With the expansion of markets, companies are increasingly working with specialized partners to enhance the quality and decrease the production costs of their products. This has led to each company having to deal with a considerable number of suppliers. As a result, the need for effective management practices of suppliers has intensified.
Supplier management has increasingly surfaced as one of the essential strategies for effective risk mitigation and derivation of cost advantages in a supply chain. However, for firms with a lot of suppliers, vendor management can require a large amount of time and resources. This can burden employees in mid-sized organizations, allowing for flaws to creep into the process. So, we have compiled a list of the top five techniques that can help such organizations enable effective supplier management.
1. Supplier consolidation
Supplier consolidation refers to consolidating the number of suppliers that offer related products to an organization. This technique is based on the identification of key suppliers per supply category, giving more business to reliable suppliers and only dealing with them.
Management of suppliers takes time and resources, and as mid-size organizations deal with a lesser number of employees, supplier consolidation can alleviate burdens greatly. Tracking performances also becomes easier when you’re dealing with a small number of suppliers and are ordering in bulk from them: maintaining quality and identifying risks becomes simpler.
In addition, when your company’s market share is dominated by a few core suppliers, you can invest in stronger relationships and work on long-term contracts, gaining purchasing and negotiating power. The superior quality control, assurance of timely deliveries, risk mitigation, and cost savings attained will enhance the organization’s bottom line, paving the way for expansion.
2. Supplier information system
A Supplier Information Management system, or a SIM system, typically comes in the form of an online platform used to obtain, store, update, and assess all supplier data. This allows for supplier data to be channeled from multiple disparate sources, allowing for risks to be identified and analyzed with precision.
Advanced SIM solutions cover the entire supplier lifecycle, from supplier selection and onboarding to invoicing visibility, saving the resources that would otherwise have to be allocated if the process was performed manually.
Its benefits are rather pronounced in mid-size organizations. These organizations have to deal with more suppliers than small businesses, so manual processes take time. And, unlike large businesses, mid-size organizations do not have as many resources to allocate to the process. Therefore, SIM is a particularly suitable solution for them.
3. Leverage and capitalize on technology to do SRM
Technology has transformed processes across the business world, enabling speed and advantages that were previously thought impossible to achieve. Supplier relationship management has similarly been assisted as digitalization reached it.
A survey by Efficio found around 50 percent of its respondents stated information sharing with strategic suppliers is one of the top three most time-consuming activities. This can be particularly cumbersome for mid-size organizations due to their low staffing rates – not a lot of employees or time can be diverted to the process.
Tech-enabled platforms solve this problem by opening digital channels for enhanced communication, allowing transparency, and preventing misinformation. Digitalization grants suppliers visibility into the status of payments; this is particularly helpful in establishing trust and ease between B2B partners.
Features like self-service portals through invoice management systems allow suppliers to access the status of invoices and payments without the need to communicate with the buyers repeatedly. This saves a lot of employee time that is spent on exchanging emails. As the suppliers get assured of receiving payments on time per clear terms, they will appreciate the clarity it gives to their strategic plans. The ease of involving suppliers in the decision-making process through better communication channels will also facilitate the process of collaborative relationships with them.
Moreover, assessing past performances and tracking current performances of critical suppliers becomes feasible by employing technological tools that assess risks and calculate metrics like KPIs, helping with supplier onboarding and changing suppliers when needed.
Smooth P2P processes further facilitate both sides of the transaction. All in all, a tech-facilitated streamlined process benefits both sides of the transaction and allows for the most efficient utilization of resources.
4. Establish KPIs in place to measure supplier performance
Numerical, solid information is irreplaceable. If not present, all decisions are based on scattered data and instincts, naturally leaving room for errors and flaws. KPIs allow organizations to measure and track supplier efficiency numerically. The insight they provide into supplier performance can be crucial for risk assessment and strategically managing relationships for enterprises.
As mid-size organizations often have to deal with many vendors, it is inefficient for them to track the performance of each supplier without automatic KPI measurement.
Automation has deeply facilitated KPI establishment. Procurement software in the market now comes with features that enable automated calculations and tracking of historical and current supplier-related KPIs like Supplier Lead Time, Defect Rate, Order Accuracy, etc. This allows for a strict check on supplier performance so any issues like high defect rates can be resolved right away.
5. Supplier segmentation
Building resilience within an organization includes finding out the criticality of certain supplies and their relevant suppliers and identifying backups in case of a break in the supply chain. This identification and strategic planning become a lot easier when organizations segment their suppliers based on a predefined set of metrics such as supply risk, supply criticality, total spend, etc.
Knowing the extent to which a company is critical to a business’s operations allows it to invest the right amount of resources into long-term relations with that supplier. Vendor management systems allow for segmentation according to risk levels, letting strategic planning commence smoothly. All such advantages can facilitate management and planning to a great extent.
Endnote
Supplier management is vital to managing organizations’ growing number of suppliers. It allows the derivation of considerable cost and quality-related advantages, improves supply transparency, and effectively mitigates risks. However, this process doesn’t have to employ human resources intensively. Medium-sized enterprises can benefit immensely from supplier management software and improve their supply chains, build resilience, and gain stronger control over the variables that can affect their performance. After all, the markets no longer leave space for companies that do not adapt to changes.
Prasanna Rajendran is the Vice President at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.
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