For any organization with a large supplier base or complex supply chain, the task of managing suppliers can often be a difficult one. The practice of supplier management, however, is something that all organizations, of any size, should look to establish and maintain.
Supplier management is an organization’s ability to oversee all contact with third-party suppliers. When managed effectively, suppliers can help you meet customer demand and streamline your supply chain execution for improved production and profit.
There are two important steps involved in carrying out supplier management successfully. Firstly, preferred suppliers need to be selected. From there, a strong relationship needs to be maintained with those suppliers, in order for both parties to continue to get the most value from the relationship.
According to Levvel Research, improving supplier relationships is the joint top goal for organizations when it comes to supplier management.
The relationship element is particularly important in order to get the most out of your supplier management initiatives. Communication, collaboration, and trust are all key to establishing and maintaining an effective relationship with suppliers. In a recent blog, we discussed the ways in which organizations can enhance their relationships with suppliers.
When organizations have an adequate amount of control and visibility over their suppliers and a strong working relationship with them, they experience a number of benefits.
Benefits of Supplier Management
According to PWC, the biggest benefit of supplier management is the improved efficiency that it brings.
As relationships with suppliers develop, so too will the lines of communication. Over time, suppliers will become more familiar with your organization – the people who work there, how it operates and the business goals and objectives. This will enable them to improve the efficiency of their service in the form of competitive pricing, higher quality goods/services, and reliability.
Technology also has a major role to play in supplier management and the resulting efficiencies. E-procurement solutions enable procurement teams to automate their purchasing process. Powered by Artificial Intelligence (AI) technology, the solution tracks stock levels and automates orders when stocks reach a certain level. Suppliers can also be onboarded and communicated with through such systems, ensuring that only preferred suppliers are used and also relationships are maintained.
Another benefit to be experienced from effective supplier management is improved compliance. By working with compliant suppliers, your organization will avoid many supplier-related risks. We recently discussed the 3-step process to ensuring supplier compliance.
As alluded to already, supplier management starts from as early as selecting and onboarding suppliers. In order to ensure the suppliers that you are working with are compliant, it is important to assess their capabilities before selecting them. From there, management of supplier contracts and regular monitoring will ensure that they maintain the high standards expected of them.
With compliance maintained amongst your suppliers, your organization will be protected against any threats to quality and prices of product/services that you purchase and the lead times involved for receiving them.
According to a recent procurement report by Deloitte, reducing costs ranks as the most important business strategy for organizations.
Through, effective supplier management organizations can significantly reduce the amount of money they spend with their suppliers.
Many of the benefits of supplier management are interlinked. For instance, compliance plays a key role in reducing costs. When assessing supplier capabilities, particular attention should be paid to their pricing. Also, it is important at this stage not to limit your supply base. Assess and onboard an adequate amount of suppliers that can facilitate your organization’s goals and objectives, who will compete for your orders and thus bring prices down.
Again, technology can also greatly enhance your supplier management. With regards to cost reductions, spend analysis reporting, found within many e-procurement solutions, allows organizations to track their expenditure in real-time and assess where they are overspending, which suppliers they are overspending with and the suppliers guilty of inefficient turnaround times. As a result, organizations can save millions of dollars each year.
Improved Reliability and Quality
As you improve your supplier management with better efficiency, streamlined relationships, and superior products, you will also see reduced risk in your business model. Strong relations with suppliers will yield better response times and overall improved reliability and quality of service provided.
During the assessment stage of potential suppliers, organizations are able to eliminate any low-performance suppliers. Existing, low-performance suppliers, can also be eliminated when reviewing contracts. Taking such actions against potentially non-complaint suppliers helps to mitigate the risk of a poor service being delivered.
Having the assurance of high-quality products/services being delivered by your suppliers also has its benefits in costs savings. You will find that your organization saves money from not having to replace faulty products or inadequate services when suppliers deliver to the required standard.
Strong, long-term relationships with suppliers also encourages collaboration between both parties. When both suppliers and procurement teams actively engage in the sharing of feedback and ideas, processes can be greatly improved.
Supplier Management can be a complex undertaking for organizations with large, complex supply chains. However, establishing and maintaining strong working relations with your suppliers is key to optimizing your production levels and profits. Procurement functions should dedicate specific teams to manage suppliers. Striking a balance between control, communication and trust with your suppliers will put your organization in a strong position to capitalize on the benefits of implementing supplier management.