Whether big or small, businesses depend on crucial suppliers for vital products and services. For instance, this could be a key parts manufacturer, a cloud hosting service, or an express package delivery provider. However, getting a cost-effective contract in place is just the start. To truly succeed, you need to nurture and make the most of these valuable relationships. For that, you need the right data to measure compliance and enhance long-term relationships. Plus, you need key insights about your supplier relationships to mitigate risks and to identify opportunities. In fact, effective supplier management assures business success, going beyond just compliance.

In this article, I’ll look at supplier management, its benefits, and the crucial role data plays in managing long-term relationships with your vendors. Also, I’ll examine the essential aspects of supplier management like contract compliance and supplier Key Performance Indicators (KPIs). Additionally, I’ll show that supplier management is more than assuring contract compliance. Lastly, I’ll detail the importance of continuous monitoring, risk mitigation, ongoing improvements, and identifying opportunities when managing suppliers. Positively, proactive supplier management will help you secure long-term, successful partnerships with your key suppliers.

1. Benefits Of Cultivating Long-Term Strategic Supplier Partnerships.

Indeed, vendor management is key to developing long-term strategic supplier partnerships. In today’s world, the long-term viability of most businesses is dependent on a strong supplier network. Further, supplier management is not just focused on the here and now of procuring the best products and services at the least cost. Indeed, there are many more benefits to having an effective long-term supplier management program. These benefits include the following: 

Supplier Management Benefits

• Achieve Cost Savings and Efficiency. Indeed, supplier management is more than direct costs. It also includes monitoring internal costs of partnering with a given supplier to maximize ROI.
• Assures Supplier Compliance. Without a doubt, using Key Performance Indicators (KPI) to manage suppliers will give you the visibility to know you are getting what you paid for. 
• Optimize Supplier Performance. Effective collaborative communications results in continuous performance improvement.
• Improved Supplier Product Quality. Using quality assurance / control KPIs assures that a supplier’s product is meeting and exceeding specifications. 
• Improve Supply Chain Visibility. Indeed, a good supplier relationship includes transparency.
• Increase Stability, Predictability And Minimize Risks. A stable and predictable supplier minimizes risks.
• Foster Innovation And Technological Advancements. Supplier management also means partnering with suppliers to encourage innovation and long-term value to increase market competiveness.
• Aligns Suppliers With Business Goals. Suppler management keeps suppliers in sync with changing business goals.

To achieve the full benefits of your supplier management program, key performance indicators (KPI) and ways to managing risks are essential. See below for more on KPIs for managing supplier compliance, performance and quality as well as how to best manage supplier risk.

2. Supplier Contract Compliance Through The Use Of KPIs.

Now, as part of any supplier management program, contract compliance is essential. Indeed, establishing benchmark KPIs and monitoring contract compliance rates is crucial for ensuring that all parties involved in a contract are meeting their obligations. Also, by setting clear expectations and regularly monitoring compliance, potential issues can be identified early on and addressed before they become major problems. Now, to conduct effective analysis, you need to have measurable contract terms and the data to measure compliance. To detail, below are some examples of contract terms and type of data needed.

5 Examples Of Data-Driven Compliance KPIs

Data Analysis Examples To Best Overcome The Challenge Of Supply Chains

a. Meet Delivery Deadlines.

For example for shipping, measure on-time performance using shipment status against supplier’s promised date. For more details, see this article, The Best On-Time Delivery KPIs To Make Your Customers Delighted.

b. Invoice Accuracy Rate.

Contracts need to be specific on invoice accuracy requirements. Also, you need to specify who or what determines accuracy. Finally, you need to identify the data and system to use to determine compliance. For more tips, see my article, Freight Invoice Audit & Payment: New Tech And Methods That Will Make It Better.

c. Supplier Diversity And Sustainability.

Many contracts will stipulate diversity standard and / or sustainability goals such as a percentage of minority representation or CO2 emissions. For data analysis, companies will need to figure out how to get the data to measure this criteria or get an independent 3rd party to measure your suppliers.

