Supplier Management

What is supplier management?

Supplier management is a step of the procurement process that oversees all company supply chain relationships and finds ways to improve supplier strategies.

Industries leverage supplier management to make sure all members of the supply chain are meeting expectations, identify areas of improvement, and increase commitment to ensuring that all areas are working efficiently and cohesively. The supplier management process encapsulates every major step in discovering, obtaining, managing, and maintaining supplier contacts. 

Companies utilize supplier relationship management software to improve supply chain processes and ensure effective and efficient interactions. Supplier solutions give companies the tools to organize their supplier information, evaluate supply chain performance, ensure that all outsourced work is compliant, and identify potential issues before they become costly.

Types of supplier relationships

There are five different types of supplier relationships that companies implement to streamline the way they create connections with members of the supply chain.

1. Buy the market: The most common buyer and seller relationship. This usually involves a contractual agreement and includes little-to-no communication between parties.
2. Ongoing relationship: When there is a preference for one supplier over others and a continuous relationship is created between the two parties.
3. Partnership: A long-term contracted relationship where trust is built through the sharing of sensitive information. 
4. Strategic alliance: A long-term contract where the parties involved agree to work together exclusively. This relationship requires close collaboration to drive success.
5. Backward integration: A relationship where the company owns the supplier as part of its own business. 

The supplier management process

The supplier management process outlines the entire specification, procurement, onboarding, collaboration, and evaluation of a supplier joining a company’s supply chain. This process helps companies choose the right supplier and ensure ongoing success. 

1. Qualification: This step involves discovering potential suppliers and doing the necessary research to determine whether they have the proper qualifications. These requirements should be chosen ahead of time and include budget and performance standards.
2. Classification: At this step, the company has identified a few potential suppliers. This step includes comparing suppliers to the previously determined criteria and reading quotes and proposals. At the end of this step, the company has made a selection and concluded that the chosen supplier can produce the goods and services they need. 
3. Onboarding: At this point, negotiations have ceased and a contract is drafted and signed. This step introduces the chosen supplier to the company’s supply chain. This includes notifying the necessary stakeholders and adjusting the current business processes to accommodate the incoming resources provided by the new supplier. 
4. Collaboration: This step is a continuous one where the company makes it a priority to bridge the collaboration and communication gaps between existing vendors and suppliers. Ensuring these gaps are effectively filled will help increase performance and decrease opportunities for confusion or errors. 
5. Evaluation: Once the new supplier has settled in and is performing their regular duties, the company must regularly evaluate their performance. The evaluation should measure the supplier’s efficiency, affordability, service, quality of work, and execution of predetermined key performance indicators (KPIs). 

Benefits of effective supplier management

Supplier management brings a lot of value to companies that execute it effectively. The whole process helps companies identify where their performance priorities lie, then find and manage suppliers who will help them succeed. 

• Quality control: Supplier management enables companies to hand-select and closely oversee every step of the supply chain. This supervision will help companies ensure that every good or service completed meets or exceeds current standards. 
• Reduce costs: The closer companies monitor their existing processes, the more likely they will be able to identify opportunities to cut costs without sacrificing quality. 
• Manage compliance: Careful selection and management in the supplier management process will help companies choose suppliers that meet their legal qualifications. This includes complete compliance with the company’s required processes. 
• Assess performance: Perhaps the most obvious benefit, performance evaluation is a must when it comes to supplier management. Managing effectively will help businesses ensure that suppliers adhere to the agreed-upon quality of work and potentially uncover room for improvement.
• Lower risks: Managing supplier relationships forces companies to look at each step of the supply chain critically. This extra care will help to expose any issues or areas where quality could potentially be compromised. 

Supplier management best practices

Slacking at supplier management can cause companies to choose a supplier that doesn’t meet their needs, isn’t cost-effective, or won’t drive progress. Following the below best practices helps companies prepare for an effective supplier management process and maintain a supply chain that promotes success.

• Measure performance using KPIs. More than a best practice, this is simply a necessity. To determine which supplier would increase success, a company must define what success looks like to them. This includes clearly outlining what criteria needs to be met for performance to be considered effective. 
• Promote open communication. The best way to help a new supplier fit into the supply chain is by putting collaboration and communication at the forefront. This includes ensuring that all existing vendors and suppliers are in the loop about supply chain changes and additions. Effective communication also includes letting suppliers in on important decision-making and being vocal with issues or concerns.
• Strictly follow the process. Avoid deviating from the supplier management process. The process was created to give companies a clear guide for selecting, onboarding, and evaluating suppliers. A company that doesn’t follow the steps closely may end up with a supplier that doesn’t fulfill expectations or a supply chain that is confused and delayed because of a new supplier that is not promoting success. 
• Conduct cost evaluation analyses. While this may be commonly combined with general KPIs, allocating a budget is extremely important and should be done with the utmost care and consideration. Some companies conduct complete evaluations of their current and proposed costs to ensure that all supplier decisions are made with affordability in mind. 
• Create legal agreements. When entrusting an outsider with sensitive information and processes, a company must ensure that legal agreements are comprehensive and practical. These legal contracts should include any necessary confidentiality protocols, non-disclosure agreements (NDAs), and compliance obligations. 

Supplier management vs. vendor management

Supplier management and vendor management are often confused because they share a goal of offering the goods and services needed to succeed. Their significant differences lie in who the suppliers and vendors are, who they offer these goods and services to, and at what stage of the supply chain they are most demanded. 

Supplier management oversees suppliers, which are outsourced businesses that provide raw materials for companies to manufacture products. Suppliers live at the very beginning of the supply chain to assist in creating goods from day one. Suppliers often work directly with other companies and rarely interact with the end-user. Supplier management focuses more on fostering a successful partnership that impacts the entirety of the supply chain. 

Vendor management oversees vendors or businesses that purchase goods from a manufacturer and distribute them to the end-user. Vendors live at the very end of the supply chain to allocate the completed products and ensure they reach their target market. While some vendors sell to other companies, they mostly interact directly with the customer.

Vendor management assures that products are distributed efficiently and affordably. Some companies utilize vendor management software to create a digital repository for managing vendor projects, issuing supply chain payroll, finding vendors, overseeing time management and more.