5 key ingredients of supplier management
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Purchasing is often divided into two functional areas – one part responsible for placing purchase orders, expediting and sourcing (often referred to as tactical purchasing) and those that are responsible for selecting and managing the group of preferred/approved suppliers (often referred to as strategic). Supplier management, usually the task of strategic procurement, can vary from organization to organization but the goals are usually universal in that it is centered on optimizing the supplier portfolio, building long-term sustainable relationships in order to meet the need of the business.
Associated activities can be quite wide ranging – there are however some fundamental ingredients – here we list our 5 key ingredients of supplier management (be sure to use the comments section to list your essentials.)
1/ Supplier performance
For us the number one role of the supplier management is ensuring that the performance of approved suppliers meets the requirements of the business. Traditionally derived from QCD measures – supplier KPI’s are an essential part of any supplier review process – and it doesn’t just end at the metrics themselves, results should also feed into a continuous improvement program that should help develop and improve suppliers performance.
2/ Supplier rationalization
Many organizations have too many suppliers – ensuring the right mix of suppliers (who have the right capability and capacity) that meets businesses requirements is usually an ongoing activity. The approved supplier list is constantly optimized to derive value for money and reduce risk for the buying organization.
3/ Supplier development
Supplier development activities help align supplier performance (and capability) with that of the buying organization. A thorough development process will usually include the management team of the supplier with activities that move towards achieving specific goals of the buying organization.
4/ Benchmarking
Benchmarking is the study of other organizations business practices and culture in order to use the knowledge gained for business improvement. In a wider sense – benchmarking programs can include large numbers of suppliers who can share the information gained for mutual benefit.
5/ Ethics
From environmental policies to corporate ethics – any supplier management process should review the ethical qualities of its supply chain. Recent exposure of issues such as child labor practices shows the negative impact that getting this wrong can have on your public relations and ultimately customer retention.