Supplier Management

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08 min read.

Supplier management is an important procurement process as they play a crucial role in the running of an enterprise.

Meaning of supplier management

Supplier management refers to activities involved in finding, obtaining and managing suppliers who are crucial for the business’s success. Supplier management involves maintaining and establishing relations with suppliers, which helps an organisation receive goods and services timely.

Benefits of establishing supplier management in your organisation

Establishing effective supplier management is beneficial to the organisation in the following ways:

  1. Suppliers will be performing as per our business needs and ensuring the best quality and value are delivered from their goods and services.
  2. Strong relations with suppliers allows the business to obtain improved services and be the first choice of suppliers.
  3. Business planning and budgeting will be more accurate as an organisation will know when they will receive their ordered goods or services.
  4. A business will be prone to production halts and an increase in idle time if they do not receive goods or services on time.
  5. In times of distress, good relations with suppliers may help the business procure goods and services.

The benefit of stronger relations is beneficial for suppliers as well. Suppliers can get early access to payments which improves their working capital management. Suppliers can get references to new customers through word of mouth spread by their satisfied customers.

Suppliers can also avail invoice discounting schemes for short-term financing based on unpaid invoices of customers. Stronger relations can get quick approval from customers, which speeds the process of invoice discounting.

Supplier management process steps

  • Setting up business goals for supplier

An organisation needs to identify a set of business goals before taking any supplier onboard. For instance, which departments of an organisation require supplies from a particular supplier. Accordingly, that supplier can be mapped to those departments reducing duplication of efforts.

An organisation can also set up an RFP (request for proposal)/RFQ (request for quotation) system. The system helps the organisation display their requirements to suppliers who can send their quotes.

  • Design selection criteria

After setting up business goals, an organisation needs to design selection criteria for suppliers who can provide maximum value from their goods or services. The selection criteria may include pricing, the quality provided, time of being in business, reputation, recognition and other certifications.

  • Evaluation of suppliers

Moving forward, an organisation needs to evaluate the suppliers filtered from the above selection criteria. This requires accessing the quotations from the filtered suppliers’ terms and conditions (for example, payment and delivery terms). 

Also, we need to assess suppliers’ strengths and weaknesses and how any external threat impacts our relations with suppliers. For instance, whether the supplier works with the latest technology in place or how much the supplier spends on research and development to improve its products and user experience.

  • Onboarding of suppliers

Now, we have those suppliers who are fit for our organisation. We need to get them onboard by executing a contract between the organisation and the supplier. 

We need to ensure that every relevant party is involved during the contract process (for example, finance, legal or procurement team, and their senior executive). 

Organisations have implemented contract management processes that help them manage, execute or terminate contracts. This process maximises operational efficiency and reduces the risk of non-compliance with the terms and conditions of the agreement. 

  • Performance review

The supplier management process does not end here, an organisation needs to periodically review the performance of suppliers and scrutinise whether the supplier can meet the set of business objectives. 

An organisation can set up key performance indicators (for example, the quality provided, delivery time, timely support services) against which a supplier’s performance can be measured. This will help the supplier to identify areas of improvement for future deliveries.

Best practices in supplier management

  • Implementation of management software

A company should implement management software that collates and maintains supplier data. This will help an organisation review suppliers’ performance and monitor their capabilities to satisfy current and future demands.

Suppliers can be provided with access to the vendor management portal to submit invoices, credit notes, debit notes or any other document. Also, see the payment status of unpaid invoices. This portal serves as a self-service point where the supplier can resolve all their concerns.

Suppliers should be mapped with relevant persons in the procurement or finance team who can be reached in case of any concern or clarifications.

  • Collaboration with suppliers

Suppliers can collaborate with the production or delivery plan, reducing idle time or production halts for the organisation. Involving suppliers in the decision-making process can create synergies and work in the best interest of both organisation and suppliers.

  • Segmentation of suppliers

An organisation requires various items ranging from machinery and equipment in production facilities to printing and stationery in office premises. An organisation should segment its suppliers based on the type of product. Those suppliers who are crucial to the company’s success can be given priority or privileges over other suppliers.

An organisation can also segment its suppliers for goods and services separately. This type of segmentation will determine which set of suppliers are important to which department of the organisation.

  • Periodic risk assessment

An organisation must formulate alternative measures when a supplier cannot deliver the required goods or services. This can be due to disruption in the supply chain, which may be caused due to natural disasters, distribution failure or geopolitical instability. Risk assessment should be conducted periodically.

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