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Supplier management requirements

Procurement plays an important role in most organizations. Normally large organizations have a large supplier base and they have to manage the performance of these suppliers carefully in order to ensure that the organizations money is being wisely spent. Often because of their size the procurement process is centralized, which on one hand promotes objectivity in the procurement process, but on the other loses the ability to recognize business benefits to services that offer more than just what has been ask / requested.

Suppliers / vendors form a significant part of any businesses supply chain and if they are not providing the services and support the organization requires it can become disruptive for the business and even cause loss of earnings or reputational costs.

In order to manage the supplier relationship it is critical those organizations know their suppliers well and that they undergo a supplier evaluation on an ongoing and regular basis. This is to manage the output as well as the costs. However, before undergoing such evaluations one needs to start at defining what the relationship should look like and the structure in which the relationship should operate within. This means that service level agreements should be implemented and that the supplier and the receiver of the service or supplies should understand the conditions in which the services / goods must be rendered. This approach is to protect both the rights of the organization receiving the services / goods as well as the one providing it.

Once a well defined and consistent service agreement is put in place (consistency in terms of how services are defined across multiple suppliers as well as consistency in how they are measured) then quantitative ratings for difference areas of delivery should be stipulated and measured. These could include compliance to internal processes; rejection or quality; price; responsiveness; technical competency etc. There are many supplier evaluation software available which allow organizations to simplify these processes. In order to implement them well it is essential that evaluations are done prior to engagement with a supplier as well as post engagement and that these evaluations are done on a regular basis.

By making use of some form of weighting system it is easier to drive objectivity throughout the evaluation process. It is also important for the organization receiving the services to appreciate that poor cooperation from their part can also lead to poor service delivery from a supplier. Therefore service level agreements, if to be used effectively, should have a two way evaluation process in the quest for ultimate service delivery across all levels.

In terms of managing the vendor relationship, vendors would normally be awarded contract renewal or extension of contracts based on their performance. The aim from parties would be to strive towards a partnership relationship where mutually the two organizations work towards a common goal of providing best practice service at competitive prices throughout the value chain. The supplier / client relationship should be based on trust; partnership; recipricality and transparency where both parties benefit from the relationship.