Supplier management

This practice is designed for better management of suppliers and their activities in order to make or support them to be engaged in producing products and services with efficient quality and also integrity. The activities of this practice result in more productive relationships with suppliers to create value and decrease risks of failure. 

Main activities of this practice are listed below: 

1. Creating a central point for controlling and monitoring to ensure the best performance and productivity of suppliers. 
2. Developing strategies, policies for suppliers, and contract management. 
3. Negotiation and agreement on contracts and Memoranda of Understanding 
4. Relationships and contracts management  
5. Suppliers’ performance management to control if they are acting based on goals of contract and best values are created with reasonable costs. 

Sourcing, supplier strategy, and relationships 

Supplier strategy, also known as source strategy is actually the organization’s decision to choose a strategy about the method of production of the products or development of the services. some organizations might decide to use external suppliers rarely, and some frequently. But these decisions are made from the assessment of the organization and also needed sources, environmental factors, culture, risk, etc. 

There are different types of supplier relationships:  

1. Insourcing: an organization makes all by itself.
2. Outsourcing: the organization takes suppliers to produce all the materials and components.
3. Single source or partnership: it means that the organization gives the responsibility for the procurement of good or service components to another organization. This source could make all the components by itself or on the other hand, could be an integrator of the components provided from other suppliers.
4. Multi-sourcing: the organization has multiple sources that provide the components. The responsibility of integration of those parts could be taken by the organization itself or it could be also outsourced to another source.

Evaluation and selection of suppliers 

The organization should choose its suppliers based on these themes and evaluates them: 

• Level of importance and effectivity of the service/product -which is offered by the supplier- to the organization 
• Risks related to service 
• Costs of service 
• Suppliers capabilities in working at multiple supplier environments 
• Level of the effect of the organization/integrator to the supplier 
• Grade of dependency between one supplier and the other suppliers 

Activities 

There are some activities that should be done during supplier management practice: 

• Supplier planning 
• Evaluation of suppliers and contracts in order to identify and choose them 
• Supplier and contract negotiation 
• Supplier categorization in strategic, tactical, product and commodity classifications  
• Supplier and contract management to ensure that targets are performed balanced with contract goals and costs 
• Warranty management to manage warranty requirements and claim in warranty-related incident situations 
• Performance management to monitor and control the performance of suppliers and reporting actions 
• Renewal or closing contracts 

Service integration 

Service integration is the function of summarizing, integrating, and coordinating between suppliers. The organization can do this itself or use a third-party supplier to perform this, or maybe performs partly insource and partly outsourced or by the main supplier. The responsibilities of assurance are taken by the integrator. 

Figure 5.13