What Is Supplier Management And How Can It Benefit Your Business?

Supplier relationship management (SRM) or supplier management involves a set of processes that deal with bringing in and connecting to the right suppliers such that it is beneficial to both parties. SRM includes a set of processes such as searching for suppliers that can add value and collaborating with them so they are beneficial to the business. Constant monitoring and evaluation of these suppliers allow a business to always be efficient and to improve the existing business processes. SRM can impact the entire supply chain and it can directly impact how successful a business becomes.

The level of interactivity defines the type of supplier relationship. For example, a strategic alliance is a supplier relationship that involves long-term contracts where the supplier and business work closely together. 

Why Companies Cannot Do Without Supplier Management?

Supplier management is a complex process and it isn’t just reserved for large enterprises. It is vital for every business that is sourcing supplies from third-party vendors. Gone are the days when businesses dealt with a few suppliers and called it a day. Today, the situation involves a network of suppliers that a business needs to rely on for their goods and services. As the supplier network expands, management of these suppliers is necessary to ensure smooth business operations and better cost management. Businesses can choose from a host of supplier management solutions that enable automation and efficient management of hundreds or even thousands of suppliers.

Benefits Of Proper Supplier Management

Businesses who want to steer clear of supplier management risks must ensure that they are properly implementing supplier management. Here are some major benefits of paying close attention to supplier management relationship:

Cost savings

Supplier management ensures cost savings for the entire business. Businesses always want to improve their bottom line and managing suppliers comprehensively ensures that because it allows for proper collaboration between the two parties. As both parties are clear about what is expected of them, costs are reduced thereby driving productivity levels.

Efficiency in business processes

Proper supplier management ensures businesses and suppliers understand the requirements thoroughly. This allows for transparency to be present so processes can take place without any glitches. When supplier information is stored and the management is done well, then there are lesser chances of disputes. Even if they do occur, it becomes easier to manage them allowing for quick dispute resolution.

Better supply chain management

Supply chain management becomes easy when there is robust supplier management in place. This enables businesses to be ready in the face of uncertainty and to respond intelligently to problems that crop up suddenly. Continuously managing suppliers allows businesses to ensure they are dealing with only the best that add value to their business. This helps easily manage the supply chain.

Supplier Management Process

The supplier management process consists of the following four stages.

Stage 1: Qualification and Onboarding

The first step is to determine whether the supplier meets the requirements of the business and if he can provide the particular goods and services required by the business. Businesses must determine whether the suppliers are qualified to ensure they only spend time managing suppliers who provide value to them. When this is done, the onboarding process starts whereby the stakeholders are informed about the suppliers. 

Stage 2: Segmentation

The second step in the supplier management process is the segmentation or division of suppliers. Managing suppliers without this is a tough task. All suppliers are different. Through effective segmentation, it becomes easier for businesses to understand their suppliers. For example, performance, risk involved, and supply criticality are some of the ways to classify different suppliers. This information must be stored properly so it can be retrieved when required.

Stage 3: Collaboration

In this stage, businesses collaborate with suppliers. Collaboration enables businesses to do twice as better than those businesses that don’t collaborate with their suppliers. Collaboration enables businesses and suppliers to be on the same page and to focus on innovation so both can benefit from it. Focus on improving processes is part of collaboration so both are always working at their highest potential.

Stage 4: Analysis

At this stage of supplier management, the performance of the supplier is determined with the help of various metrics. The aim of this stage is to ascertain that the supplier meets the requirements that have been agreed upon in the contract. Some of the popular metrics used to evaluate suppliers include quality of service, cost, and delivery time. If the supplier does not meet the requirements then businesses must communicate clearly with the supplier.