June 6, 2019

Supplier Management: what is it and why is it important?

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“The objective of supplier management is to ensure that all contracts with suppliers support the needs of the business.” (Source: ITIL® Process Map & ITIL® Wiki)

At first glance, supplier management seems like an easy thing to sum up. In very broad terms, it refers to the management of relationships with third-party vendors that supply your organisation with essential goods and services.

However, as with many things in life that seem simple to begin with, the truth is there’s a lot more to supplier relationship management (SRM) than that.

The aim of this article is to provide you with an overview of the key aspects of good supplier management when working with third party organisations, so make sure you keep on reading.

What is supplier management?

The need for a supplier management process isn’t just exclusive to large, multinational organisations. In fact, it’s almost guaranteed that every business will purchase goods, raw materials and services for third parties at some point.

As such, the approach you take to onboarding, managing and communicating with your suppliers is absolutely critical to your success, and is one that needs careful consideration.

Many organisations do not give their supplier management framework enough thought or dedicate enough time to defining it, which can lead to them being hit by unpredictable supplier behaviour or problems with their supply chain.

To cover as many bases as possible when defining supply management within your organisation, you need to do the following:

  • define internal policies for how you’re going to govern your suppliers
  • agree legal contracts between your organisation and its suppliers
  • clearly outline what your expectations are and what you expect to receive from third-party vendors
  • make sure you actively manage your relationships with suppliers, rather than simply looking at their performance
  • maintain accurate and complete records (supplier information management)

Why is effective supplier management important?

When you’re dealing with international supply chains and a supplier base that consists of thousands of third party organisations, there’s clearly a great deal of complexity involved in managing them.

It can therefore be tempting to merely focus on what are perceived as being your most strategic suppliers, in order to maximise their value, but in fact this only exposes the organisation to greater risk.

Those organisations that focus on putting supplier management processes and systems in place across all of their suppliers are more likely to benefit as a result, thanks to:

  • much greater predictability and understanding of what’s happening in their supply chain
  • access to higher-quality products
  • the ability to make better business decisions, avoid disruption and be aware of exactly when essential goods will arrive

Of course, the reverse is also true for those organisations that choose to ignore the importance of defining their supply management policy.

By doing so they increase their exposure to potential disruption and unpredictability, which could have a severe impact on their ability to meet deadlines or customer / consumer demands.

Quite simply, you’re only ever as good as your suppliers because the impact they can have on your organisation is profound.

Good suppliers (and good supplier relationships) allow your business to thrive and increase its profitability.

Inefficient or unreliable suppliers, on the other hand, can cost you money – and, potentially even worse, your reputation too.

If you found this article on supplier management useful, then why not take a look at all of our detailed reports here ->

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