Supply Chain Management plays a crucial role in the processes of any large organization. Also, one notable intimidating task is the management of the global supply chain. Developing a dependable process of sharing information between relevant parties is the foundation for building a solid business connection. It is also vital to deliberate on every part of your supplier management process using best practices to stem superior value.
Organizational goals and pressures have over the years taken different transformation with processes like shorter product lifespans and market swings becoming more extensive than ever before. The growth in business pace has also experienced a massive increase with several organizations, realizing it is no longer affordable to go alone. Similarly, Supply Management identifies as one essential collaboration in making top strategies to elevate any business to the next performance level.
Key Issues Facing Supplier Relationship Management
Suppliers always have their fingers dipped into market changes and innovations, which are real assets in today’s demanding business setting. However, to thoroughly enjoy the full services of suppliers, organizational procurement teams require a necessary understanding of supplier management. With several organizations facing a variety of difficulties in creating, implementing, and handling partnerships, below are the key issues Facing Supplier Management:
- Lack of specific soft skills and SRM competencies
- Less understanding and empathy
- Limited sponsorship and engagement
- More focus on costs than value
- No proper linkage amid business and procurement
- Poor strategic objectives and business relationships
Best Practices for Supplier Relationship Management
Organizations need to recognize the value of every supplier to their business process. This basis helps in the prioritizing process. The nature of products and services your organization delivers also plays significant roles in achieving the best practices for Supplier Management. Strategic relationships and tailored solutions with supplier need to be developed to suit different suppliers.
To accomplish better supplier management relationships, some best practices are essential to implement and follow. A well-managed Supplier Management can create a competitive advantage for your organization. The following best practices can be implemented to create a better competitive advantage for your organization in today’s dynamic market.
1. Set the Right Objectives
As businesses require meeting set goals, supply and procurement are compelled to do more with similar goals. Collaborating with the right suppliers ensure you always get the best performance. Every successful procurement process function with essential dealings with its supplier base. As part of best practices, Setting the right objectives for effective supplier management from the start helps to reduce business procurement costs. Another vital objective is to ensure the capability for a consistent flow of supplies and services are guaranteed.
2. Follow A Definite Process
The creation and implementation of a formal process for supplier management are essential to attaining effective handling of suppliers. Once a suitable organizational process is created and defined, both parties need to adhere strictly to them. The use of a formal process improves your supplier relationships to a more strategic stage where the partnership feels trust. Procurement teams ought to start the “on-boarding” activities from the beginning of the bidding phase. It helps foster best practices, effective supplier relationship management, and lets you hit the ground running. Following A Definite Process would also aid in evolving strong business relationship that is equally valuable in the long run.
3. Requirement Planning
The Requirement Planning is essential for efficient supplier’s management. Proper analysis of demand and supply of goods and services needed consistently assists in planning requirement well ahead of schedule. This best practice approach aids the supplier in delivering the right quantity at the specified time frame. Requirement Planning is generally accepted to improving the overall effectiveness of procurement processes. In turn, it also improves the overall ROI of the business process.
4. Proper Cost Evaluation
Part of the key goals set by any supplier management system is the understanding of costs relating to each supplier. A proper cost evaluation analysis for key suppliers compare to other suppliers would help optimize cost. This best practice approach would also help your organization determine the best cost.
5. Supplier Identification
A Primary task for procurement teams is the need to find quality suppliers willing to work and offer the best value. Getting to know the Supplier Identification is a strategic sourcing process. This strategic sourcing process can be implemented using leveraging process automation tools. The leveraging process automation tools would speedily identify, evaluate, implement, negotiate, and regulate the optimum mix of goods and services. This best practice approach regularly supports evolving objectives of the enterprise, starting with the discovery of the right supplier/suppliers to partner. Supplier Identification would help your organization source better and not entirely source more.
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With preparations done by the procurement departments for new buyer-supplier partnership standard, the supplier should be considered as a potential source of advantage and value, rather than merely transactional allies. Effective supplier relationships are known to bring rich market data to the table that an organization may not possibly capture. That said, procurement teams ought to carry out spend analysis to guarantee the usage of data-driven insight in selecting the best value supplier to match your sourcing demands.
6. Service Level Agreement
This best practice approach is significant to achieving a successful and productive buyer-supplier relationship management. Having only a verbal agreement can set in motion a higher chance of confusion or dispute later in the deal. A Service Level Agreement (SLA) helps resolve any issues that arise between procurement teams and supplier, especially when it concerns cash flow or movement of raw materials. The SLA acts as a ready reckoner for resolving disputes while doubling as legal proof of the business connection.
7. Supplier Information Management
Supplier Information Management entails owning accurate, centralized, and detailed supplier information. The detailed supplier information makes the introductory part of handling effective supplier relationships, from product scoping to expense processing. The information required from the supplier can include:
- Contracts and category coverage
- Contact details and certifications
- Capabilities and locations
- Quotes and remittance information
- Performance ratings and risk scores.
