Manage your suppliers effectively with this comprehensive guide

Written by
Marissa Saini
Last Modified on
December 19, 2023

A supplier management system is an integral part of many types of businesses. Maintaining cash flow, inventory, production, and more can all be enhanced by effectively managing your suppliers.

Proper supplier management, however, is easier said than done. The entire system can get out of balance if there are several bottlenecks and delays.

This article will cover the basics of supplier management and conclude with how your company can improve suppliers' management.

What is Supplier Management? 

Supplier management is the process of improving and maintaining relationships between your company and its suppliers. Here, a supplier refers to a third-party entity that provides raw materials, inventory, or other goods that your company might need to do business.

For example, a cotton distributor may be your supplier if you run a clothing business. However, if you run a restaurant, your suppliers would be various fruit, vegetable, dairy, and other vendors.

Supplier management involves handling all these suppliers and vendors to ensure the smooth functioning of your business. Depending on the type of business you run, regular supplies from your vendors may be absolutely crucial. This is where suppliers' management comes in. 

What is the Difference between Supplier Management and Supplier Relationship Management?

Supplier relationship management is a part of supplier management. The term supplier management refers to all the processes involved in dealing with suppliers, while supplier relationship management encompasses the interpersonal aspects of managing these suppliers, such as the way you interact with them.

Let’s understand this with an example.

Suppose you run a restaurant. Your kitchen will need supplies from several different vendors. You will need to find these vendors, ensure that they are reliable, calculate how much supply you need from each of them, get into an agreement with each of them, pay them for their supplies, and much more. All of this comes under the ambit of supplier management. 

However, supplier relationship management refers explicitly to how you engage with your vendors, build long-term relationships, and how you ensure that both parties benefit from the relationship. 

Supplier relationship management is an essential component of supplier management and should never be ignored.

Why is Managing Supplier Relationships Important? 

Let’s discuss the six reasons why it may be crucial to pay attention to supplier relationships: 

Effective time management

It is essential that you have the products you need on time to offer superior service to your customers. If you have a strong relationship with your supplier, they will ensure your needs are prioritised. Thus helping you service your customers better.

Quality assurance

A healthy relationship with your supplier will ensure that you get the highest quality products, which will, in turn, help your business grow. Once again, delivering goods and services on time and without defects will allow you to provide the highest quality service to your customers.

Higher performance 

Maintaining a good relationship with your supplier will ensure they are flexible and responsive to your needs. This will subsequently help improve your company's agility, resulting in higher-quality products and services for your customers.

Improve communication 

You may receive damaged goods or a delayed shipment from time to time. As your relationship with the supplier develops, the quality of your communication with them will improve, making it easier to resolve such issues quickly.

Building a long-term collaboration 

One of the primary goals of supplier relationship management is to turn your suppliers into long-term collaborators. Such long-term relationships mean that you work with the same suppliers for years. This can help reduce the time it takes to onboard a new supplier.

Having a long-term collaborator means they know exactly what you expect from them and are in the best position to deliver the same without any hiccups. The experience they have with you will enable you to maximise your efficiency.

Achieving lower costs 

Another benefit of proper supplier relationship management is that it may lead to lower supply costs for your company. With a long-term relationship, you may be better positioned to get discounts from your suppliers. This is because you are providing them with long-term business, so it may make sense for them to offer you products at a lower rate than they would otherwise. Aside from that, you should also understand how account payables impact your business. Maintaining impeccable payment discipline with these suppliers may lead to further discounts. An efficient way to do so would be to automate your account payable process

Various Supplier Relationship Management Models

There are three supplier relationship management models that you can experiment with: 

Partnership Model 

The partnership model involves entering into a long-term collaboration with your supplier. In other words, you are willing to take an extra step in order to ensure that the relationship is successful in the present and in the future.

Integration Model 

The integration model, as the name suggests, means that you integrate your businesses in certain aspects. If you and your supplier are operating in a highly complex industry which requires in-depth collaboration and continuous communication, then this model can work best for you. 

Strategic Partnership 

In a strategic partnership, you elevate a single or a couple of suppliers to help you manage your business in an effective manner. For example, in such a partnership, you can ask your supplier to customize their product for your needs. 

What is the Process of Managing Supplier Relationships?

The following are the five main steps in the supplier relationship management process: 

Step 1: Segment your Suppliers

Your key suppliers must first be identified and segmented into different groups, such as strategic, i.e. long-term suppliers providing quality goods and services, tactical suppliers offering the most cost-effective deals, and tail suppliers, i.e. the not very active ones. Managing each of these supplier groups requires unique resources and strategies. Ultimately, you may want to segment them based on product, quantity, location, price, and so on.

