Supplier relationship management made simple

Supplier relationship management is crucial to keeping production processes and process steps within a company at a consistently high level. Its main objectives include:

• Increasing and maintaining product quality to ensure customer satisfaction.
• Reducing risks and procurement costs.
• Improving competitiveness.
• Optimizing procurement processes for time-efficient operations.
• Securing long-term supply reliability.
• Enhancing delivery reliability.

The supplier relationship management process includes all the steps companies take to manage supplier relationships both strategically and operationally. The process begins with identifying and selecting potential suppliers, followed by evaluating them based on criteria such as price, quality, and reliability. After contract negotiations, suppliers are integrated into company processes. Continuous monitoring of performance is carried out using defined KPIs, along with targeted development and improvement of supplier relationships. Risks are minimized through strategic risk management, and, if necessary, a supplier change or termination of cooperation takes place.

Supplier relationship management has several key tasks:

• Qualification of suppliers
  Supplier relationship management ensures that potential suppliers are selected and qualified. Specific criteria are defined for this process.
• Maintaining supplier relationships:
  It is responsible for maintaining strong supplier relationships, which includes regular coordination, meetings, and finding solutions in case of issues.
• Supplier evaluation
  Another task of supplier management is to evaluate supplier performance and ensure that the required quality standards are met. The evaluation is based on predefined criteria.
• Risk management
  Supplier relationship management identifies potential risks in the supply chain and develops strategies to minimize them.
• Continuous improvement:
  Close collaboration with suppliers enables companies to continuously improve criteria such as quality, cost, and delivery times.

Supplier relationship management typically distinguishes between strategic and operational measures.

Strategic supplier relationship management

Strategic objectives focus on medium- and long-term optimization of supplier relationships. The aim is to steadily improve delivery quality, reduce costs, and minimize risks.

Examples of strategic goals include:

• Improving supplier quality
• Reducing supply risks
• Creating synergies
• Ensuring cooperation
• Maintaining competitiveness

Operational supplier relationship management

Operational goals are short-term in nature. They focus on reducing procurement costs, negotiating delivery times, and identifying opportunities for improvement.

Examples of operational goals include:

• Choosing the most suitable supplier
• Consolidating purchasing volumes
• Identifying optimization potential
• Strengthening the negotiation position with suppliers

Typical methods of supplier relationship management include:

• Selecting and evaluating suppliers to ensure collaboration with the right partners
• Classifying suppliers by criteria such as revenue volume, strategic importance, or product category
• Developing suppliers through workshops, projects, and further measures
• Implementing supplier evaluation systems, often with scorecards, to track criteria such as delivery reliability, quality, and responsiveness

Supplier relationship management typically follows a phased escalation process:

Escalation level 0: Standard process

Escalation level 0 reflects the normal company process. Deliveries are checked in warehouse receiving according to contract. If deviations are identified, they are immediately flagged.

Escalation level 1: Observation

If recurring quality issues are detected during goods inspection, the escalation level increases to 1. If the probability of failure remains low, handling continues at working level. Measures are defined to reduce the likelihood or extent of damage.

Escalation level 2: Development

If further quality issues occur during level 1, escalation moves to level 2. Senior management is notified. In particularly critical cases, escalation may be raised directly to level 2.

Escalation level 3: New Business Hold (NBH)

If introduced measures fail to achieve improvement, the supplier is placed under “New Business Hold.” This blocks them from being awarded new projects.

Escalation level 4: Eliminated

If no significant quality improvement occurs despite all measures, the supplier is excluded, and a supplier change takes place.

Typical KPIs in supplier relationship management include:

• Purchasing volume in euros or dollars
• Percentage savings on purchasing volume
• Price development of materials
• On-time delivery rate
• Number of active suppliers
• Rate of non-conformities
• Purchasing volume per supplier
• Deviations between actual and planned costs
• Order processing time
• Internal order processing costs
• Cost reductions and avoidance

Supplier relationship management faces several common challenges, including:

• Identifying and selecting suitable suppliers
• Dependency on individual suppliers
• Risk of supply chain disruption due to raw material shortages, natural disasters, or illness
• Problems with quality, delays, and performance issues from suppliers
• Ineffective communication and misunderstandings
• Lack of compliance with regulatory measures

Industries such as cosmetics, food, pharmaceuticals, medical technology, biotechnology, and chemicals have specific requirements for supplier relationship management. These stem from strict regulations, unique product requirements, and the risks associated with ensuring product safety and quality.

