In Procurement, Supplier Management refers to the meticulous process of managing and improving interactions with third-party vendors that provide goods or services. This includes assessing the suppliers’ strengths and capabilities in the entire lifecycle of a supplier in an organization relating to overall business strategy. Supplier Management aims to uncover and realize maximum value and reduce the risk of failure.
For many, the theory behind supplier management may seem complex. Among risks, relationships, software, and systems there is a lot to think about, but we are here to give you an all-rounded overview.
In this blog, we will talk about what Supplier Management is, and why Managing Spend is a critical success factor to any supplier relationship strategy.
What Is Supplier Management?
The word supply management refers to the act of finding, obtaining, and managing resources and suppliers that are vital to the operations of an organization. In other words, this is known as Supplier Management Process. Supply Management consists of the buying of physical goods, data, services, and any other essential resources that allow an organization to operate and grow continuously. Supplier management is the relationship that is established between a buyer and supplier, subject to goods or services being obtained and supplied into your organization which in turn defines the type of working relationship that you should look to develop with your suppliers. Supplier relationship management is a fundamental soft skill for all managers involved in purchasing and supply.
Why is Supplier Management Important in Spend Management?
To improve business proficiency and continuously add to new competitive advantages, organizations are required to rely on supplier relationship management especially given how unpredictable the business environment can be. Consequently, ensuring you have a strong and healthy relationship with your suppliers allows for your business to achieve a much stronger and improved service as well as allowing you to procure effectively. By doing all this you are able to maintain a balanced rapport in the long run.
By placing great importance on Supplier Management in Purchasing and Sourcing, organizations can benefit significantly with the following:
- A greater sense of control and knowledge of what is occurring within their supply chain.
- Obtain higher quality of products or services.
- The power to make improved business decisions, preventing disruption as well as allowing organizations to stay informed on exactly when goods or services are expected to arrive.
Learn More:– Purchase Price Variance
How is Supplier Management Implemented in an organization and what are the benefits?
In today’s competitive corporate world, a company’s supply chain is crucial for its success. A study conducted by Deloitte found that:
Organisations that position their supply chain as a strategic advantage deliver 70% improved results than their peers, and that 79% of ‘’leaders in supply chain’’ reported ‘’significant’’ revenue growth which was more than the industry average.
In our expertise, it is clear to see that the organizations who clearly disregard even one area of the supply chain are sure to run into challenges which they could have easily prevented with the help of better preparation.
Most businesses would already have a method in place where they are managing their vendor relationships, there is however always room to improve this further.
Below are just a few steps you can employ to help build and establish a solid spend management strategy:
1. Spend visibility
Granular classification of spending down to level 4 plus, Spend Analysis will eliminate hidden costs, identify maverick spend and allow for managing or tail spend indirect spends. However, tracking the amount spent on each vendor manually can be a time-intensive task.
By implementing an automated spend analytics system, organizations can inject data and prioritization into the sourcing strategies and have better alignment with cost to value with their vendors. This forms the basis of a positive supplier management process.
Learn More:– Spend Analytics Solutions
2. Value mapping:
Nearly all organizations concentrate mainly on cost-cutting initiatives when looking at spend analytics solution. When looking at value mapping, organizations can go beyond cost-cutting plans and concentrate on value drivers such as increasing revenue, asset deployment, and risk reduction. Value mapping allows organizations to recognize where involvement is necessary or valuable.
Determining even the smallest amount of mutual trust, consideration, and respect with suppliers through open interaction is a minimum for you to be able to obtain quantifiable business values. A well-defined and robust supplier relationship management approach will extract the best value for everyone involved.
3. Top-down approach:
Quite often, the responsibility of supplier or vendor relationship management falls on the shoulders of those within the procurement team alone. Supplier relationship management strategy is therefore all about expertise; it can never be accomplished without onboarding core internal stakeholders.
Implementation of the process, therefore, begins at the top and moves downwards through the positions of managers and staff. This top-down method guarantees that every stakeholder has a transparent insight into potential gains that can be obtained. A successful strategy aligns effortlessly with the process, people, paperwork, and the organization’s overall strategy.
Learn More:– Procurement Analytics
4. Spend Optimisation:
Tactical sourcing has gotten to a point of overload where the returns are declining gradually for certain categories. Practically, all ‘low-hanging fruits’ have been selected and so separating value through consolidation and tendering is becoming difficult.
