Supplier performance management can yield benefits that contribute to increased revenue and sustainable growth – but only if handled the right way. As technological advancements have made the global marketplace more accessible to businesses of all sizes and locations, supplier management strategies have become even more important.
What is supplier management and why is it important?
Suppliers and third-party vendors provide the goods and services that enterprises need to fulfill their promises to customers. With that in mind, every business needs reliable, cost-effective agreements with suppliers. The initiation and onward maintenance of supplier management is a complex process that is closely connected to contract management, risk management, and business planning to maximize ROI and minimize risk.
Best Practices in Supplier Management
The basic elements of supplier management best practices can be broadly applied to all businesses as a foundation to build customized strategies.1. Identify the needs of the business.
In all areas of business operation, ‘best practice’ is only possible when it is fully aligned with the needs and objectives of the enterprise. This goes beyond the identification of specific procurement needs and instead encompasses the risk appetite and risk tolerance of the business, as well as the long-term vision for potential growth. For example, if the long-term vision of the business is to expand into a certain market or territory, then every decision should be taken with this in mind – taking into consideration the impact on risk and supply chain opportunities. The identification of the needs of the business should therefore be undertaken in the full understanding of the bigger picture, with all its connections.2. Define responsibilities within the supplier management Lifecycle.
At the adoption of any business process, it is essential to clearly define responsibilities. In the case of supplier management, this includes setting out specific responsibilities in the procurement cycle, which overlaps heavily with the supplier management lifecycle. In every business lifecycle, tasks and responsibilities can be broadly defined as those undertaken by process administrators, and those undertaken by process managers. In the case of supplier management lifecycle, administrators deal with the initial stages, including:
Supplier identification, negotiation, evaluation, and selection
Establishment of requirements
These tasks initiate the supplier relationship and define its terms and conditions. This information is then passed to those responsible for the ongoing management of the supplier relationship, with tasks including:
- Monitoring and assessment of suppliers
With an understanding of the Supplier Management Lifecycle, the importance of defining responsibilities becomes clear. Keeping roles well defined and distributed increases efficiency and reduces the instance of both duplicated effort and wasted resources.3. Centralize information.
When businesses centralize information, efficiency, speed, and supply chain visibility increase by a significant margin. Combining a centralized data repository with stringent, high levels of security ensures that all personnel can access the information and documentation needed for business processes, and Third Parties can also connect with the information directly and securely. Lead times are therefore reduced, sales and procurement lifecycles are shortened, and fully informed decisions can be made in less time. Centralization also enables a higher degree of automation. When all data is stored digitally in a single source location, basic administrative tasks can be programmed for automatic completion. This frees up vital resources that the business can re-deploy to other areas, and enables auto-scoring, reminders and notifications, and questionnaire and assessment assignment for selection and Risk Management processes.
4. Standardize categorization.
With data centralized, it is important to standardize categorization. This means developing an agreed, standardized approach to all supplier relationships, Contract Management and Risk Management. Using automated metadata and data tagging processes that reflect the agreed standardization, suppliers can be categorized to allow for faster searches, updates, and overall management. Standardization is therefore one of the key elements of Supplier Management success. The standardization approach of the business should be developed in a way that aligns closely with both short and long-term goals and objectives, because the centralized data can then be turned into a valuable, business-driven resource. Standardization also enhances the automation of basic processes, including workflows related to category-specific supplier onboarding.
5. Monitor the whole procurement cycle.
Supplier Management and procurement are closely related, but different. The procurement cycle is everything involved in finding and acquiring goods or services needed for the business. Supplier management is a part of the procurement cycle in that it specifically relates to the process of handling and improving interactions with the third parties providing those goods or services. The overall aims of both the procurement cycle and supplier management processes are aligned with the business objective, however, and should be designed to maximize value and minimize risk. For this reason, the close monitoring of the procurement cycle is an important part of any supplier management program of ‘best practice.’
6. Review and assess supplier relationship performance.
In addition to monitoring the whole procurement cycle, the review and assessment of individual supplier relationships is important for ensuring that each connection delivers the optimal return on investment (ROI). Supplier performance management requires collaboration with procurement teams to undertake accurate evaluations using agreed metrics or key performance indicators (KPIs). This process of review and assessment is enabled by the centralization and standardization of supplier and contract data. Such a shared system allows for all relevant teams and personnel to collaborate and communicate quickly and easily, applying automated scoring, alert, and notification facilities for a fully informed, proactive approach.