What is supplier management?
Supplier management ensures that your business receives maximum value from your suppliers. Your suppliers play a major role in running your business smoothly, and you need to engage with them effectively. This includes seamless communication channels and requirement management as per the agreed policies.
Types of supplier relationships
From transaction-only relationships to complete ownership, supplier relationships are of many types.
- Buy the market: This is a straightforward relationship that involves a transactional arrangement for goods and services only. It includes little to no interaction beyond placement and fulfilment of orders between the client and the supplier.
- Ongoing relationship:This is one step ahead of the ‘buy the market’ relationship. The business selects a supplier from a range of other applicants. Such a relationship involves more information sharing and a deep connect between the client and the supplier.
- Partnership:Partnership refers to long-term contracts with higher trust and extensive sharing of information and common commercial goals.
- Strategic alliance:It is a long-term relationship in which both parties agree to work together in an exclusive arrangement to achieve well-defined objectives. This formal or informal arrangement could involve incentives and requires close collaboration in day-to-day interaction.
- Backward integration:In this case, the business owns the supplier outright and has a unified culture with full information sharing.
The benefits of supplier management
Robust supplier management leads to the following benefits for your business:
- Lower risk to business continuity
- Reduced costs
- Controlled volatility in prices
- Higher efficiency of service
- Consolidating the supply chain for maximum efficiency
- Increased agility in the supply chain
Steps for supplier management process flow
- Qualification: Assessing the suppliers to see if they are capable of providing the goods and services as per the client’s standards
- Onboarding: Collecting all the supplier information as part of the onboarding process, changing internal systems if required, and informing relevant stakeholders
- Segmentation:Segmenting the supplier into a pre-defined quadrant based on metrics such as supply risk, total spend, and supply criticality
- Collaboration:Improving the relationship and commercial value between the client and the supplier using processes, performance advances, and innovation
- Evaluation:Measuring the supplier’s performance to ensure that they meet the terms agreed in the contract, which is based on metrics such as delivery time, production quality, price, and service