Primarily, supplier management involves monitoring supplier performance, measuring it against KPIs, and nurturing long-term relationships with suppliers who meet or, preferably, exceed expectations. It’s also how you identify poorly performing suppliers so you can remove them from your supply chain.
Managing supplier relationship is important because it enables you to monitor supplier performance and maintain control over things like quality, costs, operations, workflow, sustainability, compliance, and customer satisfaction.
However, supplier management is much more nuanced than you might suppose from the above. That’s why we’re going to delve deeper into supplier strategies, from start to finish. You’ll get an idea of how to develop an effective supplier management strategy that optimises value and lowers potentially crippling risks.
Understanding Supplier Management
Supplier management is a critical component of a company’s overall supply chain strategy. It involves managing and nurturing relationships with external suppliers to maximise value and achieve contract objectives.
Effective supplier management builds long-term relationships with strategic suppliers. Strategic supplier management enhances supply chain efficiency, reduces costs, and mitigates risks. This results in strong, sustainable supplier relationships.
How To Manage Suppliers Effectively
The precise supplier management process varies according to your business processes and needs, for example, the size of the contract, the location, and the number of suppliers, etc.
Typically, there are 7 key steps in supplier management.
1) Supplier Identification, Selection, and Evaluation
You can identify suppliers and grow your supplier pool through competitive advantage in a tendering process, either open competitive processes or framework agreements and dynamic purchasing systems. You can find suppliers on eTendering portals or contracts finder platforms, like Delta eSourcing’s eTendering Platform.
Then it’s a matter of measuring them against the contract’s requirements. You can request more information if necessary, especially if the requirements are very specific or very niche.
Look at overall value because the Procurement Act 2023 states that you must evaluate potential suppliers according to MAT – the Most Advantageous Tender. Consider suitable suppliers’ capabilities, capacity, reliability, financial stability, and values – do they align with your goals and values?
2) Contract Negotiation
To secure a quality supplier, you must be willing to be a bit flexible when you hash out the terms and conditions of the contract. For example, your desired delivery schedule might not be possible but the supplier’s estimated time of delivery might not suit your needs. You’ll have to negotiate a suitable compromise that works for both parties.
Be prepared to negotiate expectations and performance metrics, but stick to your guns where necessary. You don’t need to negotiate everything and if the supplier is intractable, it’s time to move on.
3) Performance Measurement
Establish Key Performance Indicators (KPIs) right at the beginning of the partnership. KPIs are set at different points during contract delivery, for example, after a set time the supplier must have achieved a set goal.
Good suppliers hit each milestone or let you know in advance that they’re going to be late for a specific KPI and tell you why. It’s important to be reasonable, even if it’s not what was negotiated. There might be an unexpected shortage of raw materials or inclement weather could have delayed progress.
Just don’t allow it to become a habit.
4) Communication
Never underestimate the importance of communication in supplier relationships. Many perfectly good buyer-supplier relationships are ruined by poor communication. Set up effective communication channels. It’s recommended that you use a supplier management system that enables you to manage all aspects of your relationship with multiple suppliers, on one central platform. The platform should include an open communication option.
Open and transparent communication from all relevant stakeholders is essential to address supply problems before they become unmanageable. Remember it’s important to provide positive feedback when it’s been earned. Regular communication also includes updates and can facilitate collaboration opportunities.
5) Risk Management
Ongoing monitoring and open communication can identify potential risks up and down the supply chain. They might be speed bumps or a gaping crevice but when you spot them early enough you and your supplier can work together to mitigate or avoid the risk entirely.
Risk management is easier if there are contingency plans, so make a point of developing a couple of Plan Bs. It’s better to have backups and not need them than to need backups and be empty-handed.
Supplier risk assessment and management must be comprehensive, which means it must include financial, legal, operational, and reputational risks.
6) Quality Audits
Quality audits differ from supplier performance measurements. Performance measure supplier performance is overarching, quality is specific to the services or products provided. Now, you might not have a trained eye to assess fine detail, which is why it’s a good idea to choose suppliers that meet international quality standards, such as ISO 9000 and ISO 9001.
You’re looking for consistency and willingness to address any areas that need improvement.
You’re also looking for compliance with the regulations stated in the contract, as well as industry regulations on a national and international level.
The contract should detail the consequences of non-compliance and consistently poor quality, so you’re covered if you terminate the contract.
7) Training
Training applies to your in-house staff, probably your procurement team, so they can develop and implement supplier management strategies. There are certain skills that are essential to the supplier management process, including negotiation, conflict resolution, data analysis, and problem-solving. Your supplier manager must also have a thorough knowledge of the legal regulations and compliance requirements governing the industry.
8) Strengthen Your Supplier Onboarding Process
Strengthening the supplier onboarding process is critical for establishing a strong supplier relationship. Maintaining a consistent approach and ensuring supplier data security is essential for a successful onboarding process.
By streamlining the supplier management important onboarding process, you can increase accuracy, improve supplier relationships, and ensure compliance with regulations. A well-structured onboarding process sets the foundation for a productive partnership, enabling suppliers to integrate smoothly into the supply chain and contribute effectively from the outset.
Key Aspects Of Supplier Management
We’ve looked at the steps or stages of supplier management, now we’re going to take a brief look at some of the most important aspects key features of supplier management.
Supplier Relationship Management (SRM)
One of the aims of the supplier strategy and relationship management process is establishing strong, productive, collaborative, innovative, and, above all, long-term supplier relationships. Good relationships are worth the effort you put in. They provide maximum value, are mutually beneficial and are based on trust and clear, open, transparent communication.
Supplier Management Plans
A strategic supplier management plan holds the purchasing process together. It contains procedures for supplier selection, performance monitoring, and evaluation based on things like cost-effectiveness, reliability and quality.
Supplier Management Elements, Phases, and Approaches
All together these include:
- Supplier identification, qualification, evaluation, and ongoing management.
- Supplier selection, relationship development, and performance monitoring
- Collaborative relationships, strategic alliances, and transactional-based interactions
Integration with Supply Chains
Successful integration into supply chain management processes includes cost reduction, quality improvement, and agility that contributes to the overall achievement of procurement goals.
Supplier Management Goals
Goals are related to cost savings and efficiency, innovation, and risk mitigation. Long-term goals and strategic alliance are based on sustainable partnerships and mutual growth.
Segment Your Suppliers
Identify and prioritise the most important suppliers to strengthen the relationships that deliver maximum value. Supplier segmentation divides your supplier base into categories, each of which requires a modified approach to supplier relationship management. This allows for tailored strategies to strengthen supplier relationships that enhance supply chain resilience.
Delta eSourcing And Supplier Management
Delta eSourcing’s array of procurement services for contracting authorities includes supplier management and engagement. Our supplier management services include tender management, Dynamic Purchasing Systems (DPSs), and workspace management.
We use the latest technology to ensure effective supplier management, as well as supply chain management, facilitating successful integration with key suppliers.
Contact us to book a free demo and find out how our supplier management software can help promote growth in business and the public sector.