Measuring On-Time Delivery: 9 Mistakes You Want To Avoid For More Reliable Delivery Results

d. Vendor Defect Rate.

Ensuring high product quality is essential for maintaining customer satisfaction and loyalty. By establishing KPIs related to product quality, such as defect rates or customer complaints, businesses can monitor their performance over time and identify areas for improvement. From a data analysis perspective, managers have to have quantitative product specifications and the data to measure it. Usually, metrics are established as a percentage. As an example, to measure % of products damaged upon delivery, you need to have a system that records the number of products delivered as well as the number that were damaged. For more examples, see my article, Measuring On-Time Delivery: 9 Mistakes You Want To Avoid For More Reliable Delivery Results.

e. Customer Service Performance.

Also, you need data from customer service systems that document key performance indicators such as time needed to resolve customer issues. For more details, see my article, Unlock Your Outbound Logistics – How To Make Your Customers Rave.

3. Supplier Management Focuses on Long-Term Relationships, Not Just Contract Compliance.

Unlike supplier contract management, which focuses on compliance, a supplier management program considers the full spectrum of value that supplier partners deliver. So this can include measuring things not originally specified in the contract terms. Indeed, measuring supplier performance is a collaborative effort and intended to provide constructive feedback to the vendor and to the relationship as a whole. Further to fully collaborate, it is key that both the supplier and your business are transparent and willing to share data with each other. So, below are some key distinctions of how supplier management goes much further than just contract compliance.

Differences Between Supplier Management and Contract Management

• Operational Focus vs Long-Term Focus. It is key to manage a supplier contract at the operational level. At the same time within today’s volatile business environment, a strategic, long-term focus is needed as original contract terms can quickly become obsolete.
• Contract vs Supply Chain Risk Management. Here, businesses not only need to manage risk at the contract level, but also they need to look at individual suppliers from an overall supply chain perspective. This type of assessment includes evaluating both risk and opportunities.
• Contract Compliance vs. Relationship Building. Nowadays, all businesses need supplier partners to meet ever-changing market demands, not just contract compliance. Hence, a team approach enables innovation from both the supplier and the business to continue to provide competitive products and services to their customers.

4. Continuously Improve, Monitor, And Mitigate Supply Chain Risk.

Risk Mitigation For Supply Chains: How To Best Identify, Make Assessment, Overcome

Finally, monitoring supply chain risk is critical for ensuring business continuity and mitigating potential disruptions. By establishing a supply chain risk management program, managers can proactively identify risks and take mitigation action. For example, you can set up a quarterly review with suppliers to identify risk levels, and action items to mitigate risks.

Besides contract compliance, service performance, and quality, there are other topics that you should review. This would include an assessment on things like possibilities of natural disasters, political instability, or supplier bankruptcy. Also, it is important to look at the number of suppliers you have. For example, do you have enough supplier redundancy for critical components or service providers for a given service? Also for more on managing supply chain risks, see my article Risk Mitigation For Supply Chains: How To Best Identify, Make Assessment, Overcome.

More References.

For more perspectives on supplier management, see Simfoni’s What Is Supplier Management? Why and How it is Implemented? and Medius’ What Is Supplier Management. Also, see my article, The Strategic Sourcing Process And Data Analysis: The Best Ways To Secure Unsurpassed Supplier Results, for more on strategic supplier sourcing.

The Strategic Sourcing Process Using Data Analysis In 7 Steps: The Best Way For Unsurpassed Supplier Results

Need help with an innovative solution to make your supply chain analytics actionable? I’m Randy McClure, and I’ve spent many years solving data analytics and visibility problems. As a supply chain tech advisor, I’ve implemented hundreds of successful projects across all transportation modes, working with the data of thousands of shippers, carriers, and 3rd party logistics (3PL) providers. I specialize in launching new analytics-based strategies, proof-of-concepts and operational pilot projects using emerging technologies and methodologies. If you’re ready to supercharge your analytics or if you are a solution provider, let’s talk. To reach me, click here to access my contact form or you can find me on LinkedIn.

For more information from Supply Chain Tech Insights, see articles on Supply Chain and Data Analytics.