Five Common Mistakes In Supplier Management
Every business needs suppliers and vendors. Ideally, these suppliers are reputable and get the work done promptly while yielding high-quality results. In addition to work, some suppliers/vendors also provide goods. These goods might come in the form of raw materials that you use in your manufacturing process to make your own products or they could be finished products themselves. Either way, having a positive relationship with suppliers leads to fewer supply chain issues, less cost in the long run, and everybody benefits from a good symbiotic relationship that creates a lot of value. Avoiding common supplier mistakes is like getting an updated health or life insurance policy for your business. Unfortunately, navigating the supplier management process can be a bit tricky at times. Mistakes happen. Disreputable vendors pop up into the regular rotation. Sometimes, vendors and suppliers aren’t keeping up their end of the deal. When this happens action must be taken to attenuate and react. It all starts with some proactivity, by realizing common mistakes and knowing how to prevent them. Here are five common mistakes in supplier management to avoid at your organization.
Choosing Too Many Or Not Enough Suppliers
Striking the sweet spot regarding the number of suppliers your organization uses isn’t always simple or direct. Too many suppliers can lead to a lot of extra work and management, including relationship building and tracking. Not enough suppliers mean that you’re not getting a diverse enough supply of goods from different parties and you will likely run afoul of issues at some point. It’s part of the reason supply chain issues and bottlenecks are ongoing issues right now. This might be related to the unavailability of something you need or it could lead to one particular supplier taking advantage of your operation. Choosing your suppliers is important and should be carefully performed. Consider the communication, capacity, ability of the supplier to meet your needs, and past reputation of them to determine if they belong in your supplier stable.
Shortcuts might seem like a good idea sometimes, but they often lead to adverse consequences. Moreover, they tend to make things take longer—or have to be redone entirely! You wouldn’t take shortcuts in most aspects of your life, so why do it in the procurement stage or while managing suppliers? Taking shortcuts on requisitions or purchase orders might lead to some major issues. The same can be said of managing and contracting with suppliers. There are some ways to streamline the process without causing issues, like using enterprise management software. But sometimes, teams try to use contractual shortcuts—and that’s where things can go awry. These are areas in a supplier contract where they essentially take a shortcut to account for materials or other shortages. This can be a dangerous way to decrease transparency and accountability on the part of suppliers, so it’s best to stay above board and do things by the book as much as possible.
Poor Spend Visibility
Spend analysis depends on high visibility, a good process, and in-depth analysis to function properly. When companies conduct a spend analysis, they’re trying to get a handle on understanding where their money is going, where they can make improvements, and where possible risks may lie. Part of the process involves gathering and cleaning up the data into usable schemas that can be analyzed. This increases visibility. Poor visibility is a major pain point for some organizations, especially in regard to suppliers. Effective sourcing lies in understanding logistical, analytical, and other supplier issues so that you can use those insights to ensure nothing goes wrong throughout the process. Seeking the right level of visibility is essential for everything from tech spending to supplier spending and beyond.
Not Considering All Factors
Vetting your suppliers means ensuring they can deliver goods on time and keep up with their end of the contract. Price should not be the only factor you’re evaluating with your suppliers. Find out how well they communicate, what their track record looks like, and whether or not their business processes will align with your own. Ask questions about reliability, quality, and flexibility. Get a comprehensive quote for every item your company needs. Otherwise, you’re not going to get an accurate quote back from the supplier. Try to factor in any unforeseen additional costs, such as shipping delays. Don’t ignore their reputation. If the supplier has a bad reputation with its other clients, that should definitely impact your decision to hire them. It’s also wise to find some backup suppliers, just in case the one you want doesn’t work out in the end.
Not Using A Management System
At the end of the day, using a supplier management system is going to offer the most efficient method for avoiding supplier problems. Vendor management puts supplier adoption front and center by incentivizing them to consolidate the P2P process. It drives policy compliance across the company. More importantly, it makes all pertinent supplier information available at the touch of a button. Everything happens in real-time, departments are updated quickly, and vital policy decisions can be made decisively. If the supplier’s information is missing or any other concerns pop up, the management system can always block an invoice from being paid out until more information is available. Fewer emails and calls with suppliers mean a streamlined workflow, higher efficiency, and better relationships. As a result, there’s more visibility across the organization. Altogether, vendor management is just a logical step in managing your suppliers.