Managing supplier relationships allows for a combined supply chain analysis, process re-engineering, shared demand management, lowered inventory and total cost modeling produces total cost savings and improves overall organizational spend.
5. Mitigate Risks:
All organizations regardless of size, experience supply chain disruption of some scale due to goods or service quality concerns, dependency, price unpredictability, and more. Nevertheless, companies that have an acceptable Spend Management solution in place can better foresee and handle these disruptions.
The different types of risks a company can face when it comes to supply depends specifically on the corporate and procurement frameworks applied. Supplier risk segmentation can assist an organization in identifying any risks and alleviating them efficiently. Strategic implementation of tools such as the Kraljic Matrix can be applied to segment suppliers based on threats they present and the value that they propose.
6. Positive ROI
Almost all purchasing teams face obstacles in obtaining the commitment and financing for their spend management approach. The most important reason is that they have problems in constructing a business case study that determines the financial advantages.
Procurement teams can begin by assessing benefits through appraising the effect of risk mitigation, price leakage due to non-compliant agreements, and reporting exciting consumer stories through case studies. Through the proper involvement of the finance teams, the procurement teams can encapsulate the impact spend management creates on the company’s balance sheet.
Simfoni has developed a new approach to spend management, which we call Spend Automation as it removes the upfront financial cost and implementation risk associated with traditional Spend or Supplier Management solutions. Request a demo of Spend Automation
Why is Supplier Risk Management important?
The on-going COVID-19 pandemic has transformed the business environment for countless organizations around the world and has ultimately emphasized the significance of being able to respond, adjust and set up crisis management systems to withstand situations of uncertainty. As restrictions and lockdowns continue to affect everyone around the globe meaning that business operations typically required immediate attention during the wake of the pandemic, where most businesses have now moved into a “recovery approach” and have started preparing for the longer term. As businesses seek out to improve operations and business resilience, the significance of supplier risk management and supply chain resilience is more apparent now.
Learn more:- Spend Analytics Guide The comprehensive Guide by Simfoni’s Procurement Professionals
What about Supplier Management and Compliance?
While there are many ways to look at it, the value of supplier information management for compliance is not specific to a role but has shared value across several different functions.
Compliance requirements are pervasive and most often dictated at very specific points in a supplier workflow process such as onboarding, performance and risk management. To be successful at supplier compliance management, organizations must follow a “consistent” process for ensuring that requirements are actively monitored or executed under specific guidelines across all the various business units. Moreover, sharing the compliance responsibility requires visibility across various functions from internal stakeholders such as sourcing, procurement and supply chain, to suppliers, and even to auditors and other outside parties. As a result, businesses today need the ability to quickly adapt their compliance approaches.
How to Improve Supplier Relationship Management Using Simfoni Analytics?
Simfoni Analytics and Spend Automation solutions can help improve your organization’s through its relevant Spend Analytics Dashboards, Opportunity Assessment, Savings Tracking, Sourcing, Marketplace, Supplier Performance and Buy Desk which assists your procurement teams to track KPIs, perform spend analysis, identify opportunities to save, and allow teams to implement overall cost reduction strategies.
The Simfoni Dashboards apply visualization to create accurate, company-wide metrics and reports about your KPIs and strategy performances. These dashboards ultimately track your organization’s processes and execute analysis to present metrics regarding business operations in the past week, month, or quarter. Not only do these dashboards deliver your business with the capability to perform complete spend analysis, but they also play a critical role in your overall strategy thus enhancing supplier performance and vendor relationships.
The dashboard compiles AI-powered spend data and can rapidly generate emergency reports or monthly reports to pinpoint opportunities for improvement. The accurate tracking data will allow you to identify strategic sourcing opportunities, see total costs, set benchmarks and KPIs to help achieve your business’ future goals. Procurement teams can leverage these in-depth reports in strategy meetings with their peers, stakeholders, CFOs, and CPOs to convey goals and department needs successfully.
In addition to beautiful dashboards to visualize your spend, you can orchestrate the entire savings lifecycle with additional modules such as Opportunity Assessments, Saving Tracking, Sourcing, Should Cost and Savings Reporting creating synergies through the entire procurement process. You will now have the technology to drive significant cost savings having a direct impact on profitability.
Contact us today to learn more about how Simfoni’s technology and processes can help your organization achieve world-class Spend Analytics, Savings Tracking, Spend Management, Supplier Management Benchmarking & Tail Spend Management Solutions.