Welcome to our comprehensive guide to supplier management. In this guide, we’ll delve into all you need to know about managing your suppliers. We’ll cover what supplier management is and outline all the most important aspects of supplier management.
In dedicated articles below, we’ll explore the importance and benefits of managing your suppliers effectively – and the tips and best practices you need to do just that.
What is supplier management?
Supplier management is a strategic process that involves managing the professional relationship between an organisation and its suppliers.
It’s about building and maintaining strong relationships with the companies and people that provide your business with the products and services it needs. This involves everything from choosing the right suppliers and working with them to improve their performance to ensuring that your chosen suppliers meet the right regulations and standards across the board.
Of course, this doesn’t come without challenges. Plenty of hiccups can occur in supplier management, including:
- Supply chain disruptions causing shortages and delays
- Misunderstandings and communication issues causing mistakes and strained relationships
- Quality slips that impact your business and customer satisfaction
- Suppliers being resistant to the changes you might want to implement
Managing these challenges requires careful planning, strong communication and good problem-solving skills. That’s why supplier management is so important.
In supplier management, you’re the middleman between your business and your suppliers – your job is to make sure everyone is happy and that things go off without a hitch.
And that’s exactly what we’re here to help you do. To give you a thorough understanding of supplier management and equip you with the knowledge you need to manage your suppliers effectively, we’ve created this guide to walk you through all you need to know.
We’ll cover the following topics:
- Supplier Risk Management
- Supplier Performance Management
- Supplier evaluation
- Supplier selection
- Supplier scorecard
- Supplier Relationship Management
- Supplier compliance
- Supplier monitoring
- Supplier development
Below, you’ll find a brief overview of each topic in our guide. We’ll dive deeper into each topic in the individual articles dedicated to them. Let’s get started.
The ultimate guide to supplier management
1. Supplier Risk Management
Most businesses rely on third-party suppliers to some extent. That always comes with a certain level of risk – and that’s why Supplier Risk Management is so important.
Supplier Risk Management is the practice of identifying and assessing potential risks in your supply chain. It’s about maintaining a stable supply chain in the face of disruptions, even if it’s not always possible to predict what’ll happen and when it happens.
Put simply, Supplier Risk Management is made up of four key components:
- Risk identification
- Risk assessment
- Risk mitigation
- Monitoring and review
When implemented effectively, these components enhance your supply chain efficiency and allow you to maintain your business continuity – regardless of the challenges you might face along the way.
Read more: What is Supplier Risk Management – and how do you benefit?
2. Supplier Performance Management
Your suppliers play an essential role in ensuring the success of your business – and Supplier Performance Management (SPM) is here to ensure that they don’t let you down.
Supplier Performance Management is about evaluating, managing and improving the performance of the suppliers you work with. It consists of a number of key elements, including risk management, performance reviews and supplier development.
Some actions you can take to enhance your SPM include:
- Establishing clear performance metrics and expectations
- Implementing regular performance reviews and feedback
- Leveraging the right technology and data analytics
- Developing improvement programmes
- Fostering strong relationships with your suppliers
Together, these initiatives can help you improve quality, cost efficiency and innovation within your supply chain.
Read more: All about Supplier Performance Management (SPM)
3. Supplier evaluation
We introduced Supplier Performance Management above, and supplier evaluation is an important part of it.
Essentially, supplier evaluation is about assessing whether a current or potential supplier is a good match for your business. It helps you build lasting relationships with suppliers you can rely on – a crucial element of running a successful business.
Some tips for carrying out an effective supplier evaluation include:
- Defining your evaluation criteria
- Developing a supplier scoring system
- Identifying and assessing supplier risks
- Conducting regular supplier audits and trials
- Negotiating terms and conditions with your suppliers
- Reviewing and updating your evaluation process
With a good understanding of supplier evaluation and how it’s done, you’ll have a solid foundation for getting the most out of your evaluation efforts and building professional relationships that last.
