What is the role of supplier management?
Overview & best practices
Supplier management is an important organizational function for any business that relies on buying goods and services. Get an overview of the main goals and responsibilities of supplier management in this article, and discover how the right software can help you improve transparency and efficiency in your organization.
Definition: What is supplier management?
Supplier management, also known as supplier relationship management (SRM), refers to how a business manages its relationships with its suppliers. The function seeks to develop an interface with suppliers, and systematically manage and build relationships.
The overarching goal is to optimize the company's value chain, and make the best possible use of the supplier network, in order to ensure the company’s standards are met in the supply chain. This requires a transparent supplier base that allows for supplier comparisons and strategic planning.
Note: The Supply Chain Act, which went into effect in Germany on January 1, 2023, adds a new layer of complexity for companies, including those that only do business in Germany, but are located elsewhere, in terms of compliance. A state-of-the-art supplier management solution can provide automated workflows during onboarding and improve review processes for partnerships.
Differences compared to supply chain management
Supplier management and supply chain management work together closely in practice. However, each function has a different focus. While supplier management focuses on the supplier relationship, supply chain management deals with all the logistics processes along the entire supply chain. In addition to managing the flow of goods, this also includes optimizing the flow of information and money.
Responsibilities of supplier management
The most important tasks of supplier management include:
- Selecting and approving suppliers
- Assessing and comparing suppliers
- Developing and optimizing suppliers
- Ensuring compliance with industry-wide and company-specific quality standards
- Monitoring delivery processes (e.g. delivery times, transport costs, completeness)
- Conducting supplier audits
To successfully implement supplier management, you need the following:
- A clear and consistent supplier management process
- The right methods and tools (software, documentation, etc.)
- An intelligent information management system (to capture, analyze and securely share supplier data)
What is a supplier audit?
A supplier audit allows you to check whether suppliers are meeting your company’s standards and requirements. As part of an audit, you compare the supplier’s current performance against agreed targets. The audit can help you with supplier selection, as well as with assessments of your existing suppliers.
In addition, supplier audits are required for ISO 9001:2015 certification. Organizations that are ISO 9001-certified meet all the legal and official requirements of the quality management system.
Why supplier management matters
Suppliers play an important role, especially in industrial companies. They are embedded deeply in a company's value chain. As a result, the quality of a company’s suppliers can have a significant impact on its success.
By carefully managing your supplier base, you can get an overview of your global supplier network. You also gain the following benefits:
- You ensure that you always work with the right partners.
- You establish stable supply chains.
- You minimize supply risks.
- You reduce costs.
- You strengthen your competitiveness.
In addition, supplier management helps your company to perform its due diligence in accordance with the Supply Chain Act. The Supply Chain Act has been in effect since January 2023, and it requires that global supply chains comply with basic standards of human rights.
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Goals of supplier management
The best possible results from a good supplier management system are reliable supply chains, high product quality, high customer satisfaction, the best value for money and maximized profits. You can achieve this by selecting the right suppliers to work with and continuously developing existing supplier relationships.
Overall, supplier management pursues both strategic and operational objectives.
Strategic supplier management
Strategic supplier management takes a medium to long term outlook. It aims to optimize the supplier base and add value to the company.
Important goals include the following:
- Maintaining supplier relationships and building trust
- Improving supplier quality
- Exploiting synergies
- Mitigating risks, e.g. by building relationships with multiple suppliers as a backup plan
- Developing ideas and technology together (co-innovation)
- Strengthening competitiveness through high quality and innovation of suppliers
Operational supplier management
Operational supplier management focuses on improving supplier performance and reducing costs. These primarily include short-term goals and activities, such as the following:
- Identifying the right suppliers
- Developing a transparent supplier base
- Negotiating fair prices and conditions with partners
- Pooling purchasing volumes to reduce costs
Supplier management process in 5 steps
As mentioned above, it is important to set up a clearly defined process to ensure the success of your supplier management function. The following five steps are essential for the supplier management process:
1. Supplier onboarding
Basically, supplier onboarding consists of two processes:
In this step, collect the relevant information from potential suppliers and set up your own database. You can then sort and filter the candidates according to the most important criteria that your partners need to have in order to work together.
