The concept of supplier management may seem complex. Between risks, relationships, software and systems there’s a lot to consider, but we’re here to give you a high level overview.
We’ll outline what supplier management is, why it’s important and how having an effective supplier management process in place can benefit your business.
What is supplier management?
Supplier management is a strategic discipline that ultimately helps your business meet its objectives while maximising the value gained from supplier contracts – whether that’s strong long-term relationships, more cost-effective services or improved performance.
It begins at the point you start assessing the market for suitable third-parties and often continues beyond close-out as you review your overall experience of working with them and take learnings forward from it.
Why are supplier relationships important?
A successful supplier relationship can be defined as long-term and mutually beneficial. The supplier communicates clearly, fulfils all obligations, and seeks to improve performance beyond expectations. Supplier relationships are built on transparent negotiations, shared trust and a desire to reach the same outcomes.
If your business's current relationships with its suppliers don't reflect the above, more work needs to be put into their management. Otherwise, your business could face increased supplier risk.
This could be something as minor as goods being delivered sightly late. It could be as serious as non-compliance that cost your business thousands in financial penalties.
Why is supplier management important?
Every time you introduce a new supplier to your business, you introduce a new element of risk. The size and maturity of your business will dictate how much time and resource you need to dedicate to supplier risk management but its importance should never be underestimated – even if you only have a few suppliers.
Remember, the success of your business is very often dependent on the ability of your suppliers to meet their contractual commitments so identifying and managing poor supplier performance are crucial.
Supplier management allows you to identify potential performance issues, keep lines of communication open and ensure that your suppliers are supporting and working towards your compliance requirements.
By neglecting to carry out supplier management, you could risk losing a service that’s vital to your business and customers, being fined for a lack of compliance or suffer reputational damage resulting in financial losses."
These are often worst case scenarios but a lack of ongoing management can soon add up to internal issues too, including missed renewals, further unidentified risks and even duplicate spend.
What does a successful supply management process look like?
An effective supplier management process should underpin each and every relationship with third-parties. There are a number of activities that belong to a supply management process including:
- Assessing potential suppliers and sourcing the most appropriate, based on agreed criteria
- Creating contracts, negotiating terms and coming to agreements
- Agreeing shared business goals
- Setting supplier management KPIs, monitoring performance and reporting on delivery
- Compliance monitoring including the things like requesting SOC reports for example and relevant certificates
- Communicating regularly with key contacts and holding business reviews
- Recording and resolving disputes
- Reviewing third-party contracts ahead of renewal dates.
Five benefits of supplier management
When an effective management process underpins your supplier contracts, it produces numerous business benefits. These are often mutual and can lead to long-term, stronger relationships with your suppliers. Below, we take a look at the benefits of supplier management.
1. Control costs and make savings
Supplier management doesn’t just mean monitoring those you already have. It also means being aware of their competitors and whether or not they can offer you a more cost-effective relationship. This gives you the power to renegotiate ahead of renewal dates.
Another way to control your costs is to identify examples of duplicate suppliers or services. If these are apparent within your business, you can take a consolidation approach to save money.
The Gatekeeper Spend Dashboard
2. Realise the benefits of your contracts
At the beginning of your supplier management process, you should outline and agree business objectives – making your suppliers aware of their contractual obligations.
By keeping lines of communication open throughout your relationship, you can ensure the terms of the contract are being met and that your suppliers always remain viable."
If terms aren’t being met, you can create opportunities during Quarterly Business Reviews to correct instances of poor performance so your supplier can take the actions required to help your business meet its goals.
3. Achieve supply chain resilience and business continuity
Risk management is a priority when it comes to supply chain management. If any part of the supply chain fails, you could be left without a critical service.
Always maintain communication with your suppliers so you can be quickly alerted to any new, ongoing or potential risks. Regular performance reporting can also help in this area."
If these events do occur, involve your suppliers in your business continuity planning and explore whether or not they can help you to make alternative plans. These plans should be made with the objective of obligations still being met.
4. Meet compliance requirements
If your business needs to meet industry standards or exists in a highly regulated sector, you need to work with suppliers who can support your compliance efforts.
By including risk assessments in your supplier management process, you can ask for reports in a timely fashion, identify potential risks and mitigate them before they become a significant problem.
5. Maximise supplier performance using Key Performance Indicators (KPIs)
Poor supplier performance will have a detrimental impact on your business.
By managing your suppliers, and strengthening your relationship with them through constant dialogue, you can maximise their performance."
Supplier KPIs should be set early on in the relationship and supplier performance periodically evaluated against these.
Examples of supplier KPIs include:
- Quality: were there any operational failures?
- Delivery: was everything on time?
- Innovation: did they make product design improvements?
- Risk: are they compliant with regulations?
- Cost: how frequently did they increase price?
- Customer satisfaction: what were the levels of complaints and how were they handled?
These insights are invaluable, enabling you to identify areas for improvement and optimisation. By maximising supplier performance, your business will benefit from better outputs overall.
Should you invest in supplier Relationship management (SRM)tools?
Supplier management itself is an important discipline, one that relies on relationships, communication and reviews.
Investing in a supplier or vendor management software can enhance your approach to supplier management, making it easier to centralise all of your third-party contracts, track performance, store documents for compliance and be alerted to renewal dates."
This standardisation can support a more seamless supplier risk mitigation strategy as your business grows in size – whether that’s taking on more contracts, increasing the amount of suppliers you use or even if it grows into different geographical areas.
Gatekeeper’s solution allows your business to easily register, onboard, collaborate and manage your suppliers. You can visualise all supplier processes, track and share performance data and automate supplier compliance.
An example of a supplier onboarding workflow inside Gatekeepers workflow engine