Boost your Bottom Line with Effective Supplier Management
Suppliers are key to your business. Being able to work effectively with them ensures you’re getting the best deals for your company. That’s why it’s crucial to properly manage your supplier base.
What is supplier management?
Supplier management is the process of overseeing and working with suppliers to make sure they provide the best possible services or products to your company. This includes selecting the right vendors, negotiating prices and contracts, validating the quality of products or services, and managing relationships.
Create value with solid supplier relationships
An effective supplier management process builds stronger, long-lasting partnerships. And closer relationships between you and your suppliers can create significant value for your business. In fact, companies that regularly collaborate with their suppliers demonstrate more growth, lower operating costs, and greater profitability than their competitors.¹
Benefits of successful supplier management
Having a reliable supplier management process in place offers plenty of benefits which all lead to a healthier bottom line:
- Manage a growing supplier base. Having a well-established supplier management process in place will allow you to more easily oversee and work with a multitude of suppliers.
- Higher cost savings and quality control. Not only will you gain a competitive edge, you’ll achieve cost savings through higher quality goods and services.
- Increased efficiency. A well-defined process gives your partners a better understanding of your business so they can better meet your needs now and in the future.
- Reduction in unstable pricing. Take advantage of fixed pricing in exchange for longer contract terms, minimum order levels, etc.
- Build trusting partnerships. When you collaborate with your suppliers, you forge reliable, longer-lasting relationships that you can leverage in the future.
- Risk assessment and mitigation. Greater transparency across the supplier lifecycle means you can better identify and assess risks associated with suppliers and come up with appropriate mitigation measures.
5 best practices for setting up your supplier management process
These guidelines can help you build a successful supplier management process for your company that mitigates risk and ensures an undisrupted supply chain.
- Identify business goals.
Your procurement team first has to understand the business needs in order to select the right vendors and negotiate contracts. Determine what every department requires from third parties so you can allocate relevant suppliers to each need without duplicating your efforts and resources.
- Define selection criteria.
Your selection criteria will depend on your type of business and what it needs from suppliers. Standard measures include price, quality of past work, industrial recognition, and reputation.
- Evaluate and choose your suppliers.
Next, evaluate suppliers to determine whether they are able to provide the goods or services your business requires. You can then segment these suppliers into specific quadrants based on predefined metrics you’ve created, such as risk, total spend, quality, performance, and more.
Technology can make your job easier. Consider automated segmentation tools to ensure all of your suppliers are allocated to the right group and that there’s no duplication. Negotiate and contract with your chosen suppliers to secure the best prices and quality.
- Conduct regular performance evaluations.
Having a structured evaluation system that provides timely feedback is key to successful, long-term supplier partnerships. Scoring is a way to evaluate and measure suppliers’ performance against your business requirements, including how well they perform in terms of delivery, lead time, quality of products or services, price, etc. Scoring assesses all suppliers against a standard set of criteria, which results in a more objective assessment of how well each supplier is performing and whether they’re meeting your needs.
Rank your suppliers after you’ve scored them—typically into A, B, and C groups. You’ll gain real insight into which ones are performing well, who’s just average, and who is underperforming. You can then take targeted action, whether that’s to develop, maintain, or exit the partnership.
- Define responsibilities for each team member.
Supplier management is complex and requires the involvement of many decision-makers and even other teams. It’s easy for roles to get blurred. Set up a clear reporting chain and a transparent workflow so team members know their responsibilities. This avoids internal conflicts and ensures smooth operations.
Automate tasks for more efficient supplier management
With the right combination of technology, resources, and tools, you can create stronger, longer-lasting partnerships with your suppliers. Consider automating processes such as supplier selection, onboarding, performance tracking, and scoring to build a more efficient system, minimize communication gaps, and create a healthier bottom line.
Let us take care of the heavy lifting
When you’re ready to set up your supplier management process, Graphite can help you.
¹ Agustin Gutierrez, Ashish Kothari, Carolina Mazuera, and Tobias Schoenherr. “Taking supplier collaboration to the next level.” McKinsey & Company. July 7, 2020. www.mckinsey.com/business-functions/operations/our-insights/taking-supplier-collaboration-to-the-next-level