Cosmetics

In the cosmetics industry, supplier relationship management focuses on complying with strict legal requirements. Companies must ensure that their suppliers provide ingredients that meet the requirements of the EU Cosmetics Regulation. These rules guarantee that all raw materials used are safe and do not contain substances that endanger health.

In addition, cosmetics manufacturers must be able to trace the origin of their ingredients at all times in order to react quickly in case of problems. Suppliers must be regularly controlled to ensure that they continue to meet the high quality standards.

Food

In the food industry, everything revolves around product safety. Suppliers must meet high standards for hygiene and quality, such as compliance with HACCP (Hazard Analysis and Critical Control Points), which analyzes and controls potential hazards in production.

International standards such as ISO 22000 or IFS (International Featured Standard) also play an important role in ensuring food safety. Traceability is a central topic – companies must know where every ingredient comes from in order to act quickly in the event of quality problems. Often, companies also require certain certifications from their suppliers, such as for organic or fair-trade products.

Pharmaceuticals

In the pharmaceutical industry, the requirements for supplier relationship management are particularly high, as human health is at stake. Suppliers must meet strict guidelines such as Good Manufacturing Practice (GMP), which ensures that products are safe and of high quality. Pharmaceutical companies regularly carry out quality audits of their suppliers to confirm compliance with these regulations.

Government authorities such as the FDA in the US or EMA in Europe can also inspect production and supply chains. In addition, strong risk management is required to identify and solve potential supply problems with critical raw materials at an early stage.

Medical devices

Similar to the pharmaceutical industry, quality and safety are essential in the medical devices sector. Suppliers are often required to be certified according to ISO 13485, a specific standard for medical devices. This ensures that all components and products are safe and meet high regulatory requirements.

Companies in this industry must also guarantee complete documentation of their supply chain to prove product safety when needed. Quality audits are also essential here to regularly monitor suppliers.

Biotechnology

Biotechnology is a highly regulated industry, as products are often used in sensitive areas such as medicine or agriculture. Suppliers must undergo strict quality controls and regularly validate their production processes.

Because technology in biotechnology evolves quickly, suppliers also need to be flexible and able to adapt to new requirements. Guidelines such as GMP also apply here to ensure that raw materials and components meet the necessary quality standards.

Chemicals

In the chemical industry, the requirements for supplier relationship management are often strongly shaped by safety regulations. Suppliers must ensure that their products comply with the requirements of the REACH regulation, which governs the safe handling of chemicals. In addition, extensive safety data sheets and information on hazardous substances are necessary to guarantee that these materials are stored, transported, and used correctly.

Sustainability is also becoming increasingly important, and many companies demand that their suppliers implement environmentally friendly processes and materials.

The industry-specific ERP solution Yaveon 365 offers specialized functionality for the process industry. When it comes to supplier relationship management, the system supports companies in several key areas:

• Transparency and traceability: The solution includes features for structured quality inspections of supplier materials. Test protocols and deviations are documented to improve supplier evaluation.
• Quality management: With integrated quality control functions, materials from suppliers can be regularly and systematically checked. Test protocols, results, and deviations are recorded directly and linked to the supplier, creating reliable data for supplier evaluation.
• Supplier evaluations: The software makes it possible to evaluate suppliers based on criteria such as reliability, quality, and on-time delivery. These evaluations support well-founded decisions on supplier selection and retention.
• Procurement optimization: By storing supplier information, Yaveon ProBatch simplifies purchasing planning and can generate automated orders.
• Document management: The system enables seamless integration of documents such as supplier contracts, certificates, or specifications. All relevant documents can be stored centrally and in a revision-proof manner, reducing administrative effort.
• Collaboration and communication: Integrated communication features make it easier to exchange information with suppliers, for example on quality requirements. This strengthens collaboration and improves supplier relationships.