Online Induction >> Supplier Management System

What is supplier management and why is it important?

Most of the organizations get goods and services from third parties or simply suppliers. So, how an organization communicates, engages, and manages its suppliers is vital for its success. Generally, suppliers tend to form an indispensable part of your business, making it crucial to manage them. However, an organization may implement the best supplier management practices, and still, its business activities are regularly impacted by unpredictable behavior and poor supplier performance. Supplier management usually refers to all the business processes that ensure value is received for the money spent in the entire lifecycle with a supplier. An organization and its suppliers need to effectively and adequately engage because they play an essential role in the organization's smooth running.

It's essential to have a good relationship, communicate clearly, and manage the requirements when dealing with suppliers, which brings the need to have a comprehensive supplier management policy in place. There are five critical steps in establishing a supplier management program:

1. Set the goals and objectives of the process.
2. Identification of the relevant selection criteria for suppliers
3. Evaluation and selection of suppliers
4. Engaging with the suppliers-negotiation and contracting
5. Evaluating the performance of the suppliers as per the requirements

Supplier Management Program

An organization's supplier management program must be a strategic approach to achieve its goals rather than being reactive or just engaging the suppliers on an ad hoc basis. It should clearly articulate the objectives and devise a plan before establishing a relationship with a supplier.

The supplier management process is critical during the identification, selection, and practical evaluation of supplier performance to ensure they are compliant with the organization's third-party requirements.

This process usually encompasses activities to segment, qualify, manage, and monitor an organization's third party suppliers. The ideal supplier management process is typically a well-defined governance model that implements a two-way relationship (buyer-supplier) mutually beneficial through accountability and trust.

An effective supplier management program helps an organization get the most out of the supplier's services. So it's crucial to always track and measure their performance over time.

With proper communication and immediate feedback, the organization and the suppliers develop transparency, which significantly helps in the provision of quick solutions to the areas that require improvements. Organizations that focus on planning and conduct supplier management according to defined processes are in a better position to timely get high-quality goods and services from a particular supplier.

Any organization's primary goal should be having a trusted and long-lasting relationship with a dedicated supplier(s) for it to succeed in the market.

Here are the best practices to strengthen your supplier management program in the workplace.

- Establish supplier information management. This enables an organization to streamline supplier data from different sources for useful insights and also monitor the suppliers' capabilities if they match its current and future requirements.

- Formulate KPIs to measure your supplier's performance. KPIs are essential in identifying problem areas and enabling the supplier's performance measurement in the evaluation of value-creation.

- Evaluate all supplier risks and determine mitigation measures. This is important, especially if you have complex supply chains. It enables an organization to be prepared in case things go wrong and have the necessary mitigation strategies.

- Engage with your suppliers for effective SRM (supplier relationship management). Communicate your objectives and involve the supplier in decision making to build a collaborative relationship.

- Use software. Supplier management software is essential in keeping track of all your suppliers' information from a single point. You can also use it in the creation, processing, and tracking of purchase orders with your third-party suppliers.

Without an effective supplier management system in the workplace, you will not be able to evaluate if the selected suppliers are performing as per the business requirements. You will also not be in a position to identify the areas that need improvement when engaging with your suppliers in the entire relationship. Choosing to ignore proper supplier management usually invites unpredictability and low-quality goods and services from your suppliers.

An organization invests a lot of resources in third parties. When they are not adequately managed, the desired value according to the requirements will not be achieved, which leads to wastage of the resources. Also, an organization with no supplier management system will have trouble communicating and getting feedback from the supplier, which causes a non-transparent relationship between the two parties. Contract conflicts and overworked suppliers are other common challenges faced.

Supplier management is among the crucial aspects of business functioning. With economies becoming more global, it makes it very difficult not to involve suppliers in the organization's business processes. A sound supplier management system will also give your organization a competitive edge apart from allowing you to achieve that maximum value for all your business requirements.

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