Supplier management explained simply 

Supplier relationship management is important in order to keep production processes and their process steps in companies at a consistently high level. To this end, it essentially pursues the following objectives:

• Increasing and maintaining own product quality for satisfied customers
• Reducing risks and procurement costs
• Increase your own competitiveness
• Optimized procurement process for time-efficient work
• Long-term security of supply
• Optimization of on-time delivery

The supplier relationship management process includes all the steps that companies take to manage supplier relationships strategically and operationally. The process begins with the identification and selection of potential suppliers, followed by their evaluation on the basis of criteria such as price, quality and reliability. Once the contract has been negotiated, suppliers are integrated into the company's processes. Performance is continuously monitored on the basis of defined KPIs and the supplier relationship is developed and improved in a targeted manner. In addition, risks are minimized through strategic risk management and, if necessary, the cooperation is changed or terminated.

Supplier relationship management has the following tasks:

• Qualification of suppliers
  Supplier relationship management takes on the task of selecting and qualifying potential suppliers. Certain criteria are defined for this purpose.
• Relationship with suppliers
  Supplier relationship management is responsible for maintaining the relationship with suppliers. This includes regular coordination, meetings and finding solutions in the event of problems.
• 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. More about supplier evaluation.
• Risk management
  Supplier relationship management is responsible for identifying potential risks in the supply chain. In addition, a strategy is developed to minimize the risks.
• Measures for continuous improvement
  The work of supplier management is carried out in close cooperation with the suppliers. This enables companies to achieve criteria such as quality, costs and delivery times.

In supplier relationship management, a distinction is typically made between strategic and operational measures.

Strategic supplier relationship management

The strategic goals of supplier relationship management involve optimizing supplier relationships in the medium and long term in order to continuously improve the quality of shipments, reduce costs and be exposed to fewer risks.

Examples of strategic objectives are

• Increased supplier quality
• Reduction of the supply risk
• Generate synergy effects
• Ensuring cooperation
• Maintaining your own competitiveness

Operational supplier relationship management

The operational objectives in supplier management are designed for the short term, for example to reduce purchasing costs, negotiate delivery times and identify opportunities for improvement.

Examples of operational goals are

• Selection of the most suitable supplier
• Bundling the purchasing volume
• Uncovering optimization potential
• Improving the basis for negotiations with suppliers

Typical supplier relationship management methods are:

• Selection and evaluation of suppliers in order to focus on the most suitable suppliers.
• Classification of suppliers according to criteria such as sales volume, strategic importance or category of different products.
• Supplier development by means of workshops, projects and other measures.
• Supplier evaluation systems, partly by means of scorecards, to ensure criteria such as delivery reliability, quality and response.

Supplier relationship management proceeds in the following phases:

Escalation level 0: Standard procedure

Escalation level 0 corresponds to the normal procedure in the company. Shipments are checked in warehouse receiving in accordance with the contract. If deviations are detected, they are immediately reported.

Escalation level 1: Observation

If there is an increase in quality problems during the goods inspection, the escalation level is increased to 1. If the probability of failure is low, processing is implemented at working level. Measures are defined to reduce the extent of the damage or the probability of damage occurring.

Escalation level 2: Development

If there are further quality problems at escalation level 1, the escalation level is raised to level 2 and upper management is informed. In particularly critical cases, it is also possible to raise the escalation level directly to 2.

Escalation level 3: New Business Hold (NBH)

If the measures introduced do not produce any improvement, the supplier is assigned the status "New Business Hold". It is therefore blocked for orders for new projects.

Escalation level 4: Eliminated

If there are no significant quality improvements despite all measures, the supplier is eliminated and a change of supplier takes place.

