What is Supplier Management?
Updated July 2022 - New Bonus Section: How to Create a Supplier Scorecard
Retail success requires diligence. But few retailers have the right integrated product lifecycle management (PLM) tool in place to effectively manage supplier relations. Measuring the success of each supplier in a one-off, siloed manner can lead to chaotic results. So, you need to be strategic about how you organize product data and financial data for your suppliers. By monitoring your data's performance and updating your supply chain accordingly, you can bring your entire product collaboration setup up to speed.
At the end of the day, retailers and suppliers are allies. They have the shared mission of coming up with the right product, at the right price, at the right time. Supplier management handles all of the processes needed to help you optimize your supplier relations.
This long form article will provide you with the most important information about supplier management, along with 5 steps for success in your supply chain. Here are the quick links to jump to exactly what you need to know in this piece about supplier management:
What is Supplier Management?
The vast majority of retailers work with a network of suppliers. Merchandising teams need a methodical communication process. Everything from product development to product data, price history to communications, and even the listing and quotation process should be considered in your supplier management strategy. It’s common practice for retailers to keep both a vendor matrix and vendor scorecards to track, evaluate and quantify their suppliers’ performance. This helps set precedents for overall performance.
Suppliers are companies that exist outside the scope of your retail organization. They are 3rd-party partners that sell goods to other organizations, most of which then resell those products to the end consumer. The difference between successful and unsuccessful retailers can come down to how your supplier relationships factor into your greater product collaboration system. This is an important part of your overall retail software strategy to bring products to market. Supplier management ensures that your organization receives value for the money spent on suppliers and merchandising. With the right unified product collaboration platform, much of this process becomes intuitive.
Several things need to take place for your supplier management strategy to be successful:
- Establish policies and guidelines to govern suppliers.
- Negotiate and finalize legal contracts.
- Suppliers deliver goods to fulfill agreed standards.
- Supplier contracts match overall business strategy.
- Supplier contracts mirror KPIs set by retail organization.
- Manage all relevant data.
- Manage relationships and improve overall performance for suppliers.
These designated KPIs for supplier strategies set the framework for predictable, high-quality products that get to your customers in a timely manner. Conversely, if your organization ignores formal supplier management, it is more likely to experience unpredictable results, lower quality goods and waste in spend, time and resources for your merchandising teams. In fact, recent studies suggest that 79% of companies with high-performing supply chains (as a result of supplier management) achieve greater revenue growth than the industry average.
Generally, there are 3 types of suppliers that your organization will work with:
Manufacturers are at the beginning of the supply chain. They are the entities who actually produce the products. Working directly with manufacturers can be the best way to source products at the lowest possible price (without the costs of middlemen).
Important caveats: Many manufacturers only want to deal with retailers directly for massive bulk orders. They tend to need a proven sales record/reputation (not great for startup retailers), and to have less buyer-friendly access to products (fewer merchandising-friendly catalogs, assortments etc.). So, communication is key.
Wholesalers are traders who buy goods in bulk quantities directly from manufacturers, then re-sell those goods to retailers. They act as the middleman between the manufacturer and the retailer, providing lower prices for goods sold in higher quantities.
Important caveats: Wholesalers are great to work with if your company is looking to buy goods in bulk. If you’re the type of retailer that sells large quantities of various items, wholesalers are likely your best path to procuring the best per-unit pricing (assuming you don’t buy directly from the manufacturer). If your organization is smaller or deals with more specialized goods, however, wholesalers are not going to meet your needs – as their bulk selling structure only provides worthy price breaks on massive orders.
Distributors are also middle agents in the supply chain. Unlike wholesalers who sell almost exclusively to retailers, distributors sell to various parties in the supply chain. Their clients can include wholesalers, retailers and sometimes even direct sales to consumers. Another key difference between distributors and wholesalers is that distributors work closely with the manufacturer, generally signing a contract that locks them in to non-compete agreements when purchasing goods from their sources. They also engage in promotional activities to increase sales, where wholesalers do not.
Important caveats: Distributors often require the retailers they work with to sign contracts with them. That contract generally contains their "service fee," which is a significant percentage of their net sales. Though distributors may have great prices for specialized products, you have to consider the overall cost, including their service fee, when assessing whether a distributor is right for your overarching unified product collaboration strategy.
5 Steps for Successful Supplier Management
Retail is a results-focused business. So, as you establish expectations, KPIs, and workflows for your suppliers and merchandising team, you’ll also want to establish a method for measuring the results of your efforts. This leads us to providing you with a step-by-step structure for engaging and evaluating your 3rd-party partners. There are 5 repeatable steps that your organization should take to implement and maintain successful supplier management:
- Onboarding - This step includes identifying, selecting and onboarding suppliers. As you make contact with prospective suppliers and get a feel for their products and services, you’ll want to evaluate their potential for adding value to your business. You should consider all program integrations and legal contracts... anything that could facilitate the relationship or create hurdles. Your merchandising team should have outlined goals and criteria for identifying strong supplier prospects that you can use to evaluate any potential partnership.
