What is Supplier Management In Procurement? – Definition
Procurement is a critical process in any organization’s success. It involves the selection, evaluation and management of suppliers, who provide materials, equipment or services necessary for the organization to operate. Supplier management is an integral part of procurement; it refers to the activities related to selecting and managing qualified suppliers who can deliver goods and services that meet the quality and cost requirements of the organization. In this article, we will discuss what supplier management in procurement is, why it is important and some tips on how to effectively manage suppliers.
What is supplier management?
Supplier management is the process of developing and maintaining relationships with supplier organizations to achieve desired outcomes. The goal of supplier management is to create value for the procuring organization through cost savings, quality improvements, and improved delivery performance.
A key part of supplier management is assessing supplier performance. This assessment can be done through a variety of methods, including on-site visits, surveys, interviews, and reviews of financial data. Once suppliers have been assessed, a plan can be developed to improve their performance. This may include setting goals and targets, providing training and support, and renegotiating contracts.
The benefits of supplier management
When it comes to managing suppliers, there are plenty of benefits that can be reaped from doing so. Perhaps the most obvious benefit is cost savings. When you have a good handle on your supplier relationships, you can more easily negotiate better pricing for the goods and services that you purchase. In addition, by consolidating your purchasing power with fewer suppliers, you can also reduce your costs.
Another key benefit of supplier management is increased quality. When you have a close relationship with your suppliers, you can work together to ensure that the products and services they provide meet your high standards. In addition, by maintaining good communication with your suppliers, you can quickly resolve any issues that may arise.
Finally, supplier management can also lead to improved delivery times and decreased inventory levels. When you have a good understanding of your supplier’s capabilities and capacities, you can better plan your production schedule around their availability. This can lead to shorter lead times and less inventory on hand, both of which can help improve your bottom line.
The challenges of supplier management
As a procurement professional, supplier management is one of your most important responsibilities. You need to develop and maintain strong relationships with your suppliers in order to get the best possible terms and conditions for your company. But supplier management is not always easy. Here are some of the challenges you may face:
1. Finding the right suppliers: With so many options out there, it can be difficult to find the right suppliers for your company. You need to take into account factors such as cost, quality, delivery times, etc.
2. Negotiating contracts: Once you’ve found the right suppliers, you need to negotiate contracts that are favorable for your company. This can be a difficult and time-consuming process.
3. Managing supplier performance: Even the best suppliers can sometimes have performance issues. It’s important to monitor their performance and take corrective action when necessary.
4. Dealing with supplier disputes: Disputes with suppliers are inevitable at some point. You need to be prepared to handle them in a professional and efficient manner.
5. Managing risk: There is always some risk involved when dealing with suppliers. You need to identify and manage these risks in order to protect your company’s interests.
Key supplier management activities
There are key supplier management activities that every organization should be aware of and incorporate into their own process. Here is a list of the most important ones:
1. Identifying and assessing suppliers: The first step is identifying which suppliers you want to work with and then assessing them based on factors such as quality, cost, delivery times, etc. This will help you choose the right supplier for your needs.
2. Negotiating contracts: Once you’ve chosen a supplier, it’s time to negotiate the terms of the contract. This includes things like price, delivery schedule, payment terms, etc. It’s important to have a lawyer look over the contract before you sign it to make sure everything is in order.
3. Managing performance: Once the contract is signed, it’s important to manage the supplier’s performance to make sure they’re meeting your expectations. This includes things like monitoring quality, delivery times, etc. and taking action if there are any problems.
4. Building relationships: A good relationship with your suppliers is important for maintaining smooth operations. This includes things like communication, collaboration, and mutual trust and respect.
Supplier management tools and technologies
There are various supplier management tools and technologies available to procurement professionals. Some of the most popular ones include:
1. eProcurement systems: These systems help organisations manage their procure-to-pay processes, including supplier management. They usually come with a range of features, such as vendor management, contract management, spend analysis, and purchase order management.
2. Spend analysis tools: These tools help organisations understand their spending patterns and identify areas where they can save money. They can also be used to assess supplier performance and compliance with contracts.
3. Supplier relationship management (SRM) software: This software helps organisations manage their relationships with suppliers. It includes features such as supplier performance monitoring, contract management, and dispute resolution.
4. Electronic invoicing and payment systems: These systems automate the process of invoice approval and payments to suppliers. This can help improve efficiency and reduce the risk of errors in manual invoicing processes.
5. Reporting and analytics tools: These tools provide insights into an organisation’s purchasing behaviour and trends. This information can be used to improve strategic decision-making around supplier selection, contract negotiation, and payment terms
Supplier management in procurement is a critical component of the supply chain process. It helps to ensure that you have reliable suppliers and that they can meet your needs on time and at reasonable prices. With the right supplier management processes in place, you can rest assured that your company will be able to acquire quality goods without ever compromising its budget or delivery timelines. By understanding what supplier management entails, you can take steps towards creating an efficient system for handling procurement within your organization.