What is Supplier Management?

Written By: Emily Himes
  • 7/6/2022
  • Read Time : 2:30 min
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Shutdowns and delays spurred by the COVID-19 pandemic, as well as increased sustainability efforts, have made supplier management a major necessity. Supplier management is a subset of Product Lifecycle Management (PLM); it helps manufacturers securely collaborate with and oversee their suppliers, as well as the products they purchase from them. 

What Is the Importance of Supplier Relationship Management?

The advanced capabilities of PLM enable seamless data communication for supplier management. By attaining digital supply chain clarity, organizations can efficiently identify the best suppliers and components to purchase and include in their designs.

By improving coordination and transparency in the supply chain, organizations can be more agile in their response to unexpected scenarios, working to efficiently and effectively manage their suppliers. This process can help in becoming more cost effective, allowing manufacturers to increase productivity through consistent connectivity and visibility into preferred parts and suppliers, as well as lifecycle risks and compliance efforts. 

Supplier management can also increase visibility in the supply chain, subsequently minimizing the risk of reduced productivity and human error. Events spurred by the COVID-19 pandemic highlight the importance of strong relationships between manufacturers and their suppliers. Heightened visibility allows all parties involved to hold each other accountable, raising the standard for quality and efficiency. 

Supplier Management Process

  1. Recognize your organization’s objective. It is important that your organization’s objective is clear. Not all companies have the same goal in mind. While some might be more focused on innovation capabilities, others could have their eye on cutting costs and productivity.
  2. Identify benchmarks for selecting suppliers and segment the market accordingly.  Consider the aspects of risk and profitability each option brings.
  3. Develop your supplier strategy. Ensure all parties understand and can execute the plans and meet their individual business goals. Agreeing upon KPIs is especially important in order to assess progress later on.
  4. Strategy Implementation. Follow through on your strategy and evaluate the suppliers’ performance. 

Types of Supplier Relationships

 Vertical and horizontal supplier relationships can differentiate the type of association between parties and guide the planning process moving forward. While vertical supplier relationships include distributors, retailers, and suppliers, horizontal relationships form when organizations work together toward mutual goals. These types of relationships are more intertwined – organizations share much more risk than those in vertical relationships. Levels of involvement:

Vendor

A vendor relationship is solely transactional and have little association outside of the arrangement. This type of involvement is binary, and organizations involved are either buyers or sellers. 

Strategic Alliance

When all involved organizations actively adapt their operations and strategies to bring their objectives to fruition, they are in a strategic alliance

Partnership

A partnership forms when both organizations work in lockstep to customize business goals. 

It is also important to note that this process does not only manage the suppliers themselves, but also the components the supplier provides. The three tiers of suppliers differentiate between organizations that create the raw materials and those that manufacture the final product. Keeping track of what materials are being used in various types of equipment is just as important as managing the suppliers that make them. 

Challenges of Supplier Management

Instituting supplier management does not come without some challenges.

Quality Assurance

Quality assurance is integral to the process – without it, the whole effort would crumble. Minimizing risks and detecting and flagging discrepancies is key to delivering seamless supplier management. 

Compliance Requirements

Meeting compliance requirements can also be tricky, especially when working with multiple suppliers. Environmental specifications are abundant, and organizations often obtain certifications such as REACH and RoHS which pertain to conflict minerals and other compliance factors. A keen attention to detail is necessary when working with so many moving parts, but ensuring all parties are cooperative is integral to delivering the most valuable, trustworthy coordination among suppliers.

PLM provides efficiency and transparency that allows organizations to benefit from consistent data communication and strong supplier relationships. The process can also help meet complicated compliance requirements. Making sense of these moving parts can be challenging, but PLM ensures that all partners are cooperating as planned in order to thoroughly achieve goals. 

Click here to learn more about how PLM can bolster your supplier relationships.

 

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About the Author

Emily Himes Emily is a Content Marketing Specialist on PTC’s Commercial Marketing team based in Boston, MA. Her writing supports a variety of PTC’s product and service offerings.