Have you ever wondered how businesses (big or small) make sure they have the proper inventory levels at the right time? The answer to the above question lies in the often-overlooked but vital domain of supplier management.
Managing suppliers effectively is essential to the success of an organisation because an effective supplier management solution helps minimise supplier risks.
As per the Deloitte Global Chief Procurement Officer survey, over 60% of procurement leaders experienced increased risks within the last year. The report expressed that only 37% of procurement companies are prepared to deal with such threats.
Also, with a vast network of supply chains (geographically), businesses should take proactive steps to combat disruptions. These disruptions can be very costly—financially as well as for the company’s reputation. Businesses can take a strategic approach and effectively handle their suppliers by implementing a supplier management solution.
What is Supplier Management?
Supplier management refers to the processes for identifying, qualifying, onboarding and transacting with trading partners (primarily suppliers). A robust supplier management solution ensures that the company receives the maximum value for the money paid to its suppliers.
In today’s world, supply chains involve an extensive ecosystem of suppliers and trading partners, enabling businesses to add value to their inventory. Many big companies rely on several suppliers. You might have seen this in your case as well. Organisations implement a supplier management process to manage these associations.
Why Do We Need Supplier Management?
Primarily the following two reasons emphasise why we need supplier management:
- To assess if the trading partners are performing as per the organisational requirements
- To pinpoint areas of improvement while engaging with suppliers
Key Factors Driving Supplier Management
The greater the competitive intensity of a given industry, the greater the need for supply chain speed and scaling. Usually, the versatility of supply chain management is directly proportional to the competitive intensity of an industry.
While supply chain operations and management vary from industry to industry, basics remain the same across many fields.
Here are some of the key factors driving supplier management:
Cost Reduction
The financial aspect remains significant across businesses. Cost reduction is one of the primary drivers of supplier management. You can reduce expenses and enhance your bottom line by carefully selecting suppliers and negotiating favourable terms and prices.
Operational Efficiency
Every business loves to operate at an optimum level. Scaling up operational capabilities can lead to many benefits, including but not limited to timely service and customer satisfaction.
Risk Management
Mitigating supply chain risk is another essential factor in many businesses, especially retail ones. Organisations tend to consider strategies to counter potential disruptions caused by supplier inabilities, natural disasters and political fluctuations.
Sustainability
Nowadays, businesses not only concentrate on the factors mentioned above but also look for sustainability vis-à-vis their supply chain management. This may include making their suppliers comply with regulations and following ethical and environmental standards.
Quality Assurance
There’s nothing better than being up to the mark when it comes to quality standards. Supplier management is meaningful when you can ensure suppliers’ products or services meet the required quality standards. By making sure that quality is there, you can deliver customer satisfaction.
Effective supplier management is critical to the success of your business in many ways. It ensures your company meets its business goals, reduces costs, addresses supply chain threats, remains competitive and sails through even in challenging market situations.
Benefits of Supplier Management
Companies that have a set supplier management process are more likely to enjoy benefits, including:
Increased Supply Chain Agility
Over time the affinity between your company and suppliers enhances, as do the communication standards. A defined and established supplier management paves the way for this improved relationship. This way, you can respond faster to unexpected market conditions and efficiently onboard and manage new suppliers.
Minimised Price Volatility
Price fluctuations potentially demotivate customers to a significant level. With a set supplier management process, you can negotiate fixed or discounted pricing in exchange for extended contract periods and other relevant terms.
Reduced Costs
New suppliers may come up with exciting offers and reduced prices, but sometimes, setting up deals with them can cost you more. Thanks to a supplier relationship management programme, you can minimise this risk by collaborating in a mutually beneficial relationship with key suppliers.
Mutually beneficial and long-term supplier relationships will help you save money and reduce delays and quality issues.
Strengthened Supplier Relationship
It takes time and effort to find and stay involved with reliable suppliers. It becomes even more challenging to manage and prolong relationships with good traders when several of them work with you.
With a supplier management solution, you can ensure a healthy and evolving relationship with your suppliers. This streamlines procurement processes and enriches engagement barriers, translating into vendor loyalty and increased efficiency.
Strategies to Improve Supplier Management
We have already underscored that effective supplier management is vital for the success of any retailer or manufactures. Therefore, it is pertinent for you to create and streamline strategies to enhance supplier management.
Here are some of the noted strategies to improve supplier management:
Set Performance Metrics
Setting up key performance indicators (KPIs) is crucial to measuring your suppliers’ performance throughout the supply chain lifecycle. Specific performance metrics may include quality, efficiency, price points and customer service (chat, email, call, etc.).
Foster Collaboration
Better outcomes and efficient operations require various factors working together. You can secure better operational results by encouraging and optimising cooperation with suppliers and other stakeholders. Businesses can achieve this through joint planning and shared information.
Regular Supplier Risk Assessment Drives
Regular risk assessment is one of the most crucial strategies for companies as it helps employ a well-run supplier management process. This way, you can address several issues, including but not limited to supply chain disruptions.
Conclusion
Overall, supplier management is one of the important aspects of business operations (mainly in the retail market). As we see the increasing influence of globalisation and economies coming closer, establishing a robust and effective supplier management process has become more relevant than ever before.
An efficient and well-oiled supplier management process is instrumental in enabling a range of benefits, including cost reductions, enhanced product quality and smooth operations. Moreover, the future of supplier management is rapidly growing with the introduction of new technologies and industry trends.
Frequently Asked Questions
Q1. What is an example of supplier management?
A1. In brief, an example of supplier management is a retailer that sells items relying on a product supplier. The retail company has established criteria to check suppliers’ quality, delivery, and pricing and has a contingency plan in case the supplier cannot meet their commitments.
Q2. What are the five types of suppliers?
A2. The five types of suppliers are—producers, services providers, sub-contractors, distributors and importers.
Q3. Who is responsible for supplier management?
A3. The supplier manager is responsible for supplier management.
