Different terms are used to refer to managing suppliers. Examples include vendor management, supplier management and contract- and supplier management. The common denominator is that they all tie into purchasing and are aimed at managing suppliers. However, there is a nuanced difference in the various terms. If we filter out the main activity, supplier management is the core. But what is supplier management?
The definition of supplier management
Supplier management: “Supplier management consists of the activities to reach choices for suppliers and managing the relationship between the own organisation and its (core) suppliers with the goal of achieving an optimal contribution to the strategic organisation objectives.”
Supplier management versus contract management
Despite the fact that supplier management and contract management are inseparably linked, their scope differs significantly. Supplier management overarches the entire process from purchasing to the termination of contacts. It’s about achieving the organisational goals and how the suppliers can contribute to this. The goal of supplier management is to arrive at the right choice of supplier, choosing the correct form of partnership and managing suppliers after these choices have been made. This is about determining, structuring, setting up, maintaining and monitoring the (correct) supplier relations.
Under the slogan: ‘you can only manage a contract if it exists’, contract management concerns the contract execution and contract termination & evaluation phases. The objective of contract management is to achieve the contract objectives. Proactively steering towards goals to actually achieve the results intended when signing the contract.
Where is then the connection between the two fields? It’s an interaction. In order to achieve contract objectives, it is important to have a good partnership with the supplier. The information about the performance of the suppliers is recorded by contract managers and supplied following experiences within contracts. And these insights are in turn used by supplier management.
Why manage suppliers
Why would you implement supplier management? There are a number of reasons for this. The main reason arises from the increasing degree of outsourcing, which suppliers are increasingly making a part of the core business of organisations. Point by point, we can reduce the reasons to three essentials:
- An increasing part of revenue/budget is taken up by (an increasing number of) suppliers.
- The impact/importance of suppliers is increasing (the value they add) up to the strategic level.
- The success of the organisation and the realisation of the organisational objectives have become strongly dependent on the performance of the suppliers.
Tasks and responsibilities of the supplier manager
Due to the broader playing field, the supplier manager has a broader horizon than the contract manager. The primary task of supplier managers is to select the right suppliers for the organisation and to maintain thriving contact with these suppliers. This includes the following responsibilities:
- Market research into potential suppliers;
- Gaining insight into the organisation’s current supplier portfolio;
- Determining the type of suppliers required by the organisation, now and in the future;
- Selecting, classifying and qualifying suppliers;
- Determining the supplier strategy per category with the related contract type;
- Relationship management;
- Risk management;
- Performance measurement and management.
The CATS supplier management model
In order to structure the activities to be carried out in supplier management, we developed the CATS supplier management model. This also provides practical tools for supplier management. We’ll elaborate on this below. First of all, the model looks as follows:
Governance and management
According to the CATS supplier management model, so-called ‘governance’ is central to the process. This concerns managing the connection between the supplier portfolio management, market connection and relationship management. The ‘governance’ or ‘direction’ creates the connection between these elements of supplier management. This among other things relates to consultation structures. Who discusses when and with whom?
Management is part of this and involves the game of structuring proper commissioning and entrepreneurship, so that they together achieve a good result. The next two points are decisive in this:
- The client (primary process manager) must from the interests of the organisation come up with a clear demand which one wishes to and can afford.
- The client must as primary supervisor ensure the proper reception and subsequent translation of this demand into implementation.
A. Supplier portfolio management
Supplier portfolio management is at the top of the CATS supplier management model. The purpose of this is acquiring an overview of all suppliers with which the organisation is doing or wishes to do business. The segmentation and determination of which activities to be carried out apply to which suppliers is crucial here. Not every supplier is equally important, which is why differentiation in management approach per supplier is important.
B. Market connection
The market consists of all parties who are currently suppliers and parties who could become suppliers in the future. The purpose of the market connection component is:
- Market research: knowing which possibilities are available in the market.
- Letting the market know what the expected future requirements of the organisation are.
C. Relationship management
This is actually self-explanatory: relationship management concerns maintaining the relationship with the supplier. The relationship with the supplier has the following characteristics:
- ‘Real’ partnership;
- Mutual commitment to organisational objectives > this is what is being measured;
- Commitment of senior business management in setting up and maintaining the relationship;
- Large degree of openness and transparency;
- Large degree of interconnection of activities.
Of course, you’re not willing and able to have such a relationship with all your suppliers, which is also part of the segmentation process of supplier portfolio management.
Performance management among suppliers
Another crucial pillar within supplier management which should be mentioned is performance management. This covers all activities which are meant to ensure that the intended objectives are continuously achieved in an effective and efficient way. Supplier management only thrives when performance management is examined.
As you can read, supplier management is an extensive and important task for the organisation. Organisations are increasingly dependent on their suppliers for their success, which means supplier management has become one of the core tasks of organisations.