Typical key figures in supplier relationship management are

• Purchasing volume in euros or dollars
• Percentage savings of the purchasing volume
• Price development of materials
• Deadline reliability of shipments
• Number of all active suppliers
• Rate of complaints
• Purchasing volume
• Deviations between actual and planned costs
• Order lead time
• Internal order costs incurred
• Reduction and avoidance of costs

The following challenges are frequently encountered in supplier relationship management:

• The identification and selection of suitable suppliers
• Dependence on suppliers
• Risk of supply chains being interrupted due to raw material shortages, natural disasters or illness
• Problems with quality, delays and deficiencies in supplier performance
• Ineffective communication and misunderstandings.
• Insufficient attention to compliance measures

In the cosmetics, food, pharmaceutical, medical device, biotechnology and chemical industries, there are special requirements for supplier relationship management. These result from the high regulatory requirements, the specific product requirements and the risks associated with the safety and quality of the products. Here are some industry-specific features:

Cosmetics

Supplier relationship management in the cosmetics industry focuses on compliance with strict legal regulations. 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 any substances that are hazardous to health. Cosmetics companies must also ensure that they can trace where the ingredients come from at all times so that they can react quickly in the event of an emergency. Suppliers must be checked regularly to ensure that they meet the high quality standards.

Food

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

International standards such as ISO 22000 or the IFS (International Featured Standard) also play a role in ensuring food safety. Traceability is a key issue - companies need to know where every ingredient comes from in order to be able to act quickly in the event of quality problems. Companies often also require certain certificates from their suppliers, e.g. for organic or fair trade products.

Pharmaceuticals

In the pharmaceutical industry, the demands on supplier management are particularly high because people's health is at stake. Suppliers must comply with strict guidelines such as Good Manufacturing Practice (GMP ), which ensure that products are safe and of high quality. Pharmaceutical companies regularly audit their suppliers to ensure that all regulations are adhered to.

Government regulators such as the FDA in the USA or the EMA in Europe can also audit production and supply chains. In addition, strong risk management is required to identify and resolve any problems with the supply of key raw materials at an early stage.

Medical devices

Similar to the pharmaceutical industry, the quality and safety of products must be guaranteed in the medical device industry. Suppliers often have to be certified according to ISO 13485, a special standard for medical devices. This standard ensures that all components and products are safe and meet the high legal requirements.
Companies in this industry must ensure that they have complete documentation about their supply chain in order to be able to prove the safety of the products if necessary. Quality audits also play an important role here in order to regularly check suppliers.

Biotechnology

Biotechnology is a highly regulated industry, as the products are often used in sensitive areas such as medicine or agriculture. Suppliers must undergo strict quality controls and regularly validate their production processes.
As technology in biotechnology is developing rapidly, suppliers must also be flexible and able to adapt to new requirements. Guidelines such as GMP also apply here to ensure that the raw materials and components supplied meet the high standards.

Chemicals

In the chemical industry, supplier management requirements are often heavily influenced by safety regulations. Suppliers must ensure that their products meet the requirements of the REACH regulation, which regulates the safe handling of chemicals, and extensive safety data sheets and information on hazardous substances are necessary to ensure that these substances are stored, transported and used correctly. Sustainability is also playing an increasingly important role, and many companies require their suppliers to use environmentally friendly processes and materials.

The Yaveon 365 industry-specific ERP solution offers specialized functions for the process manufacturing industry. The solution supports supplier relationship management in several important areas:

• Transparency and traceability: the solution offers functions for the structured quality inspection of supplier materials. Inspection reports and deviations are documented to improve supplier evaluation.
• Quality management: Integrated quality control functions ensure that supplier materials can be regularly checked for quality in a structured manner. Inspection reports, tests and deviations can be documented directly and assigned to the supplier in order to have better data for supplier evaluation.
• Supplier evaluations: The software allows evaluations to be created based on various criteria such as delivery reliability, quality and deadline reliability. These evaluations help to make informed decisions about the selection and retention of suppliers.
• Purchasing optimization: Through stored supplier information, Yaveon ProBatch facilitates purchase planning and can generate automatic purchase 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 an audit-proof manner, which reduces administration costs.
• Collaboration and communication: The integrated communication functions facilitate the exchange of information with suppliers, e.g. on quality requirements. This improves collaboration and strengthens supplier relationships.