Next take a close look at the suppliers that come into question. When doing so, put the supplier's information about their services and conditions to the test and evaluate the processes. For example, be sure to check whether certifications are available, determine what quality assurance activities the candidates perform, and understand how they handle documentation. Compare the candidates with each other and choose the best ones to meet your requirements. In the end, you’ll find you have a high-quality supplier base at your fingertips.
Tips for onboarding suppliers
- Define the selection criteria and processes consistently for the entire company to ensure that all locations are on the same page.
- Manage your master data with care so that you always have access to complete, correct and validated supplier information.
- Digitize your documents and manage quotes, contracts, invoices and other documents from your suppliers in a document management system.
- Automate processes, e.g. sharing information. Using a suitable software solution, the suppliers can, for example, independently upload digital product catalogs.
Find the right document management system
Learn what to look for when choosing a DMS.
We lay out clearly and concisely the following aspects for you:
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- How to find the right DMS for your needs
2. Supplier integration
The next step is to integrate the suppliers in the company's processes and organizational structures. The more processes you synchronize, the better you will be able to pool your resources and skills, and exploit synergies. At the same time, you improve your efficiency and reduce costs.
One option for supplier integration is to use networked systems and IT applications for collaboration.
3. Supplier assessment
On one hand, accurate supplier assessments are always important when selecting new suppliers. On the other hand, you should also regularly assess your existing supplier base, in order to improve and further develop the partnerships.
The goal is to assess performance. To do so, you can apply consistent criteria such as price, ability to deliver, and the services offered.
Basically, the following four criteria are important to take into consideration:
Procurement: Procurement or purchasing criteria primarily include prices and cost structure.
Quality: A supplier’s quality can be assessed, for example, based on certifications.
Logistics: This covers the assessment of the order and delivery process, such as reliability and on-time delivery of goods.
Development: Another important criterion is the ability of the suppliers to develop and innovate. This might include, for example, investing in research or implementing process improvement activities.
4. Supplier development
Supported by supplier management, you will identify potential for improvement and plan specific measures to further develop suppliers. The following two options are available:
Active supplier development: You actively develop improvement activities and implement them together with the supplier. This is worthwhile when a partner is very important to your company.
Passive supplier development: You set concrete goals for suppliers, which they implement independently. You have only a monitoring role.
The aim of supplier development is to prepare suppliers for future tasks and challenges.
5. Supplier monitoring
Supplier monitoring involves observing supplier development and assessing the results from the supplier assessment. In short, it is about checking that agreed targets are being met and identifying performance issues early on in your supplier base.
This is the only way you can take appropriate action in a timely manner and, for example, end the partnership, look for new partners, or improve processes.
Manage suppliers effectively with supplier management software
For state-of-the-art, transparent supplier management, you should rely on digital tools. Here are a few of the tasks that supplier management software will help you to accomplish:
- Maintaining supplier master data uniformly and completely
- Making information easily accessible for all stakeholders and remove information silos
- Automating processes, e.g. supplier qualification, onboarding
- Working together efficiently with suppliers, e.g. suppliers can enter information and upload documents on their own
- Making informed decisions based on reliable information
Use an enterprise content management (ECM) platform, for example, to digitally manage and organize all the documents and information related to your suppliers. Our Doxis ECM solution automatically allocates all contracts, purchase orders, invoices and more to the supplier’s correct eFile. Thanks to the many integration options, for example, with SAP, ERP and CRM systems, you always have an orderly, end-to-end view of all the relevant information.
You can also use Doxis to automate the entire purchase-to-pay process and manage cross-departmental tasks.
Note: We are an ISO-certified supplier. Our development company, SER Software Technology GmbH, is ISO 9001:2015-certified. This means that you can rely on us for quality-assured development processes – without extra audits.
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Frequently asked questions about supplier management
The main activities of supplier management include selecting suppliers, conducting supplier audits, monitoring delivery processes, and developing improvement plans.
Supplier management software makes it possible to maintain supplier information consistently and to make this data transparent and accessible to all stakeholders. It also helps with automating processes and improving communications with suppliers. Ideally, an enterprise content management system is used in combination with ERP and CRM systems.
Supplier management enables you to manage and improve your supplier relationships. This ensures high quality, mitigates supply risks, reduces your costs, and strengthens your competitiveness.
To manage the relationships and collaborations with suppliers, companies need to have a transparent supplier management solution. This enables customers to compare and assess suppliers, identify potential areas for improvement, and further develop supplier relationships.