After engaging with numerous customers, a prevailing mistake becomes evident—applying a “one size fits all” approach. In reality, varying supplier relationships demand specific approaches to effectively balance risk management, regulatory compliance, sourcing strategy, and business efficiency.
The initial and crucial step is for procurement managers to acknowledge that not all suppliers share the same requirements. These requirements can differ based on the nature of the commodity or service provided, the geographic location, and/or the specific business unit being served. For example, sustainable practice regulations in Australia may diverge from those in the United States, and the requirements of a customer’s business unit serving the Government will differ from those of a business-to-consumer company.
Attempting to manage all controls for all suppliers through a uniform process significantly hampers efficiency. It not only slows down the overall process but also compels users to seek expedient workarounds for supplier onboarding and management that align with the pace of their business operations.
Here are some helpful tips on how to master the supplier management process:
Supplier Onboarding: Simplified Process for Effective Collaboration
The supplier onboarding process is essential in establishing a successful partnership between a customer and a supplier. It involves gathering essential information such as the supplier’s name, address, and other basic details to gain approval for a sourcing event. However, many process designs tend to overlook the primary onboarding activity, which focuses on gathering transactional data required for a one-time invoice payment.
To ensure a streamlined onboarding experience, it is advisable to divide the process into two distinct steps. The initial step involves collecting sufficient information to assess the feasibility of working with the supplier. If the preliminary criteria are met, the process can proceed to manage more detailed or transactional information.
While customers often emphasise the middle phase, where long-term goods or services are expected from the supplier, it is necessary to recognise the significance of gathering initial data efficiently. By implementing this approach, organisations can enhance their supplier onboarding process and establish productive collaborations.
Supplier Qualification
Supplier qualification is a crucial aspect that is often disregarded when it comes to making source-to-pay decisions. Many fail to realise the significance of performing due diligence on a supplier and leveraging that information in the decision-making process. However, when qualification becomes a prerequisite for decision-making, it hinders suppliers’ tendency to expand into areas that may not be strategically or financially viable.
By incorporating customer experience best practices, it becomes evident that qualifying suppliers as part of due diligence activities significantly mitigate the inherent risk of supplier outages. Thus, it is essential to recognise the importance of supplier qualification and the role it plays in enhancing the overall efficiency and reliability of the sourcing and procurement processes.
Supplier Management & Monitoring
Supplier management and monitoring require attention in the lifecycle, particularly for critical suppliers whose disruptions could significantly impact their customers’ operations. Many organisations make the mistake of focusing on risk management only during the onboarding phase and neglecting ongoing monitoring as part of supplier management.
Although the frequency may vary across industries, critical suppliers typically remain unchanged for extended periods. Without an automated process for monitoring suppliers’ risk profiles, customers face difficulties in promptly identifying and responding to any potential disruptions affecting the supplier or their own operations.
In terms of numbers, the majority of suppliers have low impact and account for approximately 80% or more of the total count. However, customers typically prioritise managing the most critical 1% to 5% of suppliers. Hence, it becomes imperative to establish an automated monitoring process that enforces appropriate risk thresholds, ensuring adequate coverage and timely mitigation of potential risks.
Supplier Performance Management
Supplier performance management ensures the efficient functioning of the supply chain. It involves evaluating and monitoring suppliers’ performance to ensure they meet the desired standards and deliver goods or services on time, within budget, and at the expected quality.
Effective supplier performance management requires establishing clear performance metrics and key performance indicators (KPIs) that align with the organisation’s strategic objectives. These metrics can include delivery timeliness, product quality, responsiveness, cost competitiveness, and compliance with contractual terms.
Regular performance assessments and evaluations help identify areas for improvement and allow for constructive feedback and collaboration with suppliers. By maintaining open lines of communication, procurement professionals can work together with suppliers to address any performance issues and drive continuous improvement.
Supplier performance management also plays a vital role in risk mitigation. Monitoring supplier performance helps identify potential risks such as delivery delays or quality issues, allowing proactive measures to be taken to minimise disruptions to the supply chain.
Supplier Off-boarding
Supplier off-boarding serves as the final stage that presents an additional chance to assess risk factors beyond the mere act of ensuring a proper off-boarding process by the supplier. It is essential to re-evaluate the consequences of ending the business relationship across different dimensions. This entails carefully examining its potential impact on aspects such as supplier single/sole sourcing, strategic objectives like diversity targets, and sustainability goals.
By thoroughly evaluating the ramifications of terminating the association with a supplier, organisations can gain a comprehensive understanding of the potential risks involved. The examination encompasses an assessment of the supplier’s contributions to the organisation’s supply chain, including any reliance on their exclusive products or services. Moreover, it involves analysing the implications of severing ties with regard to the organisation’s broader objectives, such as promoting diversity and meeting sustainability targets.
Through this reflective process, we believe businesses can make informed decisions regarding the supplier management process and minimise any negative consequences. By considering various factors and evaluating risk comprehensively, organisations can ensure a smooth transition while safeguarding their strategic objectives and long-term sustainability goals.
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