Step 2: Set objectives

Your company's ultimate goal should determine your relationship with the supplier. It could be cost savings, innovation or even saving time. With this under consideration, you can set up the objectives for supplier relationship management.

Step 3: Measure Supplier Performance

Without periodic reviews, how will you know whether your supplier is meeting your company's objectives? Relationships with suppliers are measured by their timely deliveries, innovation, and ability to collaborate to solve customer needs. Additionally, you may want to keep an eye out for quality performance, corporate social responsibility, and risk management metrics.

Step 4: Prepare a Supplier Management Strategy

Develop a strategy to ensure suppliers meet your objectives and stay engaged. By doing so, you will be able to improve your company's competitive advantage. It is beneficial for both companies and suppliers to collaborate in this way, as it helps both parties meet the needs of their customers. Among the ways to accomplish this is to be transparent about your goals and objectives with them. Additionally, you can improve your relationship with suppliers, develop innovative ideas, and increase productivity by encouraging regular feedback.

Step 5: Establish a Supplier Management System

Utilizing technology and automation is a very effective way to reduce communication gaps. As a result, you will be able to save time, money and scale your business more quickly. It can help you keep track of your suppliers, obtain vendor insights, make payments quickly, and improve vendor communications—all in one place.

How Can Supplier Management Software Help? 

Nowadays, you can use supplier relationship management software to help you with supplier management. This software can provide end-to-end functionality, allowing you to manage suppliers throughout the entire supply chain.

The following are some of the many features provided by supplier relationship management software: 

Information Management

Essentially, it is supplier information repositories that safeguard records, highlight risks, provide contact and financial information, and maintain business-critical documents.

Performance Management

Analyse qualitative and quantitative supplier performance, in addition to identifying trends and changes in their performance.

Relationship Management

It ensures issues are mitigated, managed, and controlled through a structured, collaborative, and systematic approach. It shows your relationship with each supplier, including total spending, proposals submitted, and active contracts.

Risk Management

Continuous assessments of suppliers alert you to risks, while scorecards suggest corrective actions. Here, data, documents, and KPIs are managed to ensure compliance is tracked securely and efficiently in real time.

Ease of Registration

Such software allows you to add new suppliers, update supplier data manually, and enable self-service so your suppliers can update their own information.

Since there are several software solutions for you to choose from, the most effective way would be to make a list of your requirements and see which solution fits your needs the best. Don’t forget to compare the recurring cost associated with such software. 

Supplier Management Best Practices

Here are some of the supplier management best practices to help you manage your suppliers efficiently. 

Have a Clear Onboarding Process

It is imperative that your supplier is fully aware of your expectations and how to conduct business with you. By providing your suppliers with a thorough onboarding process, you will ensure that they are prepared to work with you immediately. Any confusion should be put to rest during this process.

Opt for a Self-Service Portal

Keeping track of vendors can be challenging. As your business grows, you'll have to manage more supplier relationships. Thanks to self-service portals available today, this process can be pretty straightforward. It will allow your suppliers to upload their own information, communicate directly with you, submit invoices, track deliveries, and ask questions.

Develop a Contingency Plan

There is always the risk of a vendor running into an obstacle, even the best ones. The supply chain can be highly unpredictable, and to minimize any damage, you ought to have a backup plan in place. Also, to cope with a possible disruption, you should develop protocols which are tailored to your industry.

Meet Your Suppliers in Person

It is essential to meet or communicate with your suppliers regularly so that they are reminded of the human side of your business. The human element can be lost in emails and texts since you can't see the other person. It is better to communicate in person or via video chat. Discussing progress, challenges, and issues during the meeting might turn out to be very beneficial.

How Can Aspire Help with Your Business?

When you have multiple suppliers, managing all invoices is understandably difficult. But Aspire lets you send and manage invoices effortlessly while automatically reconciling everything.

Aspire also offers a payable management platform designed specifically to automate your entire accounts payables process. This can help you reduce your AP workload by 50% while eliminating errors, streamlining processes, and improving cash flow visibility. 

To Sum Up:

  • Having a supplier management system will improve your business efficiency, strengthen your relationship with suppliers, and lower your risk level. It is, therefore, essential to adopt a thoughtful and planned approach to managing your suppliers. 
  • If you want to get started, you can appoint someone within your organization to take the lead, and you can also use software solutions that are available. 

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About the author
Marissa Saini
is a seasoned writer and an avid trendspotter across business finance, personal finance, travel and lifestyle industries. With writing history at SingSaver, INK, and ohmyhome, Marissa leverages her broad range of experiences to simplify finance and make readers financially savvy.
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