Supplier Management

What is Supplier Management?

Suppliers are natural or legal persons who supply goods or services to other persons or businesses. Supplier management is a term used to describe finding, qualifying, and doing business with suppliers. Typical activities include researching vendors, negotiating contracts, getting quotes, evaluating performance, creating and updating vendor files, and making sure payments are correct.

Once an enterprise decides it has a need that needs to be outsourced, supplier management begins. The company must find one or more suppliers that can provide the required product or service and evaluate each supplier based on price, capability, turnaround time, quality of work, and the company’s reputation. This process often entails asking for a quote, checking links, and researching the company through online resources. It may also include checking the potential supplier’s financial strength, insurance, and certification.

Once vendors are selected, vendor management consists of managing the pool of vendors, assigning jobs or contracts as needed, monitoring vendor performance, and enforcing contract terms. In large companies, the vendor manager often has more than one vendor in the pool for each type of service product. Certain vendors may be preferred, meaning they are the first choice when a project arises. Others may be backup providers that will be called upon if the preferred provider cannot accept or complete a given project.

Supplier management often involves a large number of electronic or manual documents. Many accounts payable systems require vendors to be set up in the database. It may require collecting supplier contact information, insurance certificates, and tax identification numbers. If the provider has access to proprietary or proprietary information, a non-disclosure agreement or similar agreement will usually need to be signed and placed on the provider’s files. Many companies require supplier files to be updated annually, so the supplier manager must ensure that current documents are received yearly.

The term “Supplier Management Services” is commonly used in business operations, but individuals may also manage vendors from time to time. A homeowner, for example, may need to contract with a roofer or interior designer; in this situation, he will need to receive offers, choose a supplier, monitor the quality of work, and process payments, as a business does. Hairdressers, insurance agents, childcare, and similar personal services are also examples of providers that a person may often work with.

The main tasks implemented in the “Supplier Management” functionality are:

  • Monitoring of the resource market (goods/works/services)
  • Search and evaluation of sources of supply, incl. global suppliers
  • Building and streamlining the supplier base
  • Developing supplier relationships
  • Monitoring the effectiveness of supplier interactions and benchmarking

Most of the tasks of supplier management listed above are currently being developed within the framework of one of the three macro-processes of the supply chain – SRM ( Supplier Relationship Management ) – ” Supplier Relationship Management. ”

All successful companies plan long-term relationships with their suppliers, building a bridge between their organization and the external resource vendor. SRM in this regard is the management of supplier resources on a global scale, using advanced tools and information technology. The concept under consideration implies the existence and development of a wide range of solutions that improve the performance of supply activities for consumers through:

Current communications about the current and expected performance of each supplier;

  1.  objective information and feedback from the supplier regarding the actual performance of its functioning;
  2.  data management support for the selection of preferred suppliers and their ranking;
  3.  identifying, evaluating, and measuring opportunities to reduce overall procurement costs [1].

The concept/technology of SRM appeared as a result of the following objective reasons for the development of business in general and supplied in particular:

1. Inability to effectively manage procurement throughout the entire supply chain using existing methods and tools:

  1.  lack of a process approach to supply;
  2.  spontaneous growth in the number of suppliers and purchased products;
  3.  the low percentage of purchases under contracts;
  4.  inefficient planning and interaction of counterparties in supply chains;
  5.  insufficient consideration of the logistical constraints of consumers by suppliers.

2. Difficulties in finding the right products and suppliers with the desired characteristics:

  1.  the necessary information is stored in various systems;
  2.  there is no general classification of data. Incomplete and conflicting data;
  3.  disparate catalogs of suppliers.
  4.  Inefficiency of manual procurement procedures, in particular:
  5.  selection of the necessary products and coordination of characteristics;
  6.  analysis of procurement costs;
  7.  Creation of requests and evaluation of proposals.

The interpretation of the SRM concept/technology content has not yet been established. However, most experts understand it as all aspects of interaction (from strategic goals to information support) of a consumer company of external resources with the base of their suppliers.

In particular, a standard definition of SRM from the point of view of supply chain management in American practice is the following: SRM is a coordinated program of actions developed jointly by the consumer and the supplier to improve overall performance and reduce the overall costs of the supply chain.

In interacting with suppliers, attempts to improve their performance are usually based on the metrics (KPIs) used to evaluate supplier performance. With the implementation of SRM, improvement and the KPI system are dealt with jointly by the consumer and the supplier. Moreover, according to the SRM philosophy, both parties assume joint obligations regarding the selected indicators, including investment, resource allocation, and meeting deadlines, contributing to closer contact. Both parties are working towards the common goal of improving the efficiency of the supply chain, and both have a direct financial interest in making the relationship strong.

The foundation of SRM (including information) is procurement processes aimed at improving supplier relationships through a deeper understanding of the operational aspects that affect these relationships in everyday interaction.

Information companies (system integrators) often use an iterative interpretation of SRM as a sequence of primary stages: sourcing, procurement management, and analytics.

Supplier Relationship Management (SRM) refers to strategic sourcing, sourcing, and analytics to support comprehensive purchasing decisions from a supplier selection perspective.

Sourcing – defines the cycle in the procurement activities regarding the choice of the source of purchases – identification, evaluation, and establishment of contractual relations with the optimal group of suppliers. Strategic sourcing optimizes your purchasing capabilities to reduce costs and delivery times for goods and services. Strategic sourcing agreements define areas of expertise to help customers develop a successful, long-term sourcing strategy and build strong supplier relationships using standard INCOTERMS.

Purchasing management is the second step in the supply cycle. Solutions in this area should eliminate bottlenecks and waste money and time in a typical procurement procedure. Purchasing management must provide effective supplier-customer communication, solid online support for procurement workflows, and eliminate non-contract procurement to better control costs throughout the supply chain. Ultimately, a properly built supply should increase the return on investment invested in it.

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Analytics and business intelligence, the third part of SRM, as part of the overall information support for supply chain management, should give the company’s purchasing managers and financial analysts a clear picture of all indicators (KPI) related to the procurement activities and the performance of suppliers.

As one of the examples of the practical implementation of SRM, consider the company – the system integrator i2 CIS [4]. The SRM circuit in the i2 CIS implementation is shown in fig. one.

Rice. 1 Outline “SupplierRelationshipManagement”

Rice. 1 Outline “SupplierRelationshipManagement”

The supplier relationship management loop consists of three interrelated perspectives:

  • Creation of a global purchasing strategy.
  • Implementation of the developed strategy.
  • Support and improvement of all purchasing initiatives and processes, from new product design to delivery.

As part of the SRM technology, the supplier and the consumer informationally combine a unified user interface that allows you to implement all the necessary transactions. The basis of interaction is the procurement strategy in the supply chain (Contract Manufacturing Companies In Mexico), introducing new products to the market, the organization, and monitoring procurement procedures.