent them.

Leveraging relationships

Building long-lasting relationships with suppliers can be incredibly beneficial. Building positive relationships through effective supplier management develops trust which can be leveraged in the future.

A supplier management process is the steps an organisation takes to qualify, segment, monitor, and manage its suppliers. An effective process will help build a mutually beneficial buyer-supplier relationship based on trust, transparency, and accountability.

Challenges of supplier management

Although essential for businesses, supplier management can pose a number of challenges. The key challenges of supplier management include:

Communication

A lack of communication can not only impact the outcome of the process but can also lead to mistrust between the buyer and the seller.

To improve this, buyers must take a transparent, collaborative approach to communication, by being open with the supplier without compromising their ability to negotiate goals and pricing.

Technology integration

If the company’s tech isn’t up to scratch, it can hinder the supplier management process. Implementing effective technology that can integrate supplier management with the ERP portfolio and collate all essential data in one place is essential.

Conflict of priorities

Strategic goals designed to improve supplier relationships can sometimes conflict with wider business goals, such as reducing costs. Companies must identify their goals and decide what approach they want to take to supplier management to develop an effective, efficient process.

Managing inventory

A further challenge for companies focusing on efficiencies in supplier management can be inventory management. Often, they can over or underbuy stock. To avoid this, businesses must link their supplier relationship system to their inventory tracking and continuously review the information.

Supply chain risk

The uncertainty surrounding supply chain risk can have a negative impact on the buyer-supplier relationship. But, by identifying these risks, companies can mitigate them.

Here are our 9 top tips for better supply management:

1. Establish clear priorities and communicate them to all internal stakeholders
2. Focus on building two-way, long-term relationships
3. Remember, it’s not just about securing the lowest price
4. Streamline your supply chain
5. Monitor supplier compliance and performance
6. Calculate the benefits of the supplier management process to secure buy-in from internal stakeholders;
7. Prioritise open, transparent communication
8. Identify potential risks and prepare to mitigate them
9. Invest in supplier management systems and software

At Basware, we provide tools for accurate, up-to-date supplier information and performance management. To find out more about how we can help you better manage your suppliers, please get in touch.

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