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Spotlight: Supplier Management and Why Your Business Needs it

Start-up Finance Business Spend Control

For every one buyer using our platform, we on-board anywhere between 200 to 500+ suppliers. And one of the main patterns that's emerged from our hands-on supplier on-boarding is that most businesses struggle to manage their supplier relationships properly.

This is often due to a mix of reasons from old processes with limited visibility on supplier activity, to lack of time spent managed relationships and legacy suppliers that have not really been reviewed or changed in years.

Whatever the reasons, supplier management is a key part of a sound spend control strategy and by nurturing & improving supplier relationships, businesses can not only boost their bottom line, but improve the quality of their offering.

Ensuring all suppliers are fully compliant and matching your business' standards at all times can be a gargantuan task. Companies big and small, all around the world, can face problems and negative situations can easily arise from a lack of transparency within the supply chain.

Even Tesla, the top automotive innovator, has struggled with what CEO Elon Musk called "production hell":

"The primary production constraint really, by far, is in battery module assembly," Musk says.

"[W]e had a subcontractor, a systems integration subcontractor, that unfortunately really dropped the ball, and we did not realize the degree to which the ball was dropped until quite recently, and this is a very complex manufacturing area. We had to rewrite all of the software from scratch, and redo many of the mechanical and electrical elements of zone two of module production."

This is a classic case of low levels of supplier management or flawed supplier relationships. By managing supplier performance closely and maintaining key KPIs for each supplier, cases like this can be avoided or addressed when they are way less costly to rectify.

Of course businesses are focused on growth and there are many other aspects of growing a company to consider, particularly when you are just starting out or have exciting plans to live up to. But if your business depends on suppliers to deliver whatever you're selling, then a you cannot do away with supplier management. And supplier management cannot fully contribute to your spend control strategy without the right tools in place. 

Key Steps for Great Supplier Relationships

1. Scoring Suppliers

Knowing which suppliers are vital to your business and which aren't is key. When presented with lists of 500+ suppliers by clients, we always ask: "Who makes the top/core list?" This allows businesses to think about their key suppliers and set them apart from the pool of legacy, secondary or occasional vendors.

Once you know how each supplier impacts your business, you start focusing on building the right relationships vs wasting energy and resource. Buying/purchasing are often only focused on price savings and ROI, with little to no concern for VOI (value on investment). But if a supplier's goods or services closely impact your ability to deliver the levels of service you have accustomed your clients with, it is imperative that a good trading relationship is forged and maintained with that supplier.

By using technology to help you assess and manage suppliers, you can easily collect key data about your suppliers and how they work with you. A great vendor management system will be able to score them in real time and deliver a weekly or a monthly score based on a variety of factors.

Some of the main indexes we track in our Supplier Score are levels of engagement, price fluctuations, quality of service and more. The scores help you keep tabs on how your suppliers are performing and will alert you with actionable intelligence if anomalies occur.

Being able to track your suppliers in real time, you can identify which are your tactical and strategic suppliers, so your supplier management plan will depend on their segment profile, and importance to the business.

2. Run regular reviews

As exemplified earlier in our Tesla example, knowing how your suppliers are doing and performing in real time is essential for a smooth supply chain. Without a regular pattern of reviews and sustained communication based on real time data, it is difficult to establish and maintain positive relationships. And without transparency on this performance data, costly problems like the one detailed by Elon Musk can damage your business too.

By tracking every transaction, across the business, you can detect problems as soon as they arise - whether it's a drop in product/service quality or price irregularities that are outside your agreed requirements.

Using technology to track performance, you can easily conduct regular internal reviews with relevant stakeholders and the suppliers in question. By discussing any issues and setting clear targets and KPIs to resolve these issues, you can make sure your supplier relationships remain positive and your service is not affected.

3. Keep track of supplier KPIs and metrics

One of the key reasons businesses overspend is because they are not tracking price fluctuations, price compliance or market averages. This is typically because such data is hard to report on and difficult to extract from a multitude of systems a business is using.

By having instant access to key data, performance levels can be tracked and unfit suppliers can be replaced with better ones. The actionable intelligence that allows you to make these decisions can only be obtained by using a real time spend tracking tool/platform.

Since your business running smoothly depends on your suppliers, your business can only operate at optimum levels if you’re working with suppliers who are adhering to your standards. It is also important to understand that an under performing and overcharging supplier can cost your business tens of thousands in un-tracked spend or unchecked charges. It is far easier not to spend the money in the first place than having to  claim it back.

By trading with your vendors online and in real time, you can track their performance across all your locations, currencies and departments. Receiving weekly and monthly reports on their performance  also allows your business to be proactive and avoid getting into situations where significant resources need to be spent.

Taking the above steps is a starting point to a sound supplier management process. By tracking, recording and actioning data intelligence, you can not only save your business money and time but drive positive relationships with your top suppliers. The more you know about how they are influencing your business, the better.

Want to know more? Why not download our Spend Control Kit? It includes tips on managing spend, building and consolidating great supplier relationships and key benefits of a solid spend control strategy. 

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