Supplier management is a process that enables organizations to improve the quality of their supply chain by securing reliable and profitable relationships with suppliers.
There are three main principles to consider in supplier management: controlling non-negotiables, special incentives and rewards for good performance, and penalties for poor performance.
This will result in high-quality goods at a lower cost to the customer organization and a more stable provider relationship. Three important concepts – due diligence, continuous surveillance, and detailed follow-up procedures – help an organization manage its relationship with key suppliers effectively so as to secure timely deliveries of quality products at competitive prices. Due diligence is a systematic approach.
Much of what we do today in managing our supply chain can be traced back to a revolution that began in the mid-1960s. The Deming philosophy of quality control demonstrated conclusively that removing variability as much as possible from processes and products was an essential enabler for consistently high quality, efficient production, and low cost.
The same thinking was adopted by manufacturers wanting to improve their bottom line performance via reduced materials costs through better supplier management practices, including standardized systems for identifying potential suppliers, defining requirements, establishing Supplier Quality Control Systems (SQC) following issue of purchase orders, and conducting audits on performance against agreed targets. Suppliers, in turn, had to be able to demonstrate that they were capable of complying with these requirements.
The explosion in outsourcing during the 1980s and 1990s brought with it a need for a new approach based on partnerships rather than traditional procurement relationships. There was, therefore, an emphasis on closer supplier relationships – ones that encompassed such things as cooperation, flexibility, and collaboration.
So suppliers had to prove themselves trustworthy as well as being technically competent. The focus then shifted from measuring performance against arbitrary targets towards a more balanced view where the two organizations worked smarter together in order to improve their overall performance by communicating better, aligning their efforts, eliminating waste, and reducing costs through improved productivity, etc.