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Supplier management: a strategic success factor in modern procurement
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What is supplier management?
Supplier management refers to the systematic planning, control and development of a company's business relationships with its suppliers. It comprises all structured processes for the selection, evaluation, development and integration of suppliers with the aim of optimizing the quality, availability and costs of the goods and services to be procured. These processes play a key role in ensuring security of supply, reducing risks and promoting strategic partnerships that can drive innovation.
Contents
The strategic importance of supplier management
The increasing concentration of companies on their core competencies inevitably leads to a shift of large parts of the value chain to external partners. This trend is particularly pronounced in industries with a high proportion of external services, where the systematic management of supplier relationships is a decisive competitive factor. Professional supplier management has a direct impact on a company's competitiveness, as it improves the efficiency of the entire supply chain and minimizes risks at the same time.
Interestingly, studies by management consultants Roland Berger & Partner show that in many companies there is a discrepancy between the recognized importance of supplier management and its actual implementation. This underlines the need not only to grasp the topic in theory, but also to implement it consistently in practice.
The supplier management process
Structured supplier management comprises several interlinked phases that together form a continuous improvement process. The entire process can be divided into the following core steps:
1. supplier identification and selection:
The first step in supplier management is the systematic identification of potential suppliers and their strategic selection. Comprehensive market analyses are carried out in order to identify suppliers that can meet the company's requirements. The selection is based on pre-defined criteria derived from the procurement strategy and the specific requirements for the goods or services to be procured.
2. supplier evaluation
Supplier evaluation is a central component of supplier management. It is used to systematically record and assess the performance of suppliers using standardized criteria. Typical evaluation categories include
- Purchasing criteria: Profitability is assessed on the basis of factors such as purchase price, payment terms, price transparency and cost optimization potential.
- Quality criteria: These include certifications (such as ISO 9001), established quality management systems, complaint rates and PPM (parts per million) rates, which indicate how many parts per million units delivered were faulty.
- Logistics criteria: These evaluate the reliability of the ordering process and include aspects such as adherence to deadlines and quantities as well as the efficiency of inventory management and ordering systems.
- Development criteria: They assess the supplier's ability to innovate, its willingness to communicate, investments in research and development and the positioning of its technology in comparison to the competition.
The weighting of these criteria should reflect the strategic importance of the respective procurement object and the specific requirements of your own company.
3. supplier development
Supplier development aims to continuously improve the performance level of suppliers. Targets and optimization programs are developed together with the supplier in order to eliminate identified weaknesses and exploit the full potential of the collaboration. This cooperative approach can include various measures, such as joint workshops, training programs or the exchange of best practices.
4. supplier integration
Supplier integration involves integrating selected suppliers more deeply into the company's own business processes. This can include involvement in product development projects, the transfer of extended responsibilities or process integration. The aim is to create synergies and increase the efficiency of collaboration through closer integration of the value chains.
5. supplier controlling
Supplier controlling is used to continuously monitor and manage supplier relationships. Regular performance reviews enable weaknesses to be identified at an early stage and corrective measures to be initiated. If the defined targets are not achieved, the supplier must optimize its business processes or a separation takes place, which allows the process to begin again with supplier identification.
Goals of supplier management
Effective supplier management pursues various strategic and operational objectives, which together contribute to optimizing the procurement function:
- Minimization of procurement costs: Systematic selection and development of suppliers can lead to savings in transaction, production, transport and storage costs.
- Increasing procurement efficiency: Structured supplier management helps to streamline and optimize procurement processes, resulting in shorter lead times and lower resource usage.
- Long-term security of supply: Establishing stable supplier relationships ensures the continuous availability of required goods and services.
- Quality improvement: The consistent evaluation and development of suppliers leads to a continuous improvement in the quality of the services purchased.
- Promoting innovation: Close cooperation with high-performance suppliers can produce innovations that give both sides a competitive edge.
- Optimization of the value chain: By integrating selected suppliers into our own value chain, interfaces can be reduced and processes harmonized, leading to an increase in efficiency.
Practical example: Implementation of strategic supplier management in the automotive industry
A leading automotive manufacturer was faced with the challenge of improving its competitiveness in an increasingly price-sensitive market. An analysis of the procurement system revealed that 72% of the value added was provided by external suppliers, while the internal procurement processes were fragmented and inefficient.
The car manufacturer implemented a comprehensive supplier management program with the following measures:
- Development of a multidimensional evaluation system with the categories quality (40%), costs (30%), delivery reliability (20%) and innovation (10%).
