The Complete Guide to Supplier Management Processes

Okay, so you already know that your business needs to work along with suppliers, these people or other companies are the reason why your operations keep running.  But have you ever stopped to think about the effectiveness of your supplier relationships? Would you say that you are 100% satisfied with the way your company sources new suppliers? Do you need help with the mayhem of supply chain challenges and endless manual processes?

Then discussing supplier management is a must 

Luckily for you, that’s what we are going to do next. 

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What’s Supplier Management? 

Defining supplier management with a single word is a bit difficult, not because the concept itself is complicated but because it is a combination of processes used to manage relationships with suppliers and ensure that they meet your company’s performance expectations. It’s really everywhere, from the moment you decide to select and onboard new suppliers to the practice of monitoring their performance and making sure that they are in compliance with contract terms. 

The purpose?

Optimize your supplier relationships in a way that’s fully aligned with your business’s goals. 

Why Supplier Management is Important?

If the idea of optimizing relationships doesn’t make much sense to you, let’s see it in more detail. By following supplier management practices you can lead your company to cost savings opportunities as suppliers held to high standards are more likely to offer competitive pricing. And speaking about high standards, quality is another bonus point of supplier management. Why? Regular performance monitoring leads to better quality in the products you get, preventing costly delays and dissatisfied customers.

Additionally, risk mitigation is a key benefit, having a good management strategy helps you identify and address risks, such as supplier failures or compliance issues. 

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Now, how beneficial does that sound?

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Types of Supplier Relationships

Yes, all of your suppliers are important but not all of them will have the same type of relationship with your company. 

Buy the market

These are one-off transactions where the focus is purely on cost. You might not need to invest much in relationship management here, given that there’s almost no communication between you and the supplier. Once the contract is signed and the order is fulfilled, the work is pretty much done. 

Ongoing relationships

This one is a couple of steps ahead,  here we are including the suppliers who provide goods or services to your company regularly. Maintaining a good rapport and consistent performance are the main relationship goals. 

Partnerships

Do you have a long-term contract with a supplier? Are you guys sharing loads of information constantly? Then your relationship might be ready to be considered a partnership. With these suppliers, you collaborate more closely. Values like trust, open communication, and shared goals are critical. 

Strategic alliances

Consider strategic alliances as an upgrade from partnerships. Here, both your company and the supplier have a sort of exclusive agreement where the main goal is to drive profit for everyone. These are high-value, long-term relationships, vital to your business’s success. You work together and keep growing.

Backward integration

In some cases, companies may acquire or integrate with suppliers to have more control over the supply chain. If you choose to go for this path, your supplier will become part of your business. 

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The Supplier Management Process

Supplier selection and onboarding

The first step is to carefully select suppliers who are the best match for your company’s needs and values.  Things you’ll want to consider here include factors that go beyond pricing, like quality, reliability, and past performance. If you work in a very specific industry, you might also need to look out for suppliers that are already familiar with the work you do. 

Once chosen, the onboarding process should be as clear as possible. Provide all necessary documentation, at the end your supplier must understand your expectations, standards, and compliance requirements.

Define metrics

Goals, can you really do anything without them? From the beginning remember to set solid metrics that you can measure consistently. These could include delivery times, quality standards, cost targets, or even customer service. 

Use this criteria to evaluate supplier performance regularly and make the best  decisions about continuing or adjusting the relationship.

Communication

How do you keep a relationship in good spirits? Communicating, right? Well, managing your suppliers is not different.  Keep suppliers informed about changes in demand, project timelines, or any issues that may affect your relationship. 

It’s also a good idea to schedule regular check-ins or performance reviews to discuss expectations and future opportunities for collaboration.

Risk management

Develop a risk management plan to address potential issues. This might involve having backup suppliers, diversifying your supplier base, or implementing contingency plans for critical materials. 

Keep an eye on external factors, such as market trends or geopolitical risks, that could impact your supply chain so you feel prepared to handle any challenge. 

Performance management

Make this one a habit, monitor and evaluate supplier performance using the metrics you’ve established. For example, if you see that one of your suppliers is repeatedly falling short, you can quickly decide on the next course of action, whether that’s working on an improvement plan or seeking alternatives.

Don’t forget to reward high-performing suppliers, it’ll make them happier and more likely to stick around you with positive results. 

Contract Management

Ensure contracts contain all the information you need and cover the key aspects of the supplier relationship, from payment terms to quality standards and delivery timelines.

If necessary don’t be afraid to review and update contracts to reflect changes in the market, business needs, or new compliance requirements.

Continuous Improvement

Supplier management isn’t a once-in-a-time process, it’s a practice.  So look for ways to optimize and improve over time. This could be through better data analysis, feedback sessions, or using new technologies.

Best Practices for Supplier Management 

Long-term relationships

Hopefully, you already know this, consider key suppliers as partners rather than just the people selling you goods, Invest in building trust and collaboration to achieve mutual success.

Rely on data

Making decisions is an important business but how can you be sure that you are making the right call? Well, basing your decision on data is a good beginning. Analyze performance data to identify trends and opportunities for improvement.  Having insights on your side is not a bad idea either, as these can guide your strategy and help you allocate resources more effectively. The best way to do this? Choose the best procurement software for your business's needs

Be Transparent 

Maintain transparency in your expectations and performance feedback. Fair treatment is probably the easiest way to gain loyalty and encourages suppliers to keep working to meet and even exceed your standards. 

Stay Flexible

The market can and at these times, will probably change quickly, so your supplier management strategy should be flexible enough to adapt. Be open to renegotiating contracts or exploring new supplier options as needed. The more agile your company becomes, the simpler will be to face any obstacles in your supply chain. 

Technology

So you want to truly optimize your supplier management process? Then this is the best tip you can follow: Take advantage of tools and software that simplify supplier management. Automation can free up time for more strategic tasks and reduce the risk of errors.

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