Let’s get straight to the point and begin by saying that supplier management ensures all contracts with suppliers support the needs of your business. Easily summed up in broad terms, it’s the management of relationships with vendors that supply goods and services to an organization.
Every business will purchase goods, raw materials, and services from vendors at some point in time hence the need for a streamlined supplier management process is critical.
Starting from onboarding the suppliers to managing and communicating with them, the approach you take will determine whether you are successful or not. Organizations that do create a well thought out supplier management framework then run the risk of being hit by unpredictable supplier behavior and problems with their supply chain further on.
Let’s go for an example; a local company was sending an entire container load of products back to China due to defective parts. This certainly had a negative impact on their customers because their goods were delayed. They were spending months on end to get the new shipments in or eventually had to start over again. This type of supplier unreliability leads us to think about backup suppliers.
All factors such as supplier lead time, reliability, safety stock, etc are of critical importance. Focusing on improving supplier management will maximize service, profit, and cash flow. In this situation, supply chain processes to consider would be to enable vertical integration, supplier consolidation, and supplier rationalization, all aimed at reducing supply chain costs and improving efficiency.
The bottom line is that the proactive management of suppliers is of ever-increasing importance in today’s robust business environment. If you don’t have what you need, when you need it, where you need it, in good quality, and within cost guidelines, you are likely to lose out over your competitors.
Ask yourself first, is your supplier a partner? Or someone to negotiate with and take advantage of?
Thinking about cost at all times is understandable as all companies want to structure themselves in order to achieve some sort of scalable growth and top management seems to be very interested in profits and cost. However smart executives realize it is quite easy to sacrifice the future by saving pennies in the present.
Over the past few years, mistakes were made when outsourcing was demanded by the executives and it didn’t matter whether it made cost-sense or not. Nowadays there is a demand for supplier concessions without considering its impact on the extended supply chain. Hence we should be looking at the total cost with respect to suppliers' value perspectives so our focus is well rounded and leads to positive outcomes.
Investing financially upfront in order to achieve longer-term success is a viable option. For example, keeping a more expensive backup supplier and giving them a significant percentage of the volume would increase cost however this risk mitigation technique will ensure the goods are supplied on time because when materials go on allocation, some suppliers struggle or the ports/transportation infrastructure breaks down as we saw during the pandemic, therefore those who plan for these inevitable bumps in the road have uninterrupted supply from their backup supplier and can satisfy their customers while their competition falls further down the rabbit hole.
We at Waasla emphasize that you think about your suppliers like a partner!
