Thursday, 9 January 2014

What is Supplier Management?

What is Supplier Management?

Supplier management is the process of defining the structure for how relationships with suppliers will be developed and maintained. It involves defining certain standards and making sure these are consistently met. Today, increasingly sophisticated and easy-to-use tools for building, automating, executing and expanding Supplier Management are available, but the onus still falls to procurement and supply chain professionals to create effective metrics and processes for driving supplier performance in the directions they need it to move.

The following 8 steps provide a framework used in ITSM for effective supplier management:

1.Define competitive framework: The key question to ask here is, how do we compete? Focusing on how a company goes to market leads to metrics and processes for Supplier Management that can make an enterprise more successful on the specific competitive terms set forth by its leadership.

2.Baseline: The key question to ask here is where are we today? Here the enterprise establishes performance baselines to understand where it stands so as to set new standards.

3.Benchmark: Competitive benchmarks might be difficult to obtain, especially at first. It's okay to delve into the management of the Supplier without them. But they are the piece that confers true meaning to Supplier Performance Management (SPM), so should remain an ultimate goal and integral part of any Supplier Management ecosystem.

4. Target: Involves setting aggressive—yet realistic—performance-improvement targets for the suppliers. These targets need to be high enough to inspire creativity, innovation, out-of-the-box thinking, but not so high as to be unattainable within a reasonable time period, frustrating, or wasteful of suppliers' resources.

5.Design: Metrics design and implementation is a critical piece in supplier performance management. Technology solutions are finally being engineered specifically to address these challenges and pain points, making it possible to create comprehensive—yet simple and cost effective—systems for supplier performance management.

6.Measure: Involves measuring the performance of the suppliers on the set parameters.

7.Improve: Performance targets need to be based firmly in reality but can and should trend upward over time with the objective of either obtaining or maintaining market leadership. If this year's goal for procurement is to move 60% of critical suppliers to a Level 1 performance ranking, then next year's goal might be to move 80% of suppliers there.

8.Reconfigure: Procurement must always be looking ahead to understand what might need to change. They also need to be deploying flexible SPM processes and tools that easily accommodate changes and refinements towards Supplier Management.

Author: zycus
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