Supplier management is the process of ensuring that your organization is getting the most out of the value it pays to its suppliers. Suppliers are an essential part of most companies’ operations, which reinforces the importance of having a functional and efficient relationship with them.
To do this, it’s important to capture, store, update, and analyze all of your supplier data in one place. You should always have critical business information and certifications needed to do business with your supplier at your fingertips.
It is common for contemporary supply chains to be made up of large and complex ecosystems of suppliers and business partners. Each of them brings value to the system through the delivery of goods and services to the market.
Read on to learn more about the benefits of supplier management. We’ll also discuss how to do this sustainably.
Benefits of supplier management
If your organization operates in the area of selling or delivering products, its success depends on working effectively with suppliers. This is the only way to meet customer expectations regarding product quality and delivery times.
A good relationship between your company and its suppliers is essential to maintain the agility and resilience of your supply chain. Therefore, check out some advantages of having good supplier management below:
- Supply chain agility. You can respond more quickly to adverse market events, new demands, and new opportunities for strategic alliances. With good supplier management, your company identifies, qualifies, and integrates new suppliers more quickly.
- Financial savings. Your organization becomes more efficient, and more productive and can reduce costs. All this through greater connectivity and frictionless collaboration with suppliers.
- Risk reduction. Supplier management allows you to mitigate risk, especially in times of crisis. Your organization can achieve this by eliminating blind spots in your transactions — and by allowing multiple parties to have visibility into information, minimizing conflicts with suppliers.
- Efficiency. As the relationship progresses and communication improves, suppliers will gain a better understanding of how your business operates. This tends to reduce delays in the supply chain and improve operational flow.
- Compliance. Each supplier needs to meet certain parameters to ensure they are meeting their partners’ requirements. By having a supplier management system, you can assess their level of compliance and identify areas for improvement.
How to manage suppliers
In discussions about how to improve operational performance or product quality, it is common to neglect a very important item: supplier management.
Buyers identify good suppliers in the market, considering cost, service, and quality. Then they sign supply contracts and that’s it. Now the challenge lies with the manufacturing/production area.
Supplier management cannot be limited to the purchasing stage alone. The purchasing team can and must be more active throughout the production process.
Actively managing your suppliers can yield surprising results. That’s why we’ve put together 9 steps to help you sustainably achieve great supplier management for your business.
1. Involve management
Engaging senior management is the first and one of the most crucial steps in the process. This means aligning supplier performance goals with the corporate objectives of the business plan.
Whether it’s to reduce costs, develop new technologies, explore new markets, or optimize productivity, it’s essential to present a compelling initial plan to management. With senior management involved, resource allocation is more likely to be approved, ensuring that goals are met.
2. Create a Measurement System
The most powerful opportunities arise from good communication between expected and achieved results. When suppliers see that you are following up with them daily, they are quicker to respond.
Improving supplier performance over the long term requires a clear, easy-to-understand daily dashboard with a few key performance indicators (KPIs). Instead of measuring twenty things a day, choose core areas like delivery or quality and display them to all suppliers.
Suppliers have many customers to satisfy, but those who communicate their standards and monitor them daily will get your full attention. With this system, you are well on your way to improving supplier performance in the long run.
3. Define and communicate your expectations to suppliers
It is recommended that you have ongoing measurement systems in place with annual reviews. This scorecard should cover critical areas such as supplier responsiveness, service evaluation, product management, and sales support.
The goal is to tell the supplier exactly what you want and what satisfies you. It may be more effective to develop unique requirements for each supplier than to use generic dashboards.
While this option requires more work, it offers considerably greater effectiveness in the long run. Suppliers have a harder time straying when targets are personalized.
Your scorecard will act as your daily dashboard, complementing the previous item and offering clear standards and responsibilities to suppliers and customers.
4. Analyze your supply chain
A good analysis focuses on known strengths and weaknesses and identifies organizational changes needed to fill the gaps. To get the most out of an internal analysis, it must be thorough, candid, honest, and realistic.
Compare your organization to other similar companies and operations, looking for areas of complacency and opportunities for improvement. For an unbiased assessment, consider outside help.
5. Implement a team approach
By adopting a team concept, all functional areas responsible for supplier performance are brought together in a matrix work structure. The buyers will usually lead these teams.
Other groups are integrated into the team, depending on items such as supply chain complexity, quality, logistics, planning, and engineering. To function well, these teams must have continuity.
This is not a temporary assignment for short-term goals: members share goals and supplier management plans. In other words, they learn and act together to improve the supplier.
The complexity of modern supply chains demands more resources than most purchasing organizations have, but the benefits of this team approach are enormous.
6. Train your team continuously
One common problem is that companies neglect to provide basic training on internal systems, practices, and long-term supplier improvement strategies—in addition to minimum industry standards. This results in a loss of efficiency compared to highly trained teams.
Improving supplier performance requires knowing how to approach suppliers, understanding their operations, systems, and practices, and helping them achieve new levels of performance. Training should focus on what you need from a supplier and how to get it.
7. Learn everything about your suppliers
Knowing your key suppliers well doesn’t just mean auditing and filing paperwork once every year or two. Your teams should visit suppliers frequently.
The more they know about the partner and its process, the greater the chances of identifying opportunities to reduce costs, improve quality, and speed up deliveries. This also helps in developing new products and achieving sustainable supply chain performance.
Some buyers only leave their desks to meet a supplier at the front desk. For greater efficiency, buyers should be encouraged to travel and conduct hands-on supplier management.
8. Define best practices for suppliers
Look for good ideas and share them with your entire supplier base. While this is not common, it is a practice adopted by some of the best companies in the world.
When you gather relevant information from one supplier, use it to improve others. Avoid proprietary practices but apply general concepts. The priority should be the performance of the supplier’s systems, not just your own.
9. Manage Supplier Resources Efficiently
The number of resources used to manage suppliers is often not sufficient in most organizations. Even with a well-defined practical approach, you can only manage a limited number of suppliers effectively.
To effectively manage suppliers, you need to have sufficient staff, performance measurement tools, and modern resources from other areas. If this is not possible, reduce your supply base to a manageable level, ensuring that it fits within your available capabilities.
Conclusion
Efficient and sustainable supplier management is an essential process to ensure the operational and financial success of your organization. Your company will be better prepared to face market challenges if you adopt practices such as management involvement, the creation of measurement systems, and the implementation of a team approach.
Sustainable supplier management not only optimizes internal resources but also contributes to the development of lasting and productive business relationships, positively impacting the quality of products and services offered to customers.
Looking for more efficiency and compliance in your operations? Our experts can help you identify the best strategies for your company with SoftExpert solutions. Talk to us today!
