What is Supplier Management?

Anuradha Nandan | Tuesday, August 3, 2021

What is Supplier Management?

If you manage one of the 30.2million SMBs in the US, working with suppliers is likely an important aspect of your everyday operations. These B2B companies give you the goods and services that you need to present to clients. This is essential for maintaining a good reputation.

Supplier management is crucial for organizations of any size. Having a good management system allows you to ensure that your needs are met. Only then will your clients get the high-quality goods that they expect. Read on to learn what supplier management is and why it's important.

Defining Supplier Management

To understand supplier management, it's critical that you first know what a supplier is. Suppliers are legal entities that are not a part of an organization, but they sell goods and services to that organization. They're essentially B2B services that allow a seller to have the products necessary for selling.

Supplier management is the process that ensures that an organization receives real value from working with its suppliers. Those who manage suppliers ensure that the company purchasing supplier products gets items with value that reflects the amount of money spent.

Effective Supplier Management Activities

There are many activities that effective supplier management professionals must ensure. These include, but are not limited to:

  • Creating policies that govern supplier actions
  • Managing relationships with suppliers over time and monitoring the supplier's performance
  • Informing suppliers of these policies so everyone is on the same page
  • Negotiating (and ultimately agreeing on) legal contracts between suppliers and purchasing organizations
  • Ensuring that contracts signed meet the needs of the buyer's business
  • Making sure that the views, visions, and objectives of the supplier and purchasing organizations align before contracts are considered.
  • Keeping accurate records of supplier information (and how it relates to you as a B2B buyer)

Why Is This Important?

An organization that plans and conducts supplier management with defined boundaries and actions is likely to receive predictable and high-end goods. They also are likely to get these products in a timely manner. They can then provide their clients with the consistency they expect.

On the flip side, if an organization chooses to ignore formal supplier management actions and boundaries, they put themselves at risk. They're likely to get poor-quality goods and services on an unpredictable schedule.

There are a plethora of risks associated with an organization's suppliers, so having a clear policy that outlines the management of suppliers helps to eliminate some of these risks. It lets suppliers know the expectations that are in place and adequately measures their value in quantifiable ways.

This ultimately improves the overall performance of the organization that works with suppliers. Exposure risks are no longer a large concern and the organization can flourish.

What Are the ITIL® Supplier Management Best Practices?

ITIL® certification demonstrates that a professional is educated in IT service management. To receive this certification, it's essential that the learner demonstrated knowledge of best practices in technology. ITIL® v3, which was released in 2007, has a discreet supplier management process embedded within its service design life cycle. In the ITIL® 2011 update, the guidelines were updated to be as detailed as they are today. The following are key aspects of ITIL®'s current supplier management guidelines:

Specific Definition and Policies

ITIL® specifically outlines what supplier policies may include and indicates that these policies should always govern how a buyer organization communicates with suppliers. They also discuss standards that suppliers must meet. Some of these policies include information that might appear in contracts and who owns data relevant to the distributed products.

Contracts (and Contents of Contracts)

ITIL® describes the necessary contents of agreements between organizations and suppliers. They outline basic terms and conditions, the scope of service, and relevant standards that the supplier must agree to. ITIL® also states that these agreements also should include information on workload volumes and pricing.

Storing Supplier's Information

Supplier information should be stored in a secure and private supplier/contract management information system. This should be used in all aspects of working with and engaging suppliers. This system will be easier to search, organize, and evaluate so all parties can have the information they need prior to renewing (or terminating) contracts.

Categorizing Suppliers Appropriately

One of the best practices that ITIL® recommends is to categorize suppliers as strategic, tactical, operational, or a commodity. Suppliers can then be managed in the way that the category that they fall under should be managed.

For example, a buyer organization should spend more time managing strategic suppliers that have an impact on business operations. They should spend much less time managing easily replaceable commodity suppliers.

How Can You Improve Supplier Performance?

There are many ways that you can better your supplier's performance. This is, after all, the ultimate goal of supplier management. Some tips for sustainable improvement include:

  1. Creating a measurement system to quantify supplier performance
  2. Defining and reporting what is expected from the supplier
  3. Making these (and other relevant documents) accessible to the supplier
  4. Keeping supplier-buyer communications organized and documented
  5. Making sure that upper management is well-trained
  6. Provide ongoing training for your entire team
  7. Keeping managers involved in the supplier management process
  8. Using a team-based supplier management approach
  9. Analyzing purchasing and supply chain management practices
  10. Create and consistently update best practice policies
  11. Taking these measures will ensure that your relationship with your supplier is strong, lucrative, and meets objectives.

Get Started

Now that you know about supplier management and how you can improve supplier performance, it's time to get started. Get organizational IT training and get your corporate employees certified in how to apply technology to their supplier relations. When you start training in these vendor-approved courses, you will give your team new strategies for adapting to a digitally connected future. We look forward to helping you contact and manage your suppliers, so don't hesitate to reach out.