Another important strand in the evolution of purchasing, procurement and supply management terms is the question of “what supplier management means” and its relation to purchasing, supplier relationship management (SRM), and procurement. In this article we will explore the meaning of supplier management and on which activities it is focusing.
Supplier management may be defined as:
The aspect of procurement concerned with rationalising the supplier base and selecting, coordinating, appraising the performance of and developing potential suppliers and, where appropriate, building long-term collaborative relationships.
Supplier management include the following main strategic activities:
- Make / buy / outsourcing decisions.
- Sourcing & appraising suppliers including global suppliers.
- Rationalising the supplier base.
- Developing potential suppliers.
- Early supplier involvement.
- Negotiation and contracting.
- Supplier relationships including partnerships, co-makership, and supplier associations.
- Capital equipment purchasing.
- Monitoring supplier performance.
- Ethical and environmental issues.
Supplier management is a more strategic and cross-functional activity than “buying or purchasing”, which is including more transactionally and commercially biased activities such as:
- Non-critical (low-profit impact, low-supply risk) items.
- Ordering or calling off suppliers / services.
- Order expediting and chasing for goods receipt.
- Receipt and storage of supplies.
- Maintaining inventory.
- Arranging and effecting payment to suppliers.
In the meanwhile, the term “Supplier Management” is often used interchangeably with the term “Supplier Relationship Management – SRM” which means: an approach between two parties to work collaboratively towards the integration of their organisations, where that integration will bring greater value for money for the customer and enhanced margin for the supplier, and will assist in meeting the strategic objectives of both.
The most successful relationships are those where customers and suppliers develop trust, an understanding of their respective requirements and interests, and provide competitive advantages for both parties.
Potential advantages of successful and diligent SRM:
- Reduction in the impact of price fluctuations on cost structures.
- Achieving greater product innovation through early supplier involvement (ESI) in product and service development.
- Improved risk management and continuity of supply.
- Improved quality.
- Transfer and flow of information through the supply chain.
Purchasing, supplier management and even supplier relationship management are activities within the umbrella function of “Procurement”, which reflects the more proactive, relational, strategic, and integrated role of the function in modern organisations.
I hope this has been of interest to you and furnished you with some knowledge to consider.
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ABOUT THE Guest Author:
Eman is a global procurement & supply chain professional and former Procurement and Sourcing manager at the British Council. With over 14 years of extensive experience in global procurement and supply chain operations.