- Development - Development activities should include anything that will either mitigate declining supplier performance or boost satisfactory performance to make it exemplary. This can include: refining communication and purchasing processes, creating a better integrated product lifecycle management strategy, and developing trackable and transparent workflows. You'll want to create a template for this and then refine it for each unique supplier. To take a closer look at the product development process and other tools of the trade, check out our Comprehensive Guide for Product Lifecycle Management Software (PLM).
- Segmentation - You should segment suppliers for the strategy that best suits your merchandising needs. Just as you segment customers for better marketing results, supplier segmentation can help organize your supply chain, assess supplier health, and compare 3rd-party performance in your overarching unified product collaboration strategy. Segmentation can include: performance-based pooling, category-based grouping, or other groupings based on procedural similarities. To better understand how to calm the chaos of retail buying, check out our blog series on how integrated PLM tools facilitate the supplier management process.
- Performance - In this phase, you should measure supplier performance based on tangible factors such as spend, reliability and quality. Other less quantifiable factors include: innovation potential, uniqueness of products/services, and organizational shifts that could affect performance. This is best done by keeping a vendor matrix or vendor scorecard that evaluates these basic functionalities (usually on a 1-5 scale).
- Phasing Out - Your end goal as a retailer should always be to provide the best possible end product for your customer. The less-than-savory phasing out process occurs when you move away from partnerships with vendors who are not meeting agreed upon targets, or are falling short of your agreements. This can also need to happen if you discover new suppliers who offer better prices and services than your existing partnerships. As the above graphic shows, sometimes the phase out step needs to occur after segmentation when you're refining your supply chain management process. An integrated PLM tool will help you manage supplier relationships.
You will repeat these 5 steps as you assess your best moves toward maximum supply chain profit and performance. Yes, there will be some growing pains. But these steps will ultimately guide you toward a repeatable supplier strategy that ensures the continued health of your organization.
How to Create a Supplier Scorecard
A supplier scorecard, aka a vendor scorecard, is a guide that a company creates to track and measure the performance of their supplier partners. This can be used in tandem with your PLM tool to assess new partnership prospects, and maintain/improve supply chain health.
The scorecard itself usually consists of a few different categories with quantifiable metrics. Each retailer values different procedures and supplier characteristics above others. For example: One retailer may score a supplier on delivery times and shipment accuracy, while another is focused on product quality and ease of accessing data.
Creating a system with supplier scorecards to assess vendor performance and is one of the most important practices when you're refining supplier relationships within your lifecycle management system. Although you may have various suppliers who have differing strengths and weaknesses, it is best to try and develop a supplier scorecard that can measure performance of the most critical categories. This avoids your having to keep track of too many different templates.
Here are the 3 main building blocks for creating your own supplier scorecards to measure vendor performance:
First, you’ll want to gather documentation that exists between you and your vendor partners. These can include initial request for proposal (RFP) documents from the discovery process to service level agreements (SLAs) to final contracts. These documents should provide you the framework and guiding principles for what to expect of your suppliers (and vice versa).
Using these documents, you can begin to plan the metrics that matter most in scoring your suppliers. Keep in mind that you want to strike a balance between streamlining the scorecard with only the most pertinent information, while also keeping enough detail to validate the product lifecycle management (PLM) process. You want your supplier scorecard to serve you, and it wont if it requires too much time and attention to fill out.
Second, you’ll want to set the categories and priorities you want to use to grade your suppliers. At this stage, you’ll want to forecast issues and the impacts of different services and logistics from the vendor. You’ll need to consider what happens if your supplier fails to fulfill each category's function. If the worst case scenario for a given category means a substantial impact to your business, it is worth including on your scorecard.
In most cases, your supplier scorecard will have 3 main categories for KPIs: quality, delivery, and service. Within each of those categories, you can break it down to measurable items. You should keep these to around 2-4 clearly measurable items per category to ensure that your scorecard is simple enough to be effective.
Third, it’s time to create and implement your grading scale. For certain categories you can use a simple “yes or no” approach. For example, if you are answering questions like, “were shipments on time” and “were delivery quantities accurate,” you can go with the "yes or no" approach.
For other assessments, like product quality and customer service, you may want to implement a 1-5 grading scale. For this approach, it is important to define the scores beforehand. Ask yourself "what constitutes a score of 1" and "what constitutes a score of 5" (and every step in between). Document this criteria to set a precedent for continuity to eliminate as much subjectivity as possible from your process.
When using supplier scorecards in your supplier management process, it is important to remember that they are meant to improve your vendor relationships, not overhaul your entire supply chain.
