Supplier Management
Supplier management is part of procurement and refers to the design, control, and development of general supplier-customer relationships.
Definition: What is supplier management?
Supplier management refers to the systematic management of the relationship between suppliers and companies. This includes, for example, the evaluation and sorting of suppliers, cooperation agreements, the involvement of suppliers along the supply chain, the development of supplier performance levels, supplier controlling, and the involvement of suppliers at a specific stage of the supply chain. Supplier management therefore shapes and directs the general relationship between suppliers and customers in strategic purchasing with the aim of creating a supplier database and improving relationships and cooperation with suppliers in order to create synergies for performance improvements and cost reductions.
The steps in the supplier management process are usually as follows:
- In supplier evaluation, suppliers are assessed according to uniform criteria based on their performance.
- Supplier development sets targets with the help of joint optimization programs.
- Supplier integration expands the range of tasks performed by suppliers in order to shift activities upstream.
- Supplier controlling serves to carry out continuous monitoring in order to identify weaknesses at an early stage.
Other tasks in supplier management
- Conducting supplier audits
- Adding suppliers to the supplier master list
- Exploring the market
- Supplier negotiations
- Monitoring external services
What are the objectives of supplier management?
Effective supplier management should shape, develop, and optimize relationships between customers and suppliers. In general, this expands the supplier base, minimizes procurement costs, and makes supplier performance transparent. A uniform methodology for analyzing potential and existing suppliers should be developed in order to make strategic decisions based on this. Strategic goals are medium to long-term and are intended, among other things, to increase supplier quality, maintain or increase competitiveness, and reduce supply risk. Operational goals are short-term and are intended, for example, to increase supplier performance and reduce procurement costs.
Implementing the supplier management process in the company
Supplier management can initially be divided into two areas: operational and strategic. In the operational area, the focus is primarily on purchasing prices, i.e. it is aimed at minimizing costs in the short term. In the strategic area, the focus is on the long-term relationship with the supplier, on processes and the ability to cooperate, as well as on the quality of the cooperation and the goods.
Mostly the strategic part is considered, where a supplier management process should be implemented, which leads to long-term success in purchasing. This process can be divided into 5 steps:
1. Collecting the basic data in purchasing
First, all necessary data for the supplier evaluation is collected. This includes the assortment/service portfolio, prices, location, contact data, delivery conditions, quality of goods, relationships with other companies and also experience values in the business relationship with the supplier, if available.
2. Creation of a rating system and supplier evaluation
On the basis of the data that could be collected, a suitable evaluation system is created, in which the suppliers are sorted and later ordered with regard to important, indispensable criteria, as well as with regard to other criteria that can come into play if suppliers are the same in the most important characteristics. Accordingly, the collected supplier data is then classified in the supplier evaluation system.
3. Potential analysis and classification in stages
The analysis of supplier potential goes beyond the actual evaluation and classification. This is particularly useful when considering switching from existing suppliers to new ones with whom experience has not yet been gained. The comparability based on the collected data and the evaluation thus enables a better assessment. In addition, based on experience in the supplier relationship and knowledge of planned developments, for example in the supplier's product range, the future potential in the collaboration with the supplier is assessed.
Furthermore, a classification by level is defined, which determines the order in which suppliers are approached should a supplier fail.
4. Supplier selection according to defined criteria
The concrete selection of suppliers in the ordering process takes place on the basis of the supplier list with the evaluations and classifications. Depending on the scope of the system, it is defined when who has to contact which supplier for which goods.
5. Controlling and supplier development
Supplier management is an open process. Since prices, assortment and also locations and production processes are in constant change, the supplier list and supplier ratings are always kept up to date. In addition, the criteria used to evaluate suppliers are reviewed at regular intervals to determine whether they are still appropriate. Within the framework of supplier development, the relationship with suppliers and cooperation are to be improved.
Success factors in strategic purchasing
The following factors are usually cited as prerequisites for the success of supplier management:
- Correct data collection
- Determination of suitable criteria for supplier evaluation
- Analysis of performance gaps such as supply bottlenecks or inferior quality
- Up-to-dateness of supplier data and prices
- Definition and integration into manufacturing, sales and other processes
- Optimization of communication with suppliers
- Securing capital transfers
Software for supplier management
Particularly in the area of purchasing and procurement, those responsible are often faced with major challenges. The purchasing department is an important interface and must not only organize the suppliers, but also set up orders, check order confirmations and communicate with (intra-) logistics. In many places, they still work with technically outdated means - a no-go in times of digitalization. Supplier management software helps to digitalize purchasing. For example, it can drive the development of a reliable supplier base. Successful supplier management reduces procurement costs and optimizes the procurement process. At the same time, on-time delivery improves and the performance of individual suppliers is made transparent. In this way, the performance of individual suppliers is made transparent and the quality of supply is continuously improved, so that adherence to delivery dates is also improved. The goal or result of supplier management is a comprehensive list of all existing and potential suppliers, including evaluation, assignment to departments or processes, classification in terms of potential, and definition of communication and payment flows. This should ensure that purchasing can always procure goods with high quality and at the best prices, that it has alternative options in the event of bottlenecks and the like, and that synergies can be created together with suppliers, for example for joint forecasting.
What are the objectives of supplier management?
The objectives of supplier management are multi-layered and align closely with both the operational and strategic priorities of a company. Fundamentally, supplier management aims to establish strong, reliable, and mutually beneficial relationships with suppliers to ensure the seamless flow of goods and services throughout the value chain. Key goals include increasing transparency and efficiency in procurement, ensuring the consistent quality of supplied goods and services, and securing competitive purchasing conditions. Through robust supplier evaluation and continuous performance monitoring, the process aims to identify the most suitable suppliers, drive supplier innovation, and proactively manage risks such as supply bottlenecks or quality deviations.
Strategically, supplier management focuses on fostering long-term partnerships that support business growth, innovation, and resilience. This involves integrating suppliers into strategic planning processes, promoting collaboration on new technologies and market demands, and cultivating shared value creation. Operationally, the objectives are directed at optimizing procurement costs, streamlining purchasing processes, and ensuring punctual, high-quality deliveries. A well-structured supplier management system also enables rapid response to market changes, enhances adaptability, and supports compliance with relevant standards and regulations. Ultimately, the goal is to build a robust, agile supply network that enables the organization to achieve sustainable competitive advantages and support corporate objectives effectively.