I have seen many people talk about this subject over the last few years as risk has grown on the agenda and yet I have seen so few people define it. I would always start a definition by looking this up on the internet. A quick google search turns up 856m results and finds in the first results terms such as supplier relationship management, supply chain management, supplier management software, and strategic sourcing. I want to go into this and show a few of the definitions of supplier management:
Processes for identifying, qualifying, onboarding, transacting, and collaborating with suppliers and trading partners
The process ensures maximum value is received for the money that an organization pays to its suppliers. Because these supplies play a part in the smooth running of an organization, it’s important for both supplier and organization to engage properly and effectively.
Related Article: Aggreko Logistics; Multiple Suppliers, High Costs, Savings Made
What does Supplier Management means?
So as there is no dictionary definition for this it leaves it to someone like me to create my own definition that means something in practice and then has people agree or disagree.
- I would suggest that this is really a continuum with levels depending on the maturity of the organization and the targets that you want to achieve. At its first stage, it must be supplier performance management. You have purchases that you are currently managing whether there are products or services it is making sure that the overall business requirements are met. This may be on-time delivery, maybe ensuring appropriate account management is delivered or other service levels are met. If you cant fundamentally do that then you cant ensure that the actual relationship is delivering the value needed
- At the second level, I would argue that supplier relationship management is key. This is to ensure that the delivery of the above targets is managed through appropriate and effective relationships. How many times have a gone to a client and found that the company spends huge amounts of cash, especially where capital items and the CEO has no relationship with the supplier’s CEO? Even worse there is a relationship but there is no information flow so issues don’t get escalated appropriately. If we can create the effective mapping of the relationship and implement this then the value derived is huge
- At the third level, we then need to look at risk management. This is now a buzzword in supply chain management due to recent issues like product availability due to blockages in the Suez Canal, PlayStation sales reduction due to availability of chipsets. However, this also covers major issues like what happens if that supplier goes bankrupt, what happens if they have an expired insurance policy, and what happens when the supplier has access to key data that they lose. There are so many variables here that it has to be related to the key risks that affect the business. Imagine if a company goes bankrupt that supplies Nissan steering wheels and they are running a Just in Time inventory management system with line stoppages costing $1.3m per hour. I would suggest this is the next level and highest form of supplier management
- Also, this then needs to link to the commercial management of the supplier. When have the fundamental requirements of the business changed so much that we need to reconsider the commerciality of the relationship? When has the supplier changed so much that now we have defined the relationship has changed beyond recognition. This needs to be managed and defined by the procurement function alongside the various levels and complexities of the business
Other Resources: SpendEdge
PDNHub has a definition for each of these in its training materials and we look forwards to sharing this with you.