Collecting, cleaning, verifying, and tactically managing supplier information can drive substantial cost savings. If well implemented, supplier information management can lead to better innovation and partnership with suppliers. As part of best practice, procurement teams should make use of third-party supplier data and integrate it with data obtained from your suppliers along with others across the industry. Data obtained can help in creating a more holistic assessment of suppliers, and productive relationships move to implement further. Sourcing teams can dictate the usage of electronic resources amongst buyers and suppliers to ease the process, from preemptive to a strategic one, with top-level performance expectations.
8. Addressing Supplier Concerns
Every supplier concern must be addressed appropriately. Any issues facing your supplier also affects you in a way, and these issues must be resolved swiftly. This benefits in getting rid of the bottlenecks within the system. Practical and cordial relations with suppliers help attain better supplier management process. The faster information flows between procurement teams and supplier, the easier it becomes for inventory management of goods and services.
- Procurement team should ensure that all necessary data is accessible to the suppliers in a modern approach.
- Timely access to the right data can make the deliveries done accordingly with the preferred quality and standards.
- Procurement processes should unify and standardize all aspects of supplier data to create a solitary “source of truth.” The sole source would hold all external and internal parties and can refer to before advancing.
9. Supply Risk Management
Globalization and new online capabilities have made the supply and demand world a large place for connecting with emerging or new markets, and easier access to suppliers with faster shipment process. However, these also come with some level of exposure for organizations as new forms of supply risk arise every year. As procurement management team takes the role of seeking the various risk converging across the supply chain, the more it becomes a concern. It is a responsibility for handling changes and a growing number of global supply risks. Supply risk management takes a series of strategies applied to define, identify, manage, mitigate, and quantify potential risks. These series of strategies applied to supplier relationship management can have a subsequent impact on the organization. These strategies vary by business, industry, or geography. To attain best practices in supplier management, some general process to follow eliminating or managing supply risk. These includes:
- Assigning a cross-functional team responsible for leading the supply risk program. The risk program would take leverage of various experience and expertise. These requirements would ensure you get a wide choice of perspectives on organizational supplier management as well as resources to handle unique risks.
- Developing a robust supply risk assessment and identification procedure, that includes outlining all relevant risks to your organization. The relevant risks could vary from monetary, operational, political, supervisory, reputational, and more.
- Developing and testing Supply risk plans for business growth and crisis management procedures to understand and observe its performance under an assortment of different scenarios fine-tuned accordingly.
- Attention to a high level of vigilance from supply risk teams is essential. Supply risk is always on the move, switching targets or form as the year comes by.
To build a successful and effective supplier relationship management, supply risk management teams should not and do not just “set it and forget it.”
10. Supplier Performance Management (SPM)
SPM permits procurement teams to rate and evaluate all notable suppliers using a series of performance metrics. The series of performance metrics applied would validate all suppliers are delivering the right value and obeying agreements and contract terms as well. If you intend to use the Supplier Performance Management processes and tools, make use of a trusted procurement team. A trusted procurement team can create relevant supplier scorecards and surveys intended for tracking individual supplier performance. Also, a well-effected collaboration with external and internal stakeholders would enhance your supplier relationship management and performance in areas needing best practices. An effective supplier performance management can bring about the desired improvement to your supplier relationship management as well as setting up the future success of any new relationships with your organization. For Supplier Performance Management, the best practices to follow includes:
- Clear communication with all suppliers and involved stakeholders during your evaluation criteria, process, and timing. A Clear communication process is essential to keep all parties in the loop and proactive about activities rather than reactive.
- Developing standard supplier scorecards and surveys by the procurement team to track individual supplier performance. Also, enabling procurement teams to benchmark all supplier relationship management.
- Setting alert triggers and implementation of “course correction” actions by procurement teams when/if there is a noticeable dip in a supplier’s performance. The earlier the dips are noticed, the better and easier it becomes to rectify such issues.
The benefits of effective supplier management cannot be overestimated as the rewards can be enormous. Creating and engaging best practice techniques that leverage all suppliers and stakeholders involved requires taking a 360-degree view of every piece of task mandated in the process. The best practices for Effective supplier relationship management aims to keep you and your team in line while building better communication. By consistently bearing a view of each facet of supplier management (communication, information, identification, performance, planning, supply risk, and more) procurement can deliver superior end-to-end success. These best practices would also lead to driving more excellent value all over the sourcing process.
Nevertheless, supplier management strategies should not only contemplate or cover how to attain immediate goals. The strategies should also incorporate the management and planning process of all other activities that include logistics management task. In essence, supplier management fit in demand and supply management inside and outside the organizational system. Best practices for Effective supplier relationship management enhances all essential parts. Essential parts (like a plan, source, make delivery, minimize inventory, and rapid order actualization) are better when adequately implemented. The collective effect of supplier relationship management takes your organizational supply chain a step ahead, which is vital to reassuring overall success.