As soon as purchasing is handled strategically in a company, this can be described as supplier management. Supplier management includes, among other things, the selection of suppliers, the development and maintenance of a supplier base, the evaluation and sorting of suppliers up to cooperation agreements as well as the inclusion of suppliers within the value chain.

What is supplier management?

Supplier management refers to the systematic management of the relationship between suppliers and the company. This includes, for example, supplier evaluation, the development of supplier performance levels, supplier controlling or the inclusion of suppliers at a specific stage of the supply chain. Supplier management thus shapes and directs the general relationship between suppliers and buyers 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.

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

Goals in 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.

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