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Supplier management processes are a complex, ever-changing realm with myriad factors at play that could significantly alter the performance of an organization.
Internally, it is important to monitor the people involved in your supply chain operation – receivers, procurement officers, even the workers on your line. But there is another critical aspect to supply chain management: supplier management.
So, what is supplier management?
According to consulting giant Infosys supplier management is “the art and science of measuring, analyzing and reporting supplier’s performance over a pre-defined period.”
And…why bother with supplier management?
Infosys continued: “The goals of supplier management are to reduce supplier costs and risks whilst driving continuous improvement initiatives to drive long-lasting supplier relationships.”
In a nutshell, supplier management is the practice of making sure your suppliers are doing their job, which will, hopefully, long-term, stable relationships with suppliers.
The value drivers of supplier management
Creating enduring relationships with suppliers while reducing your costs is clearly a win-win. But are there more benefits to supplier management? What are the underlying, less obvious advantages and value-drivers of supplier management?
Infosys value drivers
- Supply chain disruptions on supplier management – it is critical to know where the possible disruptions and areas for mitigation in your supply chain. Getting to know your suppliers will help.
- Procurement’s visibility into spending on preferred suppliers – this is critical information when making supplier decisions. This is considered the “science” behind grouping suppliers as favourites.
- Collaborating with suppliers to create new value – working with suppliers in a healthy, positive atmosphere. A suppliers’ progress can yield progress for your organization as well.
- Costs incurred because of incomplete information on supplier relationships – a lack of timely information about your suppliers can cost you money. Strategy and decisions depend on that up-to-date information.
- Risk to your company because of the actions or policies of a supplier – the “behaviour” of a supplier can directly affect your business in the form of potential litigation’s or legal hassles. The information gleaned from supplier management can potentially keep this from happening.
Okay…this sounds great. But how does one go about establishing a supplier management program? Those benefits are enticing…but is designing a process to achieve those benefits cumbersome?
A supplier management process in seven steps
According to Infosys, you can design an effective supplier management system with seven steps.
- Define your supplier management strategy, including tools and processes.
- Define the evaluation criteria for supplier performance.
- Collect and analyze performance data.
- Measure, report and share the performance data.
- Conduct meetings for supplier reviews.
- Track and report action points and design improvement plans
- Review and reset goals
The major caveat, of course, to establishing a supplier management process like the one listed above requires active participation on the part of the executive team to get it done. Without executive-level participation coordinating and, more importantly, enforcing supplier management can be difficult.
But, once established, supplier management has clear benefits to an organization. Suppliers are integral parts of a supply chain and the effective management of suppliers, by extension, is paramount.
Having the right, timely information about your suppliers will benefit your organization. If you are not doing any supplier management yet, start thinking about it today.