Read more: Supplier evaluation: What is it, and how’s it done?
4. Supplier selection
Because your suppliers are such an integral part of your business, it’s important to make sure you’re working with the right ones. That’s exactly what supplier selection is all about.
The goal of supplier selection isn’t just to choose a supplier who’s a good fit for the moment – it’s about establishing a professional relationship that’ll benefit both parties in the long run.
There are five essential steps in the supplier selection process:
- Identifying your business needs
- Listing potential suppliers
- Defining your selection criteria
- Gathering information
- Negotiating and finalising the supplier agreement
Following these steps, approaching supplier selection strategically and taking your time to consider your options will help you set up your business for success.
Read more: Supplier selection: 5 steps to finding the right supplier
5. Supplier scorecard
To measure and track your suppliers’ performance, you need the right tools. That’s where the supplier scorecard comes in. A supplier scorecard is a tool that, based on predefined criteria, gives you a comprehensive overview of how well your suppliers are performing.
Supplier scorecards are used by teams and managers across numerous departments. They’re typically used for supplier negotiations, approving new suppliers and identifying risks associated with potential suppliers.
Creating a supplier scorecard involves:
- Identifying the KPIs your scoring will be based on
- Gathering and analysing supplier performance data
- Integrating the scorecard into your regular supplier management processes
With these components, you can create a supplier scorecard that’s practical, effective and fits your company like a glove.
6. Supplier Relationship Management
In the previous sections, we’ve mentioned the importance of building professional relationships that last – and that’s exactly what Supplier Relationship Management (SRM) is all about.
The goal of Supplier Relationship Management is to identify which suppliers are most critical to your business so you can invest in cultivating strong relationships with them.
There are five primary components to SRM:
- Supplier segmentation
- Strategy development
- Relationship building
- Strategy execution
- Performance monitoring
With these components you’re all set to get your SRM initiatives going and start building strong, mutually beneficial professional relationships.
Read more: All about Supplier Relationship Management (SRM)
7. Supplier compliance
If your suppliers don’t play by the rules, it can have significant consequences for your company. That makes supplier compliance an increasingly important element of running a successful business.
Supplier compliance is about ensuring that your suppliers meet your regulatory requirements and standards – and that they comply with your internal company policies, too.
To ensure compliance in your supply chain, there are several best practices you should follow. These include:
- Setting clear expectations for your suppliers
- Researching suppliers thoroughly before partnering with them
- Keeping tabs on your suppliers’ performance
- Offering training and support to boost supplier compliance
- Enforcing the rules when suppliers fail to meet your requirements
With these best practices you’re all set to stay on top of how your suppliers are doing and address non-compliance issues before they escalate.
Read more: 5 best practices for ensuring supplier compliance
8. Supplier monitoring
No matter how established your business is, it’s important to make sure your suppliers meet the standards you’ve agreed on for your partnership. That’s exactly what supplier monitoring is all about.
Monitoring your suppliers’ performance can help you catch issues early on and step in to fix them if you need to.
To effectively monitor your suppliers, there are a number of best practices you should follow. These include:
- Setting up KPIs for your suppliers
- Comparing your suppliers’ performance to relevant benchmarks
- Using a scorecard system to keep track of how your suppliers are doing
- Giving your suppliers feedback based on your findings
With these best practices you can get the most value out of your suppliers and build professional relationships that’ll last.
Read more: 5 best practices for effective supplier monitoring
9. Supplier development
For your relationships with your suppliers to last, it’s important to always be looking for ways to improve – and that’s where supplier development comes in.
The goal of supplier development is to help your suppliers consistently deliver quality products, meet deadlines and perhaps even reduce costs over time.
There are three primary steps to a good supplier development process:
- Assessing where you suppliers stand right now
- Making a plan for helping them and putting that plan into action
- Conducting regular follow-ups to ensure everyone stays on track
With these steps you can help your suppliers improve their operations, benefitting you both along the way.
Read more: Supplier development: What is it, and how’s it done?
