Supplier Management: Definition and Processes


Having a network of top-notch suppliers is essential for any company producing goods or services. But how do you manage these external partners to maximize efficiency, reduce costs, and mitigate risks? That’s where supplier management comes in.

In this beginner’s guide, I’ll walk through what exactly supplier management involves, why it’s so critical, and provide tips to level up your supplier relationships. Let’s do this!

What is Supplier Management?

Supplier management is the strategic process of proactively finding, selecting, onboarding, and managing the network of vendors that provide raw materials, components, equipment, and services to your company.

It involves continuous monitoring and improvement of supplier relationships to ensure they meet the needs of your business when it comes to cost, quality, reliability, technology, and innovation.

Supplier management allows companies to:

  • Source from the best vendors providing the most value
  • Negotiate optimal pricing contracts and payment terms
  • Integrate suppliers into new product development
  • Uncover and capitalize on supplier innovations
  • Mitigate supply chain disruptions and risks

Clearly, supplier management is far more than just paperwork and transactions. Done right, it enables collaborative win-win partnerships.

Key Supplier Management Processes

So what are the most important processes involved in managing your suppliers? Here are some of the top ones:

Supplier Selection – Research and vet potential new suppliers using criteria like capabilities, quality systems, financials, costs, lead times, location, and sustainability.

Onboarding & Contracting – Perform due diligence and onboard suppliers through contracts establishing pricing, SLAs, performance metrics, and terms and conditions.

Performance Monitoring – Continuously track supplier performance on delivery, quality, costs, technology, and communication. Monitor for any changes or risks.

Risk Management – Identify and mitigate potential supply chain risks through contingency plans, demand forecasting, safety stock, and supplier audits.

Relationship Building – Foster collaboration, knowledge sharing, and transparency with key suppliers through routine business reviews, site visits, innovation workshops, and more.

Ongoing Optimization – Work together to implement improvements like streamlined processes, JIT inventory, new technologies, and sustainability practices that benefit both parties.

By mastering these core pillars of supplier management, you gain access to world-class suppliers and supply chains that enhance operational performance. It takes work, but the impact on costs, quality, innovation and risk mitigation make it one of the most crucial business operations.

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