An important process in the supply chain

Dhe rapidly growing globalization of procurement markets as well as the associated and rapidly increasing external procurement of services have made the task of supplier management an important basis for decision-making in the selection and development of new and existing suppliers. The progressive interlocking of cooperation with suppliers is increasingly developing from pure cost optimization to extended value creation through optimized cooperation with suppliers.

Medium to long-term goals

The strategic goals pursued in supplier management are designed for the medium to long term: That is, to reduce procurement costs, increase supplier quality, prevent dependencies and reduce supply risks. The operational goals are to objectively compare and increase the performance of individual suppliers, to identify opportunities for optimization, and to reduce procurement costs. The objective comparability of the services also makes it possible to concentrate on the best suppliers ("you are only as good as your suppliers").

Profitable supplier management

Decision makers recognize more and more that an optimized procurement management and therefore also the supplier management can deliver much more in strategic and measurable value contributions for the company than it has been used so far, e.g. with strategic key performance indicators (KPIs) such as: percentage profit contribution (caused by corresponding savings), the impact on cash flow or the percentage of the "cost of goods".

The supplier management structure is divided into six phases, all of which should be followed: Sourcing Strategy; Identify, Evaluate and Classify; Integration (Onboarding); Development; Auditing; Blocking (Phase-out) of Suppliers. These phases are briefly described below.

1. procurement strategy

The procurement strategy can be derived from the overarching corporate strategy. With regard to supplier management, fundamental decisions are made, such as the number of suppliers (single, dual, or multisourcing), from where to procure (local or global sourcing), and which parts are purchased or manufactured in-house (make-or-buy). The strategy defined here is, among other things, the basis for the subsequent evaluation, classification and development of suppliers.

2. suppliers: identify and evaluate

Supplier identification is the process by which the supplier applies to companies on its own initiative or is requested by companies to provide information about itself. With the help of this structured process, companies identify their future suppliers. This is done from a rough selection to a detailed review of potential suppliers. Basic or general information, as well as information on specific product groups, is collected and evaluated. The results are subsequently checked X-functionally by other divisions of the company to be supplied. These results are combined and supplemented with initial supplier screening, such as checking references, requesting product samples, capacity checks, and obtaining financial information. Exemplary key figures in relation to the supplier evaluation within the individual company divisions can be: technology, logistics or quality key figures. Individual suppliers who are of interest to the company are checked in more detail by means of a supplementary audit (for details, see supplier audit). A detailed audit report forms the basis for deciding whether a supplier is approved as a supplier or not.

3. integration of suppliers

Integrating the supplier into the company's corporate structures and procedures means synchronizing processes and systems in order to work together more effectively and successfully. The integration of a supplier also means the inclusion in the product development process via external procurement. This can be mainly in the areas of research and development, production, inventory management, but also in sales. By pooling resources, skills, knowledge, experience and know-how, both the procuring company and the supplier achieve better quality and more competitive products.

The cooperation between companies and their suppliers should be successful in the long term, which is why various factors need to be taken into account: Information (general, everyday as well as strategic and technical) should be able to be mutually exchanged quickly and without complications. Concrete agreements define the expectations towards the partner. Last but not least: Coordinated planning should achieve the defined goals and distribute costs, risks, but also benefits fairly. High investments, such as in equipment, new facilities and technologies, are borne by both partners. By jointly developing and sharing knowledge, products can be developed more efficiently and adapted to customer requirements or innovations can be created.

4. development of a supplier

The strategic development of suppliers aims at improving their performance as well as the cooperation. This is done for operational (e.g. problems with quality or delivery) or strategic reasons (e.g. building up replacement suppliers). In active supplier development, the company and supplier jointly define goals and measures. Since the company to be supplied invests a lot of energy in the development of the supplier, this procedure is mainly used when the products are of high strategic importance for the company's own performance. In the case of self-development of a supplier, the company to be supplied defines the goals as well as the time schedule and, if necessary, provides knowledge. The supplier then defines his own measures. Ongoing controls during the process are important so that immediate action can be taken in the event of undesirable developments.

5. supplier audit

With the supplier audit, the company examines and evaluates the organizational and, if necessary, also the technical performance or the processes of its suppliers. In the process, the supplier's current performance is determined on the basis of an actual situation and compared with the target situation contractually agreed between both parties. The audit report describes the measures required to optimize the quality of the products and specifies the time schedule. This ensures that the products/services are delivered to the same high standard at all times and that the quality and efficiency of the processes are optimised.

6. phase-out (blocking) of a supplier

If the cooperation with a supplier has to be terminated, this process also requires a planned and structured approach. Various aspects must be clarified in advance, such as replacement, loss of know-how and/or synergy effects, contractual problems and the concrete effects (strategic/financial) for the company. In the phaseout phase, the order volume is slowly reduced until the supplier is no longer of strategic importance to the company. Only then is the final step taken (blocking the supplier). It is important in the phase-out process to precisely define a schedule, the responsibilities and their control.

It makes sense to plan and carry out the individual steps carefully, because sound supplier management holds great potential for optimisation for every company, whether large, medium or small.