Supplier management plays a key role in the success of any organization. Companies are increasingly aware that they must integrate and collaborate with suppliers to stay competitive and take the next step towards excellence. With the advancement of technology and globalization, we can now contract suppliers from anywhere in the world, as well as reduce the life cycle of materials and products. For this reason, supplier selection, evaluation and approval processes are becoming increasingly critical.
Many of today’s leading companies carry out supplier management so well that it sets them apart from their competitors. The strategies used to achieve this level of management are constantly maturing and improving.
While each company should adopt practices aligned with the kinds of products or services they offer, there are certain elements that any successful supplier management program should include. Below, we discuss five essential practices to ensure success in supplier management processes.
1. Development of requirements and risk matrix
Clearly defining all the criteria involved in assessing and approving a supplier is extremely important. In addition to helping to optimize the process, this practice also helps you monitor risks that need to be mitigated.
Most organizations fail to clearly define these criteria, which often results in a number of problems, including delivery delays, non-compliance and regulatory issues, which always negatively impact their internal processes.
Suppliers can be classified according to the type of input or service they provide and their actual impact on the organization’s final product. The more critical the partner, the greater the associated risks. The relationship becomes more complex and the success of the partnership becomes an essential factor for the success of the business. Thus, to establish strategies to deal with these potential threats, supplier risk management plays an extremely important role in protecting the delivered value and contributes to the company’s other management systems. Below is an example of supplier risk analysis:
2. Contract selection and management
To negotiate, monitor, and refine legal agreements with your suppliers, such as third-party organizations with basic contracts (i.e., support contracts to supply goods and services to your organization), you need a centralized method for drafting, reviewing, approving and updating these documents. Automation that incorporates templates (approved by your legal team) ensures that new and existing contracts comply with your company’s policies and the law, and include accurate information about supplier terms, conditions, and pricing.
This approach also helps you identify opportunities to improve ROI (return on investment) for your company and ways to construct mutually beneficial partnerships with your best performing strategic suppliers.
Robust contract management reduces risk for your organization. This includes issues such as conflicts of interest and fraud. That is, your company should ensure that all appropriate measures are taken to prevent, identify and remedy conflicts of interest, including measures to combat fraud, throughout the term of the contract.
3. Quality assessment
Approaching potential suppliers can start with a simple and brief pre-qualification questionnaire. In many organizations, this questionnaire is known as RFI (Request For Information). Qualified suppliers then receive a Request for Quotation, a formal and more complex document that includes a presentation of the company, supplier bidding documents and detailed information about the project and requirements.
In some organizations, this step often includes required licenses, documents and certifications, financial and economic aspects, health and safety experience, history of other projects and personnel qualifications and an on-site visit.
At this stage, potential suppliers are screened and buyers can determine which have the best potential to supply goods or services that meet the company’s standards.
4. Performance monitoring
Measuring performance gives you a tool to determine if your supplier is working as expected and in accordance with the terms of the contract.
Creating a formal supplier scorecard helps you monitor and assess supplier quality, performance and compliance. These scorecards can track metrics such as quality, delivery, lead time, price, and supplier responsiveness over time. Every organization determines what importance to put on each metric. You can analyze metrics individually or as a group to provide a comprehensive view of the supplier.
Performance monitoring is also a great way to analyze the effectiveness of the processes involved in your company’s supply management, revealing strengths and weaknesses. It is a win-win for companies as they maintain contracts with the best suppliers, in addition to constantly testing and optimizing management processes and methods.
5. Communication transparency
Improving communication with suppliers and expressing exactly what the company needs (and when) helps build a relationship based on transparency. When you define quality criteria and make clear the importance of the services provided by the supplier in the company’s processes, this understanding makes it easier for both to find solutions that satisfy the goals of the organization.
The important thing to remember here is the golden rule: “Do unto others as you would have them do unto you.” And be prepared and well-informed. When you know your partners well and there is consistency in conducting your business, you create a more manageable and measurable supplier communication system.
More and more corporate buyers are abandoning outdated manual and time-consuming methods for managing suppliers. Organizations are moving to automated supplier management systems that streamline processes, improve consistency and save valuable worker time.
The future of relationships with suppliers depends a lot on how companies monitor partner performance and communication. Supplier management tools have gotten smarter over the years. A dynamic supplier relationship management workflow will identify process bottlenecks, monitor supplier performance, improve supplier engagement and reduce risks.
Now that you know more about the five essential practices in supplier management, discover SoftExpert SLM (Supplier Lifecycle Management), the most complete and innovative solution on the market for process automation and improvement, regulatory compliance and excellence in supplier management
