How To Build a Practice Around Supplier Management
Effective supplier management helps businesses grow. Learn how to build a practice around supplier management.
Supplier management is the practice of identifying, evaluating, selecting, and managing suppliers. You want all steps in your supply chain to meet your needs efficiently and effectively. Good management helps you build strong and long-lasting relationships with clients by maximizing the value you gain from them and minimizing the risk each one poses.
The other, equally critical purpose of building strong relationships with your supply chain — and its connected space — is so you know how to pull resources whenever and from wherever necessary. A great supply chain manager will never get caught off guard by a product request and will have suppliers ready to fulfill any need, deliver quality outcomes, and keep supplies either on hand or within 2 degrees of connectivity.
Every product has a supply chain, but not all supply chains are equal in concept or management. Some of the benefits of effective supplier management are listed below:
- It helps reduce costs by negotiating better prices, identifying cost-saving opportunities, and minimizing waste. When a client presents you with a new part/product/problem, a great supply chain practice can reduce client costs and still make a profit without destructive exploitation of the suppliers or quality/schedule risks.
- It helps your products and services meet quality standards and customer expectations. Many manufacturers put out products that meet only the bare minimum in terms of quality and function. This failure is usually a result of supplier selection/management, production control, or input materials. There is a great deal of demand for capable, well-connected service providers who can improve client product quality.
- Mitigate risks associated with supply chain disruptions, quality issues, and other potential problems. A client who says they need supply chain management services probably already has problems in their existing or developing supply chain.
- It can lead to innovative and valuable new solutions to old challenges. In particular, your clients may not know about new supplier capabilities. A strong supply chain manager will have broader knowledge and deeper experience that should offer you more insight and agility. Both you and your own customers will benefit from the new and better ways of doing business.
The key to meeting and exceeding client expectations is to have a rigorous process that is documented and shared among your wider team. This ensures that clients see tried and reliable procedures irrespective of who they meet in your organization. Whether you work with an external service or do supplier management in-house, the process should have the following steps:
- Supplier Identification: Identify potential suppliers that can meet your requirements, either from the existing ’stable’ of tested suppliers, secondary connections, or (where unavoidable) from a less tried source. It’s always better to get recommendations rather than merely cold-calling suppliers, even if this requires some compromise.
- Supplier Evaluation: Once potential suppliers are identified, they need to be evaluated based on various criteria such as: quality, cost, delivery, and reliability. Consultants have access to well-developed audit processes. It is a critical part of the setup investment process that key suppliers get professionally audited. Equally important are the relationships that build up between owners, managers, and key staff from the practice and the suppliers. In a crisis, these familiar and personal relationships can mean the difference between success and mediocrity.
- Supplier Selection: After the initial evaluation, the suppliers should be triaged to fit the client’s or consultants’ needs and objectives. Triage splits the suppliers into three classifications: use, might use, and don't use. This definition may be too limiting on its own, but it's a good starting model that you can refine through experience. Don't be dismayed if you have few or none in the don't use group. That means you did your preparation well, so you rejected the poor performers early!
- Supplier Agreements: Negotiate agreements with your chosen suppliers to establish terms and conditions. One of your general goals during negotiations should be to relate negotiated terms to existing and near-term client contracts but keep the agreements independent of those contracts.
- Performance Monitoring: After a supplier is onboarded, their performance needs to be monitored regularly to ensure that they meet your standards. This is a standardized process that tracks metrics in the supply process. It must contain a carrot AND stick so that suppliers will internally evaluate the costs and benefits of their performance levels. This monitoring must be an ongoing process that includes vigorous correction procedures when issues are identified.
Effective supplier management is critical to any manufacturer, but you don’t necessarily have to do all the legwork yourself. By working with a dedicated supplier management service, you benefit from their own strong relationships with a broad base of suppliers. In turn, you have the right to expect cost reductions, better quality, fewer risks, and more supply chain innovation as part of your partnership.
Whether you’re doing management yourself or working with a service, the key to effective supplier management is to develop a comprehensive strategy, establish clear criteria for supplier selection and evaluation, and continuously monitor supplier performance. Client relationship management must be central to your team’s day-to-day operation and your company ethos.