Supplier management

The term supplier management describes the systematic management of the relationship between a company and its suppliers. Supplier management aims to optimise its own value chain economically and technically through a transparent comparison of suppliers.
Supplier management has become increasingly important in recent years, as the share of external value added in German companies has steadily increased. In industry, the share of external output is now around 70%, which means that the value added to external enterprises is shifted. This shift leads to the fact that the cost-effectiveness of procurement processes offers an increasing potential for improvement.

What does supplier management mean?

Due to the shift of value added to external manufacturing companies and service providers, the consideration of the internal value chain is no longer sufficient. For this reason, supplier management follows the approach of building a coordinated interface with suppliers.

Organisational structure
Creating a central organization unit is the basis for a functioning supplier management. The unit is responsible for coordinating all measures related to supplier relations and is often organised in purchasing.

Supplier assessment
The evaluation of suppliers is an important basis for decision-making within the framework of supplier management. The supplier evaluation is important both in the preselection of suppliers and in the assessment of supplier development. The most important assessment criteria include the price, quality of the product or service and the delivery reliability.

Supplier development
The development of suppliers describes the optimization of performance levels in the external value chain. As a result of the increasing importance of the outsourcing of services, it is increasingly important for the purchase to exchange intensively with the supplier and to actively participate in its development. For example, supplier management can influence the quantitative and qualitative performance of suppliers within the meaning of its own company.

Process optimization
The optimization of internal processes is another important point of view in improving supplier relationships. Vulnerabilities in their own operations are identified and measures to increase efficiency are taken.

Risk management
Risk management is about identifying risks in the relationship with suppliers at an early stage and securing themselves with appropriate measures. Typical risks in supplier management are, for example, monopolies on the supplier side, bottlenecks, price increases, quality deficiencies and time supply problems. These risks are particularly pronounced if the company is dependent on a single supplier.

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Regular reporting according to a defined standard allows supplier management to evaluate the effectiveness of its own measures and identify potential for improvement.

How do strategic and operational supplier management differ?

Supplier management usually distinguishes between operational and strategic measures. These differ as follows:

Strategic objectives:
The strategic side of supplier management aims at the medium and long-term optimization of the supplier relationship. The aim of the strategic measures is to continuously increase delivery quality, reduce costs and minimize risks. The strategic objectives are closely linked to supplier development.

A strategic measure of supplier management is, for example, reducing the supply risk by establishing relationships with other suppliers at an early stage. This measure prevents dependencies and reduces the risk of bottlenecks in procurement.

Operative objectives:
An operative buyer is closer to the product, and thus involved in the design and production. The operational level of supplier management is pursuing more short-term targets compared to the strategic level. For example, operating units in supplier management are trying to compare different suppliers for specific orders, to reduce purchase costs by bundling the purchase volume, to negotiate delivery times or to expose optimization potentials.

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