Negative events involving business partnerships aren’t new to us. Besides affecting the public image of companies, these situations cause, above all, great damage to society.
Many companies look for suppliers with a single purpose: cost reduction. However, there are several other issues that must be considered when closing a business contract.
Quality, delivery time, shortage risks, and fiscal and labor co-responsibility are just some of the many issues that can arise when negotiation is based on price.
Today, we will discuss the benefits of Supplier Management, and the importance of deploying it in your company.
Remember: cheap becomes expensive most of times.
Keep on reading!
What is Supplier Management?
It’s a set of techniques to optimize the management of supply sources within a company. The process is focused on ensuring the best terms, prices, negotiations and deliveries of products and services.
Now however, more important than the factors above, Supplier Management can help businesses to understand where their supply sources come from, whether they are sustainable, ethical and legal, and whether they are some kind of threat to society, in the short or long term.
See below the 7 benefits of deploying Supplier Management in businesses:
1. Slave labor, racism and other human rights issues
This item is fully related to the issue that Carrefour is facing today in Brazil. Every company is subject to risks, but they will decrease dramatically with an efficient Supplier Management model.
If Carrefour had more knowledge about the outsourced security company, as well as what kind of professionals had been hired and the methods used to avoid disturbances within its stores, this tragedy could possibly have been avoided.
Being aware of suppliers and third parties helps to hire partners who are in compliance with your company’s ethical and moral values.
Sometime ago we published a very interesting post about Tiffany & Co., and its initiative against “blood diamonds” on the African continent.
It’s no use for companies to position themselves as activists for environmental causes, if they don’t take a close look at their supply chains.
The beauty industry, for example, must know if its raw material suppliers exploit it in a conscious manner, with practices that aren’t harmful to the environment.
Vetiver, for instance, is a plant widely used by the perfume and cosmetics industry, but its uncontrolled exploitation can cause imbalances in nature, considering that its roots, up to 6 meters deep, prevent soil erosion.
With a good supplier management, the industry can know where the oil extracted from the plant comes from, and whether it lives up to the company’s position with regard to the market.
3. Quality of delivered products
Suppliers are directly related to those products offered to end customers. For this reason, the quality of inputs is vital and must be taken into account when closing a business agreement.
If there are two suppliers offering the same price, the best option is to choose the one who has another distinguishing point – such as quality, for instance.
Good supplier management is crucial, to assure that customers have their expectations and needs met, thus nurturing their trust relationship with the company.
4. Meeting deadlines
In addition to quality, supplier management is also important to ensure that delivery times are met. In the case of services and products that are essential to the population, this factor becomes even more important.
Another attention point consists in checking supply availability, if your demand undergoes a sudden growth. Working with suppliers who are not ready to grow together with your company is a risk that can impair business operations.
In this case, you can look for other supply options, or develop practices to help your business partner grow with you. It’s vital to ensure that your inventory is always at the proper levels.
5. More competitive prices
An effective supplier management promotes a good relationship between the company and its business partners. The stronger this relationship, the greater the chances of achieving special conditions, including with regard to price.
Another positive point is having more elements to assess the risk management of purchases, especially if the suppliers are certified.
The rule of thumb here is that you must know your suppliers very well, as well as invest in strengthening your partnership with them. Be careful, on the other hand, to avoid building a dependency relationship, and always keep other supply source options up your sleeve.
6. High added value of products
The combination of all factors described so far helps to guarantee a high added value to your products, thus rendering the company more competitive in the market.
If a supplier offers higher quality items or services, meets the delivery deadlines, and follows environmental, tax and labor laws – and all this at a lower price – you will not only save and have less risk, but can still make a higher profit.
The best way to achieve this added value is to conduct an efficient management of supply sources. If the production, inventory and procurement areas act on a mutual basis, it will be easier to find a highly strategic point to optimize the supply of inputs for your company.
7. Structured growth with supplier management
From a broad perspective, one of the impacts of supplier management regards the possibility of structured growth for your company. When there is strategic negotiation in corporate procurement, the company will increase the chances of leveraging earnings.
Additionally, the satisfaction of end customers with higher quality products or services increases loyalty level, which means more billing predictability in Recurring Revenue.
The obvious option is then to grow in a structured, safe and sustainable way, avoiding risks that can impair your already consolidated position in the market.
How is the management of your supply sources? Tell us in the comments field!
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