Why is Supplier Management So Important? A Detailed Analysis

Supplier management is the process of ensuring that the money a company spends on suppliers yields maximum value. The goal is to ensure that all contracts with suppliers meet the business needs of the company.

At first glance, supplier management might seem simple—establishing proper relationships, managing requirements, and maintaining clear communication with suppliers are crucial. This means that companies need a comprehensive supplier management policy. But what exactly is supplier management, why is it important, and how can it be effectively implemented? Lets explore these questions together.

What is Supplier Management?

Supplier management is a step in the procurement process. It involves overseeing all supply chain relationships and identifying ways to improve supplier strategies.

The need for a supplier management process isn’t limited to large multinational organizations. In fact, nearly every company will at some point purchase goods, raw materials, or services from third parties. Therefore, the approach a company takes in accessing, managing, and communicating with suppliers has a critical impact on its success.

Many companies fail to invest enough thought or time into defining their supplier management framework, which can leave them vulnerable to unpredictable supplier behavior or supply chain issues.

Why is Supplier Management Important?

There are several reasons why supplier management is important. For one, it plays a key role in selecting the right suppliers for specific business needs. Additionally, businesses can use supplier management to achieve goals such as cost-saving opportunities and speeding up the onboarding process.

Its a simple truth—you can only be as good as your suppliers because they have a profound impact on your company. Good suppliers (and strong supplier relationships) can help a business grow and increase its profitability. On the other hand, inefficient or unreliable suppliers can cost a company significant time and money.

How to Effectively Manage Suppliers

A flexible and intelligent supplier management solution can enhance collaboration and relationships with suppliers. For example, 8Manage SRM is a comprehensive supplier management software that provides automated workflows for the entire supplier lifecycle, including self-registration, qualification, categorization, onboarding, ongoing management, and strategic relationship management.

1. 360-Degree View of Supplier Data and Performance:  

8Manage SRM offers visual and interactive dashboards that provide an overview of all supplier activities and risks. By leveraging third-party data, all supplier quality information—such as basic information, qualification audit data, bidding/quotation/prequalification, contracts/deliveries/payments, performance information, and related documents—can be stored in one database. The system automatically tracks and stores audit results and KPI information (such as delivery delays, rejection rates, and quantities).

2. Ensure Product Quality and Accuracy:  

8Manage SRM provides quality agreement and planning features that allow you and your suppliers to establish and adhere to agreed quality standards. The system also improves supply chain visibility by sharing information about issues in transit, making the planning process easier.

3. Smart Supplier Onboarding and Management:  

8Manage’s flexible registration rules can handle specific supplier requirements by category and manage multiple evaluation factors, such as segmentation, quality, and risk. KPI-driven forms and workflows enable AI to monitor accuracy and update supplier information when changes occur.

4. Real-Time Tracking of Transaction Outcomes:  

8Manage SRM supports setting measurement criteria for each deliverable according to service level agreements (SLAs). During the execution of procurement contracts, the system detects deviations from the quality level agreement in real time, automatically calculates penalties, and issues notifications. The system also supports centralized tracking of issues and actions, providing automatic reminders and escalation mechanisms.

As the economy becomes more globalized, involving suppliers in your business processes has become inevitable. Effective supplier management not only ensures that your business needs get the most value but also provides a competitive edge by helping you reduce costs through improved quality of goods and services. As a technology solution dedicated to establishing and maintaining long-term, close partnerships with suppliers, 8Manage SRM plays a vital role in optimizing company performance by enhancing collaboration and communication with suppliers.