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The relationship between suppliers and buyers has shifted to incorporate the total value creation between the two parties, including logistics, R&D and other perceived synergies. As a result, a manufacturers’ procurement department has a unique opportunity to extend its network of suppliers through a variety of strategic sourcing processes. This non-linear supply chain approach provides numerous benefits including supplier diversity, supply chain agility, risk mitigation, and access to more competitive pricing. As supply networks expand, it is critical that companies don’t lose sight of the thousands of suppliers that make up their tail spend and lack the same degree of relationship management as tier 1 suppliers.
Why Your Business Should Care About Supplier Management
Strategic partnerships are essential to the success of any global organization, giving supplier relationship management (SRM) more weight. However, managing these partnerships can be difficult without a proper manufacturing solution. An appropriate strategy for managing your business’s supplier base can lead to internal efficiencies as process automation can directly be attributed to the elimination of unproductive administrative efforts previously needed to manage suppliers. Appropriate strategies can also increase communication and control in the buyer and supplier relationship.
Strategic supplier management can also help organizations adapt to environmental regulations and maintain a sustainable supply chain. Understanding the impact their suppliers have on the environment can help businesses respond to regulations and manage potential risks in their supply chain. As an added benefit, companies can address other reputational risks such as forced labour, unethical conduct, fair trade, or fraud and build stronger relationships with their customers.
How to Approach Supplier Relationship Management
Before implementing a new solution for supplier management, organizations must first consider the steps they are currently taking throughout the sourcing process. Documenting these processes will act as a baseline when assessing the following best practices to determine if your team currently uses these steps and where the further opportunity for improvement exists.
Conduct an Analysis of the Supplier Market
Businesses must identify how many potential suppliers exist to understand if they have more power as the buyer, or if the supplier has more control over them. The overall analysis should include the supplier’s historical performance, including how they have adapted to unforeseen circumstances. Understanding this information in larger suppliers can ensure procurement teams understand what risks they may be facing.
Analyze Existing Suppliers and Supplier Market
The initial supplier analysis can be used as a reference for creating an up-to-date list of suppliers that the business is currently engaged with. Organizations can’t manage performance or build strategic partnerships with each supplier. Instead, they might work towards consolidating suppliers for a list of only the highest value relationships. For example, businesses that are already engaging with a reliable supplier in one location may choose to use the same supplier across many of their locations. Another example may be bundling materials and services under a single contract if a supplier can provide both.
That said, consolidating suppliers doesn’t mean disregarding other suppliers entirely as this would expose buyers to greater risk from supply chain disruptions. It means finding the balance between managing relationships and taking advantage of synergies for more efficient sourcing.
Create Strategies for Sourcing Each Product Category
After shortlisting suppliers, organizations will often categorize them into product categories. This is because different strategies can be leveraged for the sourcing of unique goods and services. For example, many suppliers offer a good or service that may be a candidate for reverse auctioning. In comparison, a good or service that is only offered by one or two suppliers will not be appropriate candidates for bidding, since losing one or both suppliers can be detrimental to an organization’s operations.
Rank Suppliers on a Scorecard
After making any appropriate consolidations, organizations are encouraged to rank these suppliers by total value. Categories for evaluation may include existing supplier capabilities, quality, resources available, sustainability, on-time delivery, and compliance. Businesses can identify KPI’s that align with each category, and past performance data can help determine the top suppliers. Companies may also decide to leverage supplier collaboration programs to ensure that they regularly consult with the CEOs of their suppliers to find opportunities that will benefit both parties.
Supplier Performance Management
The Supplier Relationship Management process continues long after a business has chosen a supplier. Procurement teams must continue to measure how suppliers perform against requirements and organizational objectives. Organizations can continue to track benchmarks and identify areas for improvement, such as on-time deliveries, which may help to inform future supply chain disruptions. Suppliers that exceed benchmarks are worth investing the time and effort to strengthen the relationship for future growth.
To track supplier performance, businesses might use semi-manual methods to collect data. This can be time-intensive and complex, especially when supplier data is housed on different solutions across departments.
Why Supplier Relationship Management Is Often Complicated
Unfortunately, supplier performance management isn't the only process deemed complicated. In fact, supplier relationship management is often deemed by procurement leaders as the most complicated procurement process because everything between supplier onboarding and off boarding is highly variable and depends greatly on each relationship.
Factors including the complexity of goods or services purchased, the risk associated to relationship, the contract type (whether it is short or long), the spend and transaction volume, the technological integration, the dependency on supplier, the regulatory environment, the supplier performance, the strategic importance, the purchasing category, the ESG considerations, the innovation potential, the market dynamics, the supplier's geographic location and more.
Manually this number of factors is hard to manage and get right, which is why teams often get a dedicated system or module to help you automate and follow the process.
Introduce a Supplier Relationship Management Tool
Supplier relationship management tools are essential to help to automate the process of selecting, managing, and measuring suppliers. These tools help organizations:
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Centralize contracts, which in turn gives procurement teams greater visibility into their total spend and more information to negotiate prices
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Report and monitor activities, including a supplier’s ability to meet the contract details
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Catalogue management, which can be synchronized with SAP master data to provide team members with an easy way to browse through solutions
An effective tool may also support buyer-supplier collaboration to open the lines of communication to more strategic partnerships.
The Solution
Leveraging this multi-step process can help to ensure your suppliers are well-managed and actively working alongside your procurement department towards the same goals. Suppliers will work to maintain their spot as a preferred supplier and guarantee a baseline revenue with clear visibility into payment terms.
SAP SRM is nearing the end of life and many businesses have yet to develop their change management strategy to discontinue it and move to a new application. For large enterprises, this might mean making the transition to SAP Ariba or considering partner solutions like the ConvergentIS Vendor Management Portal.
ConvergentIS can help your business determine the most effective solution for your unique needs based on how sourcing is currently being managed and what aspects of the process are identified as pain points by putting your end-users at the center of the solution during a design thinking workshop.
For more information, and a more detailed breakdown of the strategy behind ConvergentIS procurement solutions for manufacturers, we encourage you to download our 11-page guide.