How to Select Supplier Management Software
The integrated product lifecycle management tools you choose to manage suppliers should set your business up for success. They should enhance the way you communicate with your vendors, improve how you track and assess their performance, and help you streamline your overarching supply chain. Here’s a checklist of what to look for in supplier management software:
- Supplier Engagement - You’ll need communications and collaboration tools to improve the workflow between your team and external vendors. Having quicker and more effective means of communication makes all the difference when compared to the old fashioned way of relying solely on email. As much as you plan for a repeatable structure, there will always be last-minute changes/issues that arise. You’ll want to have the ability to communicate in real time with your external suppliers to address these issues as they happen.
- Project Management - Along with communications tools, you’ll also need a tool to track and provide workflow transparency. If you can use shared product lifecycle management (PLM) software that allows you to communicate with your key suppliers, you’ll get a higher level of accountability and more accurate supply chain data.
- Payroll & Accounting Tools - Your accounting department will have their own methods of tracking financial agreements and transactions. Using software to help organize and store this data will save countless time over endless spreadsheets. This will also help with your annual audit of suppliers and 3rd-party vendors.
- Ease of Use & Deployment - It’s important to consider how easy your PLM software tool will be to use for your team and partners. For it to be effective, you need the ability to seamlessly share data between your PLM, PIM, and CRM functionalities. You want to add layers of value, without adding layers of complexity. The same goes for deployment... you’ll need to assess the necessary logistics and requirements to deploy the software for your team and your suppliers.
- Training & Onboarding - Similar to the previous step, you’ll also want to have a good handle on the learning curve for your team and your 3rd-party partners. Find out how intense the onboarding process will be and what training will be necessary for key stakeholders. Some unified product collaboration platforms provide comprehensive training and support. Others leave it in your hands. Consider your team’s bandwidth before you sign a contract.
- Compliance & Regulations - You’ll want to make sure that your chosen PLM tool works with the native guidelines for your suppliers. Manufacturers and other suppliers are often based overseas. So, you’ll need to make sure that you have retail software systems that comply with their regulations, as well as your own. This goes for establishing partnerships with the required business licenses for overseas partners, as well.
Meet JIA Home, a leading home goods supplier that used Surefront to increase ROI by team member by 150%. Their network of retailers is quickly adopting Surefront as their PLM, CRM, and PIM platform for collaboration and supplier management.
Supplier Management with Surefront
Surefront is the ultimate tool for improving your supplier management. Surefront’s brings retailers and suppliers together with the tools for product collaboration, B2B customer relationship management, data management and communication all in one platform. You'll have everything you need for your merchandising and sales process in one place, so you can establish, maintain, and perfect your supplier management strategy. Here are just a few of the critical areas where Surefront's unified product collaboration platform can help your business:
Seamless Supplier Onboarding
Surefront’s main goal is to connect your internal team with external suppliers and vendors, enabling each relevant stakeholder to access all relevant product data. External partners can always collaborate in the platform via email invitation. This is Surefront's key differentiator: full, seamless onboarding of internal associates and external suppliers. Surefront's unified PLM, CRM, and PIM tools make it easy for suppliers to upload their inventory and share organized live showcases, so you can collaborate and streamline your merchandising process.
Built-In Chat Communications
Surefront has a unique blend of product data and management tools mixed with live chat communication. The platform moves you out of decades-old tools like long email chains, spreadsheets and PDFs for product collaboration. It facilitates open and clear dialogue with external partners, which is traditionally one of the most difficult things to maintain in supplier management. You can live chat in real time with your suppliers on a highly visual interface and leave notes on specific items.
Pricing Calculator for Negotiations
As you move toward the quotation process and settling agreements, Surefront provides both sides with a pricing calculator that allows each team to have all the important financial information for the given product. This helps in tracking purchase prices, landed prices, and margins. The best part? The information you want to remain internal will be visible to your team only.
Product Information Management
Within Surefront's PIM tool, you can store all relevant product data, which grants you access to a trackable history, specifications, financial information, and notes from both parties. With catalog, showcase and workflow functionality, all stakeholders can access the information they need and keep track of end-to-end data.
RFQ and Quote Creation
When viewing your supplier’s showcases, your merchandising team can easily select the products that you’re interested in and create a request for quote (RFQ) right in the platform. Your suppliers can then create quotes and send them to you, moving you toward an expedited PO and more efficient agreement process. Data export that used to take three weeks takes three hours with Surefront.
You don’t want your data to be siloed. Your company’s CRM, PIM and PLM solutions shouldn’t operate in a vacuum, either. Surefront is a Unified Product Collaboration Platform to power growth and ROI. Our patented PIM, CRM, and PLM solutions streamline the omni channel sales, merchandising and product development processes. By combining these essential functionalities, Surefront creates a single source of truth throughout your product lifecycle, sales and listing processes.
The results? Up to 150% more revenue per employee and a 40% shorter product development cycle is just the beginning. Try our 10x ROI calculator to see your company’s potential profits. Or, skip the noise and book a custom demo with one of our unified product collaboration management experts today. The retail industry evolves quickly and has a lot of moving parts. We do all of the research, so you don’t have to. Stay ahead of market fluctuations, trends and new features by subscribing to our Unified Product Collaboration Management Blog.
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