Procurement & Sourcing: Place the Supplier at the Heart
Supplier performance is a strategic part of business procurement since suppliers are crucial elements of the supply network. By aligning supplier management with other activities and processes of procurement, a company can avail a wider pool of lucrative opportunities and prospects.
Procurement is the process of obtaining and buying goods and services from an outside supplier. Over the years, the focus of procurement has undergone a significant change.
Initially, the term “procurement” was used to denote the basic supplies of raw materials and resources needed for construction, industrial and business purposes. During the Industrial Revolution, and the period following immediately after, procurement was all about serving the needs of fledgling businesses and industries.
The need to keep written records of goods and services procured arose in the 1920s and since then, recordkeeping became a key focus. Law firms burgeoned in the 20th century, and thereby came the need to make all business agreements, including procurement, legal. The focus of procurement thus shifted to cementing business ties through legal contracts.
Some two decades ago, procurement became more scientific and methodical with the introduction of category management, whereby companies split their spending and resources into different areas in terms of categories of goods and services procured. And now, supplier management is all set to become the new focus of business procurement.
Why Supplier Management Remains Understated
Many sourcing agents fail to understand the importance of supplier management in the process of procurement. A key reason for this is the lack of a cohesive supplier management model that aligns various procurement cycles together.
Instead, most companies continue to rely on either one of two standard procurement methods, eProcurement or eSourcing, but not on both. The available tools and technology do not yet support an extensive, well-rounded supplier management approach.
Importance of Supplier Management
Suppliers are a central part of a company’s operations and processes. A huge chunk of business resources are invested into procurement activities. Without a stable supply network, entrepreneurs may soon find themselves in trouble. Supplier-related issues can have far-reaching impacts with potentially devastating consequences, such as financial losses, interruption of operations, damaged reputation, etc.
Contrarily, a well-managed supply network can open up windows of opportunities for a company. Through its suppliers or a sourcing agent, the business can gain access to new markets and innovative ideas. Suppliers are thus the key link in the procurement process and should be given central consideration.
Benefits of Implementing Supplier Management Best Practices
Here’s how supplier management best practices can benefit a sourcing agent or a company working with international suppliers:
- It can lead to better risk management.
- It can be a powerful way to develop credibility with stakeholders.
- It adds value to the business by bringing in greater innovation, better resources, new ideas, and improved overall performance.
- Maintaining a well-developed supply network improves the overall procurement process.Stages of Supplier Relationship
The five stages of supplier management include:
This is the stage where the supplier actually starts business with the company. There is a need to obtain thorough information about the supplier at this stage.
Corroboration of Information
Verification of information is needed when the supplier or their function is particularly high-risk, to ensure the right supplier is selected for the task.
Supplier Performance Management
The company needs to monitor and track its supplier relationships to ensure supplier performance complies with the terms of the contract.
Supplier Relationship Management
In case there are multiple contracts with a supplier, there needs to be an awareness of supplier function and performance throughout the organization, to see how they can fit in with and benefit the company as a whole.
Supplier performance is a strategic part of business procurement, since suppliers are crucial elements of the supply network. By aligning supplier management with other activities and processes of procurement, a company can avail a wider pool of lucrative opportunities and prospects.
About the author:
Shruti Agrawal is the Managing Director of Excella Expertise LLC – The marketing partner of Excella Worldwide. Her electronics engineering background encourages her to be on the lookout for ways to challenge and disrupt business models to make them better. She has a keen eye for architecture and design paired with the ability of recognizing trends that work, which allows her to put forward value for her readers in the content she creates. Her experience in the procurement and sourcing industry only adds to this.