How to manage suppliers in purchasing

Five-step process of supplier management

The purpose of supplier management is to establish a stable and reliable supplier team and provide reliable material supply for enterprises. Enterprises can strategically manage suppliers by following the following five steps.

1. Identify all business objectives.

Managers should first determine their goals and expectations for each supplier. It is also helpful to know the needs of suppliers in various departments of the enterprise.

This will enable the management team to match suppliers with specific needs and goals without duplicating resources and efforts. When managers need to evaluate supplier performance, setting goals will also help later in the process.

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2. Determine the criteria for selecting suppliers.

Secondly, enterprises should establish standards and choose the best suppliers that can provide the greatest value.

In general, these selection criteria will change according to enterprises, industries and expectations. However, managers often compare suppliers' prices, the quality of past work, experience and reputation.

In this process, the enterprise will also submit a request for quotation (RFQ), which is a document sent to potential suppliers to request pricing and payment information. Enterprises can also send a Request for Proposal (RFP). This document outlines the enterprise's projects and solicits the bidding opinions of suppliers who are interested in providing their services or commodities.

3. Evaluate and select suppliers

The next step is to evaluate all relevant suppliers according to the selection criteria you have determined. If the enterprise submits RFQ or RFP, the manager will evaluate the quotations and suggestions sent by the supplier.

When evaluating, enterprises should analyze the information of suppliers, such as their strengths and weaknesses, and how they plan to meet their goals and requirements. It is also helpful to consider external factors that may affect supplier performance, such as environmental changes.

Then, enterprises should choose an effective supplier that they think best meets their goals and that they think will provide the greatest value.

4. Negotiate and sign the contract

After selecting the supplier, the purchasing and finance team of the enterprise needs to create a contract, which outlines all the requirements that the supplier must meet. The contract should also define payment details and pricing to ensure that the two entities are on the same page.

In the process of making contracts, executives should also involve relevant stakeholders. These groups and individuals can gain an in-depth understanding of how contracts ensure that suppliers provide maximum value.

5. Evaluate supplier performance

It is very important for enterprises to regularly evaluate the performance of suppliers to ensure that they meet the predetermined requirements. Creating key performance indicators (KPI) can help enterprises to measure the performance of suppliers and understand whether improvement is needed.

Through a well-structured supplier management process, enterprises can establish a stable and lasting relationship with third-party suppliers and ensure efficient operation.

The modern supplier management system 8Manage SRM provides the automatic workflow of the whole life cycle of suppliers, including supplier self-registration, qualification certification, classification, employment, continuous management, strategic relationship management, etc., which helps enterprises to connect all suppliers and build a win-win platform for cooperation between enterprises and suppliers.