6 Best Practices of Supplier Management
When it comes to business operations, supplier management is key to success in both the short and long term. This is the area that can yield benefits that contribute to both increased revenue and sustainable growth – but only if handled in the right way. Technological advancements have made the global marketplace more accessible to businesses of all sizes and locations, so supplier management strategies and methodologies have become even more vital.
What is supplier management, and why is it important?
The suppliers of a business enable that business to thrive. These third-party vendors provide the goods and services that the enterprise needs to fulfill its promise to its own customers. With that in mind, every business needs reliable, cost-effective agreements with suppliers to meet its objectives, goals, and standards. Supplier management is about initiating and maintaining productive commercial third-party relationships.
This initiation and onward maintenance is a complex process that is closely connected to contract management, risk management, and business planning in the following ways:
- Maximizing ROI (Return on Investment) – ensuring the business always gets the most value for money in all supplier relationships.
- Minimizing reputational and financial risk – ensuring the connections created with third parties do not establish or exacerbate vulnerabilities.
When executed in an optimal way, supplier management forms an integral part of the overall business strategy – complementing all business-driven processes aimed at achieving agreed long-term commercial objectives. For this reason, it is essential for organizations to develop and adopt supplier management best practices.
Best practice
When we talk about ‘best practice’ in business, we refer to the implementation of the best ways of working toward business goals. Every set of best practices must be tailored to the specific circumstances of the organization in question – both in economic and operational terms. However, with business processes such as supplier management being integral to running all businesses, the fundamentals of supplier management best practices can be broadly applied to all companies as a foundation for building bespoke strategies.
Identify the needs of the business
In all areas of business operation, ‘best practice’ is only possible when it is fully aligned with the needs and objectives of the enterprise. This goes beyond the identification of specific procurement needs and instead encompasses the risk appetite and risk tolerance of the business, as well as the long-term vision for potential growth. For example, if the long-term vision of the company is to expand into a particular market or territory, then every decision should be taken with this in mind – taking into consideration the impact on risk and supply chain opportunities. The identification of the needs of the business should therefore be undertaken in the full understanding of the bigger picture, with all its connections.
Define responsibilities within the supplier management lifecycle.
At the adoption of any business process, it is essential to clearly define responsibilities. In the case of supplier management, this includes setting out specific responsibilities in the procurement cycle, which overlaps heavily with the supplier management lifecycle. In every business lifecycle, tasks and responsibilities can be broadly defined as those undertaken by process administrators and those undertaken by process managers. In the case of supplier management lifecycle, administrators deal with the initial stages, including:
- Establishment of requirements
- Supplier identification, negotiation, evaluation, and selection
- Supplier onboarding
These tasks initiate the supplier relationship and define its terms and conditions. This information is then passed to those responsible for the ongoing management of the supplier relationship, with tasks including:
- Monitoring and assessment of suppliers
- Supplier offboarding
With an understanding of the supplier management lifecycle, the importance of defining responsibilities becomes clear. Keeping roles well defined and distributed increases efficiency and reduces duplicated effort and wasted resources.
Centralize information
When businesses centralize information, efficiency, speed, and supply chain visibility increase by a significant margin. Combining a centralized data repository with stringent, high levels of security ensures that all personnel can access the information and documentation needed for business processes, and third parties can also connect with the information directly and securely. Lead times are reduced, sales and procurement lifecycles are shortened, and fully informed decisions can be made in less time. Centralization also enables a higher degree of automation. When all data is stored digitally in a single source location, basic administrative tasks can be programmed for automatic completion. This frees up vital resources the business can re-deploy to other areas and enables autoscoring, reminders and notifications, and questionnaire and assessment assignment for selection and risk management processes.
Standardize categorization
With data centralized, it is important to standardize categorization. This means developing an agreed, standardized approach to all supplier relationships, contract management, and risk management. Using automated metadata and data tagging processes that reflect the agreed standardization, suppliers can be categorized to allow for faster searches, updates, and overall management. Standardization is, therefore, one of the key elements of supplier management success. The standardization approach of the business should be developed in a way that aligns closely with both short and long-term goals and objectives because the centralized data can then be turned into a valuable, business-driven resource. Standardization also enhances the automation of basic processes, including workflows related to category-specific supplier onboarding.
Monitor the whole procurement cycle
Supplier management and procurement are closely related but different. The procurement cycle is everything involved in finding and acquiring goods or services needed for the business. Supplier management is a part of the procurement cycle in that it specifically relates to the process of handling and improving interactions with the third parties providing those goods or services. The overall aims of both the procurement cycle and supplier management processes are aligned with the business objective, however, and should be designed to maximize value and minimize risk. For this reason, the close monitoring of the procurement cycle is an integral part of any supplier management program of ‘best practice.’
Review and assess supplier relationship performance
In addition to monitoring the whole procurement cycle, the review and assessment of individual supplier relationships are important for ensuring that each connection delivers the optimum ROI (Return on investment). Supplier performance management requires collaboration with procurement teams to undertake accurate evaluations using agreed metrics or Key Performance Indicators (KPIs). This review and assessment process is enabled by the centralization and standardization of supplier and contract data. This shared system allows all relevant teams and personnel to collaborate and communicate quickly and easily, applying automated scoring, alert, and notification facilities for a fully informed, proactive approach.
How can Unit4 and Scanmarket help your organization?
Unit4 Supplier Management by Scanmarket can centralize supplier information and performance management and reduce supplier management costs by up to 65% by keeping your supply base up to date.
Book a Free Demo now or click here to see our suite of software and to learn more about how we help our customers meet their objectives with ERP software that generates long-term value.
