What is supplier management? And how to make sure your suppliers act like partners
What is supplier management?
Supplier management is the process of assessing supplier performance, defining and setting expectations for quality and delivery, and maintaining supplier performance records. Supplier management includes identification of suppliers, qualifying them, onboarding them, measuring their performance, and taking corrective action when needed.
Why is supplier management important?
Supplier management is important because it ensures that the buyer receives the best possible value from the supplier in terms of quality, delivery, and price. It is a critical function in any organization that procures goods or services from suppliers. When done correctly, supplier management can result in significant cost savings, improved quality, and improved delivery performance.
How does supplier management work?
Supplier management is a collaborative effort between the buyer and the supplier. The buyer is responsible for defining requirements and setting expectations. The supplier is responsible for meeting or exceeding those expectations.
How to distinguish between a supplier and a partner?
Quantify and qualify what value you provide. To what extent do you serve as a valuable partner who offers high ROI?
- How many other partners are they currently working with to support their bottom line?
- Where does your business rank in terms of importance? Do they promptly answer your phone call – are you served first or last?
- Do they connect you with a broader network of professionals who deliver solutions?
- Within this network of professionals, are they equally recognized as experts in their field?
Go back to the beginning. Think back to when you first established these relationships and work to identify your key partners and the reason you initially sought each of their services or expertise:
- What role do they play?
- Do their actions help achieve your goals?
- Do you have clear communication together?
- Do they negotiate on your behalf to serve the best interests of your company?
- Do their actions contribute to a satisfied end customer?
Notably, a supplier fulfills your tasks whereas a partner creates solutions. Discern whether you are aligned with a partner who drives your business forward in all scenarios.
How poor performance impacts your business
If a partner does not perform according to a service level agreement, there are three core aspects of the supply chain that are susceptible to setbacks. This could result in an onslaught of internal and external challenges, often leaving your supply chain at a loss.
Delivering a product to a customer within a stated timeframe is not a small feat. Fulfilling on-time performance requires negotiation of many people’s priorities and resources, and within this chain of command, it is challenging to maintain control of so many external factors.
If a supplier acts according to their own self-interest, an individual may design setbacks in the supply chain to create additional costs to charge back to you – their customer. If one’s value to a supplier is perceived only as a line item on an invoice, then there is not a collaborative effort that honors the reason why your partnership was established in the first place.
The function of a supply chain’s operations is to ensure that a product maintains its true form as it is carried over several means of transport and people, to finally arrive at its end destination fully intact and in complete functioning order.
Within reason, some factors are outside of a person’s control, and one must allow for a certain margin of error. However, if standard safety protocols are not followed, there is a risk to the quality of the product, such as damages during shipment, where these oversights can cause substantial dissatisfaction with the customer.
When a supplier does not treat a product as their own, these recurring oversights can compound over time and result in them relying on shortcuts or placing blame on external factors. The extent of this mismanagement can lead to a termination of services by the customer. In this event, the time it takes to regain trust with your end-customer can result in significant revenue loss over time.
Partners such as freight forwarders and carriers operate within a highly volatile matrix based on changing market demands. Discover ways to incentivize partners to prioritize high ROI shipments to ensure the best return on your annual activities. Mitigate occurrences of billing discrepancies and unseen tariffs by auditing invoices and ask clarifying questions to your partner to demonstrate your position as a highly detail-oriented manager.
The cost of doing business is not solely determined by landed costs, but rather a series of events that lead to strong operating revenue. Foster allyship with a solutions-oriented partner who considers the holistic ecosystem – all moving parts and players within the supply chain – and who sources for activities that result in the best overall value.
How to create sustainable partnerships
It’s vital to your supply chain’s success that you build productive relationships based on strong communication and trust. When working towards creating lasting partnerships, it’s imperative to assess the performance of each step of your supply chain; from sourcing, to warehousing, transportation, distribution, and fulfillment. Additionally, categorize your supplier network based on who serves as a strategic partner or simply as a supplier. This will allow you to create a full network to fulfill all of your supply chain needs. Documentation of SLAs for all partners is also crucial in this process and determines if there are terms which require renegotiation. Finally, map out what success metrics are required for both parties to achieve the goal. If the goal is not obtained, define what regressive factors remain consistent in the partnership. When addressing these key areas, it’s also wise to undergo a more holistic approach in this process. A digital platform, for example, can help you in all areas of support management as its main areas of focus collaboration, time management, cost, service quality.
Managing a successful relationship with your partner requires hard work, where the bond is often strengthened by overcoming adversity together. This involves an investment of time and resources from both parties. It is important to demonstrate willingness, ability, and perseverance to course correct and create solutions. In this, successful partnerships are founded in a ‘we’ mentality rather than ‘us versus them’. A relationship advances to the next level by deploying next generation technologies. When the entire partner network gains complete visibility through a digital supply chain platform, they can achieve progressive collaboration and superior performance.