Supplier Management — The Ultimate Guide of 2022

Supplier management is crucial for organizations that have many vendors or suppliers. They need to manage their supplier to maintain the relationship that they have built. However, this is not an easy task for organizations.

For this article, we will discuss what supplier management is. We will tackle how important it is for organizations to manage their suppliers well. Additionally, we will show you the supplier management process and how it benefits you. We will give you tips on how to improve supplier management in your organization. 

Once you are finished reading this article, you will be able to employ all the learnings that you have in your organization. Additionally, you will know how to improve your current supplier management which will help the organization grow to its potential. 

What is Supplier Management?

Supplier management refers to the process of handling and improving interactions with the suppliers or vendors of the organization. It includes evaluating the strengths and capabilities of the supplier. 

Supplier management is the relationship that has been created between an organization and its preferred supplier. It is a process to manage suppliers and improve their impact on the development of the organization. 

Why is it Important?

The organization relies on the goods and services that the vendors or suppliers provide them. It is obvious why it is important to have a strong relationship with your supplier. However, many organizations create problems for themselves due to a lack of supplier relationship management and the lack of strategic sourcing. 

You must take note that the success of the organization is also dependent on the supplier’s ability to meet the demands and deliver the goods on time. 

Supplier management allows the organization to know potential performance issues, have open communication, and ensure that the suppliers are supporting the organization by complying with the requirements.

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    What are the Steps Involved in the Supplier Management Process Flow?

    1. Qualification

    This is the first step of the supplier management process. Of course, the organization needs to evaluate suppliers to determine if they have the ability to provide and meet the demands set by the organization. 

    2. Segmentation

    Segmentation is the process of classifying suppliers into specific supplier quadrants based on preset metrics such as supply criticality, supply risk, profitability, performance, and more.

    3. Collaboration

    Collaboration is the process that paves the way for the organization and the supplier to create a strong relationship. Additionally, it improves the commercial value through process and performance advances and product or service innovation. 

    4. Evaluation

    Evaluation of the supplier is the last step of the supplier management process flow. It measures the supplier’s performance and ensures that they meet the terms they agreed on in the contract. 

    Additionally, evaluation is performed based on a number of metrics like price, production, quality, delivery time, and services. 

    It is also important to evaluate the suppliers based on their ability to handle unexpected procurement crises or emergencies like the COVID-19 pandemic.

    The Benefits of an Effective Supplier Management

    1. Achieve cost savings

    Having strong supplier management will enable the organization to find cost savings opportunities in the supply chain. By enabling smooth supplier connectivity and collaboration, it drives a new level of efficiency and productivity. 

    2. Effectively manage a growing supplier base

    It is not a surprise that most organizations have many suppliers and they need to deal with them simultaneously. A well-structured supplier management process will allow the organization to manage its multiple suppliers all at once. 

    3. Improves transparency

    A supplier management system will allow the organization to streamline information and data regarding the life cycle of the suppliers. 

    Additionally, it enables organizations to have transparency with the number and type of suppliers they are engaging with.

    4. Evaluating supplier performance

    The organization needs to know how its suppliers are performing because its performance is dependent on them. Supplier management will allow the organization to evaluate the supplier’s compliance and give insights into their performance. 

    5. Lessens the supplier risk

    Efficient supplier management can help in finding and evaluating the impact of supplier risks and creating appropriate risk mitigation measures. 

    3 Tips to Improve Supplier Management

    1. Implement supplier information management (SIM)

    Implementing supplier information management will enable you to:

    • Streamline supplier data that can give you meaningful insights into their performance
    • Monitor the supplier’s capabilities
    • Evaluate supply risks and create measures to mitigate it

    2. Creating KPIs to evaluate the supplier’s performance

    Key performance indicators (KPI) enable supplier performance measurement to assess the value-creation and find the problem in the process. 

    3. Collaborate with your suppliers

    The organization must ensure that it has communicated its objectives and goals coherently to its suppliers. 

    When the suppliers understand what you want, they can offer propositions that can provide value for your needs. 

    Supplier relationship management can be the key to deriving maximum value from the suppliers to make the supply chain of the organization work efficiently.

    Frequently asked questions

    1. What is supplier management?

    Supplier management refers to the process of handling and improving interactions with the suppliers or vendors of the organization.

    2. Why is it important?

    It is important to assess the performance of your suppliers as the performance of the organization is dependent on theirs.  

    3. What are the benefits you can gain from it?

    Implementing supplier management will allow the organization to achieve cost savings, manage many suppliers, improve transparency, and evaluate the supplier’s performance. 

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