The Importance of Supplier Management in Business


Supplier Management is a critical aspect that can make or break your business. Material sourcing may seem like a small part of your manufacturing company’s overall activity, but it is a critical element of a successful value chain. subsequently, the bottom line of your business depends on quality supplies from trusted business partners. Read on to learn more about how this impacts vendor management. It also impacts your company and how you strategically manage relationships with your suppliers.

What is Supplier Management?

It may be useful to first describe what supplier management is not. Supplier management is not just the procurement of materials. Rather, it is about how and why your company buys these materials from suppliers and how value is derived from the process.

Vendor Management creates and maintains relationships with external organizations that provide materials and services that support your business outcomes. Therefore, like any other business process, supplier relationship management requires effort and evaluation to ensure it is adding value to your business.

Benefits of Supplier Management

Implementing an effective supplier management strategy directly impacts the quality of your own products, smooth business processes increase customer satisfaction, and help your business meet its short-term goals.

Strong relationships with trusted vendors ensure consistent quality materials are received on time. Thus, enabling you to meet and improve delivery times, ensure a smooth workflow, and better serve your customers.

Additionally, supplier management is a form of risk management, so a well-structured supplier management strategy will mitigate supplier risk. Supply chains are a source of financial and business continuity risks and can also be a source of ethical risks. They enable you to maintain your business values and gain a competitive advantage by building strategic relationships between you and your suppliers.

Key Factors to Successful Supplier Management

Implementing Effective Management Policies

To successfully manage your supply chain, you need a set of policies, terms, and conditions for establishing and maintaining supplier relationships. These set expectations for each party that ensure quality, consistency, and transparency in the business partnership. Supplier relationship management policies may also include incentives for quality delivery and penalties for non-compliance.

Building a Strong Supply Chain

Deliberately structuring a supplier base is an essential part of effective supplier management. The COVID19 pandemic has exposed shortcomings in supply chains of all sizes around the world. Thus, implementing a supplier management strategy using tactics like multi-sourcing, proximity, and diversification strengthens your entire supply chain, improving flexibility and competitive advantage by allowing you to serve your customers when your competitors cannot.

Contract Management

A strong supplier management strategy has a method for negotiating, drafting, approving, and updating legal contracts between your organization and your suppliers. Contracts are a necessary part of the business because they describe how the requirements of each part (eg their company and their provider) are aligned. Use the captured metrics that are collected to modify or complete contracts.

Better Performance Management

Like any other business process, the performance of your supplier management strategy should be evaluated. Therefore, track and analyze supplier data with intentionally set KPIs to ensure business goals are on track. Relationships work and may need to be reconsidered. 

Use the collected metrics as a guide to change or cancel contracts. Always maintain a clear line of communication with suppliers so they are aware of their performance and impact on your organization’s goals.

Check out our article on The 7 Components That Can Help Your Business


The Supplier Management Process

Qualifying Suppliers 

Ensuring that suppliers are a good fit for your business begins with identifying your goals and needs for hiring a new supplier. Likewise, based on the vendor’s own information, their reputation in the industry, and previous work they have done.

Therefore, once a vendor has been selected, it is time to negotiate the terms and draft a contract involving the legal departments and all stakeholders of the new partnership. This step is not a competition: work on the contract with your new supplier. Then work on onboarding your new provider so you can collaborate quickly and effectively.


By ranking your suppliers, you put yourself in the best position to effectively manage them. Additionally, you can successfully plan short- and long-term business activities. Categorize vendors based on the needs they meet for your business.


For a successful partnership between your company and your suppliers, you should clearly communicate your organization’s business needs and strategic goals and, in turn, listen to theirs.

Additionally, involve your suppliers in relevant decision-making processes to strengthen the partnership. A good relationship with suppliers increases the value of the partnership and increases the efficiency of your company’s supply chain.


Benchmarking and monitoring dashboards is the best way to extract value from your entire supply chain. Tracking your supply chain KPIs ensures you are on track to meet your production targets. Furthermore, it sheds light on where there is room for improvement. Finally, share relevant data like delivery times and quality with suppliers to promote transparency in the relationship and build trust.


KloudPLM Enables Effective Supplier Management

KloudPLM’s cloud-first PLM solution helps you find and onboard new suppliers, manage relationships, and monitor supplier quality. To learn more about how KloudPLM’s Vendor Management capabilities can help your business, book a demo today.

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