- Segmentation of the supplier base into four categories:
- Strategic partners (high importance, high performance)
- Development suppliers (high importance, low performance)
- Basic suppliers (low importance, high performance)
- Secondary suppliers (low importance, low performance)
- Introduction of differentiated management approaches depending on supplier category:
- For strategic partners: joint innovation projects, early involvement in product development, long-term framework agreements
- For development suppliers: Intensive coaching, joint improvement programs, regular audits
- For basic suppliers: standardized processes, automated ordering procedures
- For secondary suppliers: Regular market comparisons, short-term contracts
- Implementation of a digital supplier relationship management system for automated data collection and evaluation.
The results after two years were impressive: the quality indicators improved by 23%, procurement costs fell by 7.5%, delivery reliability increased to 98.2% and 14 patented innovations resulted from collaborations with strategic partners. Particularly noteworthy was the fact that the number of suppliers was reduced by 30%, while at the same time security of supply was improved.
This example illustrates how systematic supplier management can create concrete competitive advantages by optimizing the entire supply chain and promoting strategic partnerships.
The role of digitalization in supplier management
Digitalization has fundamentally changed supplier management and offers enormous potential for more efficient and effective supplier relationships. Modern digital solutions support all phases of supplier management and enable data-driven decision-making.
The implementation of integrated e-procurement solutions and cloud-based supplier relationship management systems creates the conditions for holistic digital supplier management. These systems offer numerous advantages:
- Increased transparency: Digital platforms enable a complete overview of all procurement processes - from order creation to invoicing and payment processing. This reduces the risk of input and transmission errors and creates a solid database for well-founded decisions.
- Increased efficiency through automation: Intelligent procurement processes automate routine tasks and accelerate workflows, giving buyers more time for strategic tasks such as supplier management and contract negotiations.
- Data-based decisions: By systematically collecting and analyzing relevant data, well-founded, objective decisions can be made in supplier management. This enables an objective assessment of supplier performance and the targeted identification of optimization potential.
- Optimized supplier controlling: Digital analysis tools enable continuous monitoring of supplier performance in real time. Deviations from agreed performance parameters can be recognized immediately and appropriate measures can be initiated.
- Improved communication and collaboration: Digital platforms promote the smooth exchange of information between customers and suppliers. Standardized interfaces and shared data rooms make collaboration more effective and transparent.
Leading companies have already recognized that the digitalization of supplier management is not an optional extra, but a strategic necessity. BME Managing Director Dr Silvius Grobosch confirms: "There is no doubt that e-solutions are now part of the arsenal of the modern purchasing and supply chain management organization." At the same time, he points out that the level of implementation and use in companies still varies greatly and that a patchwork of stand-alone solutions often dominates instead of following an integrated digital strategy for purchasing and supply management.
Success factors for effective supplier management
Successful supplier management is based on various key factors, which together form the basis for efficient supplier relationships:
- Strategicalignment: Supplier management must be closely linked to the corporate strategy and the overarching procurement goals. When introducing supplier management, fundamental values are defined that serve as the basis for successful collaboration with suppliers.
- Systematic supplier evaluation: A supplier evaluation system tailored to the needs of the individual business units is essential for objective and targeted supplier management. The evaluation criteria must reflect the specific requirements of the company and take into account both quantitative and qualitative aspects.
- Continuous performance gap analysis: The regular analysis of performance gaps in areas such as product quality, delivery time, costs and technology enables the targeted identification of potential for improvement.
- Effective communication structures: Open and constructive communication between customer and supplier forms the basis for successful long-term business relationships. This includes regular personal contact as well as digital communication channels.
- Integration into business processes: The integration of suppliers into central business processes such as product development, production planning and logistics creates synergies and promotes joint value creation.
- Professional change management: The implementation of systematic supplier management often requires far-reaching changes in processes, structures and corporate culture. Professional change management is therefore essential in order to create the necessary acceptance among all those involved.
Conclusion and outlook
In today's business world, which is characterized by complex supply chains and increasing cost pressure, systematic supplier management is not an option, but a strategic necessity. It forms the basis for successful long-term supplier relationships that can make a significant contribution to the company's value creation and competitiveness. Especially in industries with a high proportion of external services, such as the automotive industry, professional supplier management can make all the difference.
Digitalization opens up new opportunities for increasing efficiency and optimizing processes in supplier management. Integrated e-procurement solutions and cloud-based supplier relationship management systems create the conditions for data-based, transparent and efficient supplier management. Companies that consistently exploit this potential can achieve significant competitive advantages.
For purchasing managers and procurement experts, this results in a clear call to action: invest in the development of systematic, digitalized supplier management that is tailored to your specific requirements. Develop differentiated strategies for different supplier segments and promote a culture of partnership-based cooperation with strategically important suppliers. This is the only way to exploit the full potential of your supplier base and secure sustainable competitive advantages for your company.
