Supplier management is the process of identifying, selecting, and managing supplier relationships. The supplier may be a supplier of parts, services, or other items needed by an organization to manufacture its products or provide its services.
It is the process that organizations go through to find new suppliers and win them from their competitors using various techniques like supplier utilization analysis, supplier rating system, etc.
Inventory on hand in stockrooms, distribution centers, and stores may not always be sufficient especially when there are bulk purchases that increase inventory levels considerably. Long lead times for orders make it difficult for organizations as they have to take orders months ahead causing large sums of money tied up in products that may be obsolete before they can get them.
Customization of order quantities also results in higher costs due to inventory obsolescence. Organizations often resort to suppliers for ordering bulk purchases as they have better control over supply than when items are purchased from distributors.
Some supplier management tools that can be used by supplier managers include supplier rating system, supplier utilization analysis, and audit process, supplier selection system, etc. These tools help suppliers in building a relationship with the organization and increasing their demand base by creating trust between them. Suppliers will also find the process to be beneficial as it ensures high-quality products that match the specifications of the order placed.
The Supplier Rating System (SRS) is a tool that helps organizations identify potential new suppliers along with maintaining an excellent relationship with existing suppliers. It achieves this by tracking supplier performance against orders placed through various stages including supplier selection, supplier development, supplier qualification, and supplier performance. Performance is tracked based on their response time to orders placed, early supplier delivery, quality of goods supplied, etc. The system compares supplier performance to set industry standards for each stage to qualify the supplier or decide whether he should be terminated from further business dealings with the organization.
The SRS also helps organizations develop strong relationships with suppliers by assisting them in areas like information sharing and creating trust between parties. With this tool, a supplier can share relevant information regarding its products to an organization that may help them reduce costs or improve efficiency without compromising on product quality as they all meet established industry norms and specifications.
This also instills confidence among customers who are concerned about customer privacy issues when dealing with suppliers. The supplier can share confidential information without fear of disclosure as they are protected under the SRS system wherein a supplier accessing the organization’s site and sharing information is not considered an intrusion or hacking process.
The Supplier Utilization Analysis (SUA) helps organizations select suppliers with low costs, high-quality products, and efficient delivery schedules along with other factors like payment terms, etc. It achieves this by analyzing supplier orders placed at periodic intervals that compare supplier performance against industry standards. Orders analyzed include those placed for parts in stockrooms, retailers’ inventories, special buys, etc.
Requirements like minimum order quantity (MOQ), maximum order quantity (MOOQ), acceptable delivery arrival time, required product level, total inventory, and dollar value of supplier orders are considered to qualify suppliers for the supplier selection process. From the analysis, a supplier is rated according to a percentage of system orders placed from suppliers within the required time as well as supplier performance against other parameters like MOQ and MOOQ at specific supplier delivery dates.
Adjustments made in the supplier rating are based on the number of parts purchased from the supplier within specified lead periods on total order quantities from the supplier. The purchase quantity may be adjusted or set up to reflect different levels that place an order with a supplier ranging from special buys through normal buy volumes to regular purchases with no adjustments made in performance ratings if ordered before and after the termination date. All orders should have the same quality requirements, adjustment practices will be done accordingly.
An effective supplier management process can be summarized in the following steps:
1. Define supplier relationships, understand supplier capabilities, and map supplier networks (internal and external).
2. Develop supplier strategies that address supplier risks associated with various supplier relationships (external suppliers, manufacturing partners, etc.).
3. Outsource to maintain flexibility as well as increasing operational efficiency by optimizing supplier networks through negotiation of supplier contracts.
4. Implement a Management Information System (MIS) for monitoring the supplier performance regarding delivery pattern, timely payment, product availability, etc., to ensure high-quality products and efficient service from suppliers at reasonable costs. This also helps an organization develop a strong relationship with suppliers by sharing confidential information without fear of disclosure or any other breach of privacy issues while protecting supplier information from competitors.
5. Develop supplier network performance analysis and supplier management reporting to identify areas of improvement in supplier relationships. Continuous monitoring helps an organization develop strategies to rectify supplier deficiencies like late deliveries, quality issues, etc., thereby helping it achieve cost savings without sacrificing on product performance or increasing costs unnecessarily.
An effective supplier selection process will help your business get the most out of its suppliers while staying within budget constraints while giving priority to supplier reliability, responsiveness, and continuous improvement efforts through the following benefits:
– Cost reductions resulting from improved supplier performance related to inventory levels, delivery periods, etc.)
– Better control & visibility over vendor base (adherence behavior) improves the strategic decision-making process.
– Develop supplier performance Benchmarking (Internal) and supplier Individual Supplier Rating System (ISRS) for supplier selection process to measure supplier capabilities, improve supplier relations & enhance product quality at competitive costs.
– Reduce inventory levels with timely supplier delivery schedules through effective vendor management.
– Avoid costly disputes with suppliers over change orders, delivery quality issues, etc., by analyzing and identifying risks in supplier relationships using appropriate control measures like detailed contract review, negotiation of contracts that contain detailed descriptions of service standards, etc.
Supplier management solutions can be applied to your supplier relationships, supplier capabilities, and supplier networks. The following are the benefits of an effective supplier selection process: reduced inventory levels with timely vendor delivery schedules through effective vendor management; avoid costly disputes with suppliers over change orders, delivery quality issues, etc., by analyzing risks in supplier relationships using appropriate control measures like detailed contract review and negotiation of contracts that contain detailed descriptions of service standards – all this while developing a strong relationship with suppliers without fear or any other breach of privacy issues.
If you’re looking for a way to make sure you have the right supplier network at competitive costs before going into production, let us know! We’ll work on a plan together that considers how your customers think about purchasing decisions so we can drive more business your way.