The 5 Stages of Effective Supplier Lifecycle Management
You depend on suppliers for the timely delivery of goods and services. To get the most out of these partnerships, you must effectively manage your suppliers throughout the entire lifecycle. No easy task, is it? By understanding each stage in the lifecycle and having a standard process in place to manage it, you can build lasting, profitable relationships while reducing your risk and costs, too.
What Is Supplier Lifecycle Management?
The goal of effective Supplier Lifecycle Management (SLM) is for both you and your supplier to gain maximum value from the partnership. This end-to-end approach will help you better manage suppliers in a transparent, organized, and integrated way. Here is a brief summary of the five stages in the supplier lifecycle:
You likely depend on several suppliers—some are long-term partners, while others might only work with you a few times. Being able to segment them based on their potential impact on your business is the first step in effectively managing the relationship.
Segmentation is the process of classifying suppliers into distinct groups so you can determine the level of attention needed and then dedicate the right resources to the partnership. In other words, where does this supplier fit in? How important are they to your supply chain? What risks do they pose?
Key Supplier Classifications
Suppliers can generally be grouped into the following tiers:
Strategic—These partners are critical to your business functioning and meeting its core objectives. This level goes beyond cost-savings and adds value to your business over the long term. Strategic suppliers are the most difficult to replace.
Operational—Although not as critical to your organization’s functioning, these core suppliers are required to sustain daily production or business needs, but there are alternatives. Examples include project management tools or talent acquisition firms. If these suppliers were to go out of business, it would likely be inconvenient for you, but you wouldn’t need to panic.
Transactional—These suppliers deal with short-term needs or one-off procurement of goods or services. Generally, you have plenty of different options with limited impact on your supply chain. For instance, a transactional supplier may be someone you use for a one-time engagement, such as an event venue.
Emerging—Suppliers who have the potential to critically impact your business but are in a pilot or testing period may fit best into this tier as they wait to move to a more permanent segment.
Keep in mind there is no single preferred approach to segmentation—choose the one that best fits your business.
Too often, supplier contracts fall through the cracks because they’re filed away in drawers or indexed and forgotten on a spreadsheet. If there’s no system for proper management, it’s highly likely that no one is aware of when a contract is expiring. Or an evergreen contract may automatically renew when your organization wanted to renegotiate or stop doing business altogether with that supplier.
That’s why it’s ideal to have a central location for securely storing your contracts and supplier information. For one, having an online database for managing contracts and other important documents offers stakeholders from legal to procurement complete visibility of supplier performance and compliance. And you’ll know exactly when a contract is up for renewal so you can renegotiate or terminate as needed. Plus, your organization will be able to more easily identify business-critical suppliers, ensure the necessary certifications are in place, and that KPIs agreed upon at the start of the contract are being met.
Performance management involves analyzing and measuring a supplier’s performance throughout the contract period to spot weaknesses and curb risks. Once you’ve been working with a supplier long enough and have enough data, you’ll want to meet with them every quarter to ensure everything is running smoothly.
Quarterly check-ins will help to ensure your suppliers are meeting Key Performance Indicators (KPIs) as outlined in their contracts and Statements of Work (SOW).
It’s essential to be able to actively monitor new and existing suppliers and have a contingency plan in place to prevent supply chain backlashes. Supplier risk management is the process of spotting, analyzing, and mitigating risks in your organization’s supplier base. We recommend that as you begin working with new suppliers, you define the risk.
It’s important to understand that if you’re willing to sever a relationship based on whatever risk topics you monitor, ensure those are included in the initial supplier contract. The contract will be difficult to break if you didn’t specify those risks upfront.
In addition, ongoing communication amongst your business units is important, so everyone is on the same page and understands the implications of terminating a supplier relationship. Before taking action, ensure you have all stakeholders in the room for that conversation.
You run a report and see your company hasn’t used a particular supplier in two years. Time to deactivate the account. Supplier offboarding removes access to your systems, data, and infrastructure when terminating a contract.
Yet today, many companies don’t offboard suppliers with whom they no longer engage. But this makes your company vulnerable by leaving terminated suppliers with access to sensitive information that can result in data breaches, compliance violations, and more.
By creating a documented process that you can apply uniformly across your business, you ensure suppliers you no longer use are properly offboarded. Use this supplier offboarding checklist to help you take the right steps to secure and close the relationship.
Build stronger relationships with key suppliers
When you take the time to understand each stage in your supplier lifecycle and create a standard process to manage each phase, not only will you build stronger relationships with your key suppliers, but you’ll also mitigate risk and reduce costs.
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Learn how to reduce cost and mitigate risk in your supply chain with our Supplier Lifecycle Management ebook.Download