What is Supplier Management? A Comprehensive Guide

If you’re running a business and relying on overseas companies to manufacture your products, supplier management should be a critical element of your operations. The art of effective supplier management is the linchpin of modern international commerce.

However, supplier management is not without its challenges. Managing suppliers, especially those situated overseas, can be a daunting task for businesses. Communication delays and logistical issues can arise when attempting to coordinate with suppliers located in different parts of the world.

Similarly, international suppliers can be vulnerable to disruptions, which can lead to delays and shortages in the supply chain, affecting a business's ability to meet customer demands.

This guide will navigate you through the intricate world of supplier management, providing the knowledge and tools needed to thrive in the global marketplace.

What is supplier management?

Supplier management is the practice of identifying, evaluating and developing relationships with suppliers to ensure that they meet a company's supply needs efficiently, reliably and cost-effectively.

Often referred to as supplier relationship management (SRM), it involves various processes and activities that are essential for the smooth functioning of a business's supply chain.

It is a critical part of supply chain management and procurement, as it directly impacts a company's ability to source the necessary materials, components or services to support its operations.

Importance of supplier management

Effective supplier management can have a profound impact on a business's success. Let's explore some of the key reasons why it is crucial for companies relying on overseas suppliers.

Cut down your costs

When done effectively, supplier management can lead to significant cost savings. By evaluating suppliers' performance and negotiating favourable terms, businesses can reduce their procurement costs, which directly impacts their bottom line.

This is particularly important when dealing with overseas suppliers, where transportation and logistics costs can be substantial.

Improve the quality of your goods

Consistent product quality is essential for maintaining customer satisfaction and brand reputation. Supplier management allows businesses to work closely with their suppliers to ensure that materials or components meet the required quality standards.

This is crucial when dealing with overseas suppliers, as quality control becomes a more complex task due to geographical and cultural differences.

Increase your supply chain efficiency

A well-managed supplier relationship contributes to the overall efficiency of the supply chain. By streamlining processes, coordinating activities and improving communication with your supply, you can reduce lead times and ensure that products are delivered on time.

This is especially critical when dealing with international suppliers, as disruptions in the supply chain can have far-reaching consequences.

Manage risks more effectively

Supply chains are vulnerable to various risks, including geopolitical, economic and environmental factors. Effective supplier management helps businesses identify and mitigate these risks.

By diversifying their supplier base and closely monitoring their performance, companies can minimise the impact of unexpected disruptions.

How supplier management works

Supplier management is a multifaceted process that involves several key activities. Here's how it works:

1. Negotiation and onboarding

The supplier management process begins with the negotiation and onboarding of suppliers. This stage involves assessing potential suppliers, negotiating contracts and establishing the terms and conditions of the relationship. It's essential to establish clear expectations and obligations from the outset.

2. Relationship and lifecycle management

Once a supplier is onboarded, ongoing relationship management is crucial. This involves nurturing the supplier relationship throughout its lifecycle.

Effective communication, collaboration and cooperation are key elements of this stage, as they help maintain a healthy and mutually beneficial partnership.

3. Communication

Effective communication with suppliers is vital in supplier management. This includes agreeing on a method of communication, such as regular meetings, emails or electronic data interchange such as through digital supplier portals.

Clear and transparent communication ensures that both parties are on the same page and can quickly address any issues that may arise.

4. Review

Regular review and evaluation of supplier performance are essential components of supplier management. This includes collecting and analysing data and metrics to assess how well suppliers are meeting their obligations.

The results of these reviews can inform decisions on whether to continue the relationship, renegotiate terms or seek alternative suppliers.

The 4-step supplier management process

Chances are you have invested a lot of money, time and hard work into your business. It is important to find a sourcing agent who “gets you” and understands the vision and goals you have for your business.

As you commence international sourcing, the quality of your relationship with your sourcing agent can make a big difference in the outcome. Find a sourcing agent who is willing to take the time to assess the opportunities and possibilities you see for your business.

1. Identifying your own goals

Before choosing your supplier, it is essential for businesses to have a clear understanding of their own goals, needs and expectations. Identifying your objectives is a fundamental step that should precede the selection of a supplier.

This self-assessment not only guides the supplier selection process but also ensures that the chosen suppliers align with your strategic vision.

2. Choose your supplier correctly

Selecting the right supplier is the foundation of effective supplier management. Businesses should conduct thorough research and due diligence to identify potential suppliers that meet their requirements in terms of quality, cost, and reliability.

Factors to consider include the supplier's reputation, financial stability, production capacity and geographic location.

3. Negotiate the best deal with your supplier

Negotiation is a critical aspect of supplier management. Once a suitable supplier is identified, negotiations should focus on pricing, payment terms, delivery schedules and quality standards.

The goal is to secure the best possible terms that align with the company's objectives and budget.

4. Constantly evaluate their performance

Continuous evaluation is crucial to supplier management. Regularly assess your supplier's performance against established key performance indicators (KPIs) and benchmarks.

If a supplier fails to meet the agreed-upon standards or if a better alternative emerges, businesses should be prepared to take action, which may include renegotiating terms or seeking new suppliers.

Looking for a better supplier?

Supplier management is a critical component of a successful supply chain. By following the supplier management process outlined above and embracing effective communication and review, businesses can optimize their supplier relationships and achieve greater success in their operations.

If your business is in search of a reliable overseas supplier, look no further. The Sourcing Co specialises in helping businesses like yours find the right suppliers to meet your specific needs. With our expertise as a sourcing agent in supplier management and a vast network of global partners, we can assist you in identifying, negotiating with, and managing overseas suppliers effectively.