What Is Supplier Lifecycle Management & How Does It Help Manage Supplier Performance?
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Supplier Lifecycle Management (SLM) allows organizations and their suppliers to develop and cultivate more productive and mutually beneficial business relationships. Nurturing and managing vendor performance through supplier lifecycle management processes enables the organization to control and shape the supplier lifecycle and performance to its advantage while also ensuring that the vendor is set up to deliver an optimal level of service.
This is lucrative for organizations as suppliers will be more efficient and streamlined and will recognize the mutually beneficial aspects of the working relationships. In turn, this leads to them being more receptive to offering cost reductions and shorter lead times as it too will recognize the need for the relationship to be maintained for mutually beneficial long-term success.
This allows the organization to pass on these cost reductions to their customers to increase their market competitiveness while providing a better customer experience with reduced lead times for their offerings.
What is Supplier Lifecycle Management?
Supplier Lifecycle Management is a holistic process of managing external suppliers and their associated data in an organized, efficient, and integrated manner for the duration of the end-to-end relationship and beyond. It encourages organizations to recognize that external suppliers are a core component of supply chains and the intrinsic need to nurture the relationship for the benefit of both parties.
What is the purpose of Supplier Lifecycle Management?
The overriding aims of vendor lifecycle management are:
- Minimize potential for disruption from external factors
- Ensure that the supply chain is as efficient as possible
- Recognize that external third-party suppliers are crucial in improving the supply chain’s efficiency
The output of this approach is that the most critical external suppliers are the core focus of the organization’s procurement strategy, both in the short and long term.
Supplier Lifecycle Management comprises the two fundamental processes of Supplier Relationship Management and Supplier Information Management, which are significant contributors to ensuring that it is driving the organization’s success.
What is the Supplier Lifecycle Management process?
The most important areas of the Supplier Lifecycle Management process are focused on merging two of the key procurement cycles:
- Procure-to-pay
- Source-to-contract
Those responsible for managing the organization’s Procurement can combine suppliers’ master data and procurement and sourcing cycles to deliver streamlined and enhanced workflows. This also helps to gain insights into the performance of suppliers to understand better where value can be derived, while reducing possible risks to the organization and costs.
What are the stages of Supplier Lifecycle Management?
Supplier Lifecycle Management is divided into eight key stages:
Supplier identification & evaluation
The first stage in the supplier lifecycle process is to search for or invite suppliers to embark on a new working relationship. Once interest has been registered, the organization will then shortlist suppliers of interest based on whether the supplier meets the requested specifications.
Once the organization has determined that the supplier would be able to meet the basic requirements, more detailed analysis is executed to determine whether the potential supplier would have the capability to deliver the necessary goods or services with the regularity that is needed.
Despite being early in the process, this is an essential consideration, as identifying suppliers that do not meet the requirements will ensure that the organization can avoid detrimental situations that may arise from working with an unsuitable supplier in the future.
Vendor segmentation
Once a supplier has been certified, the next stage is to classify and segment vendors based on a variety of metrics, some of the most important being:
- Quality of products or services
- Lifecycle cost
- Lead time
- Availability
- Volume
- The number of other companies on which they are dependent
- And much more
The capture of this data and information at this stage and having it available will help accelerate decisions and processes in subsequent phases.
Supplier selection
After segmenting and assessing the vendors, the organization chooses the most suitable supplier for the business’ needs. A key decision factor at this stage is whether a supplier is the right fit for a long-term engagement and committed to developing a mutually beneficial working relationship.
Any reservations need to be addressed at this stage to ensure that risks to the business are kept to a minimum and that the relationship starts on the trajectory toward success.
Supplier onboarding
Well-planned and executed supplier onboarding is essential to building a successful long-term working relationship with suppliers. The organization should ensure that it provides the supplier with everything needed to meet the previously agreed needs of the organization. Ideally, this should be done via a pre-defined process to be as time effective as possible.
The onboarding stage is also the ideal time to establish the performance monitoring processes and data collection for providing continuing insights into the effectiveness of the relationship.
Performance measurement
Once the processes have been implemented, the organization should consistently monitor the effectiveness of the working relationship with the supplier. It is imperative that ongoing monitoring and measurement are implemented to understand better where improvements can be made to increase the effectiveness for mutually beneficial success.
This can be time-consuming, so utilizing supplier management software helps provide a holistic overview of each area. The organization can also hone in on particular stages of supply to assess effectiveness.
Identify & mitigate risks
Supplier risk management protects organizations should there be a breach of contract, poor quality of products, late delivery issues, etc. This is one of the essential stages in Supplier Lifecycle Management, no matter how much faith you have in the supplier to fulfil their obligations.
There should be robust internal processes that can identify, analyze and mitigate risks across the whole network of new and historical vendors. Failure to do so could have devastating repercussions in terms of revenue generation.
Supplier Relationship Management
As mentioned previously, Supplier Relationship Management (SRM) is the aspect of Supplier Lifecycle Management that considers each part of the relationship between the organization and the supplier such as engagement, performance and development. It is the process of identifying the company’s most important suppliers and ensuring that the relationship is geared towards nurturing a long-term working relationship to ensure mutually beneficial success for both parties.
Supplier offboarding
Once the contractual obligations have been fulfilled, and the working relationship reaches its conclusion, the final stage of the Supplier Lifecycle Management process is supplier offboarding and removing them from the organization’s financial records.
What is Supplier Lifecycle Management software?
Supplier Lifecycle Management software empowers your organization to build and maintain mutually beneficial supplier relationships. It allows the organization to track supplier performance, open up clear lines of communication, issue purchase orders, etc.
This empowers the organization to shift focus to areas of the business that require attention to increase overall revenues and profitability. This is beneficial for both SMBs and larger enterprises planning future strategies and looking to maximize the effectiveness of their resources.
Whatever Supplier Lifecycle Management tools are used, collecting and managing accurate data, be that supplier location, bank details, tax ID or any other piece of information, is key to establishing effective supplier relationships at scale. Supplier Lifecycle Management solutions must include mechanisms to successfully and rapidly onboard suppliers, to support ongoing improvement in data relating to all suppliers, and establish data governance and efficient processes throughout the organization.
What are the benefits of Supplier Lifecycle Management software?
Risk insights & assessment
Supplier risk analysis is one of the most critical considerations when onboarding a new supplier and entering into a long-term working relationship; the wrong choice could have devastating repercussions for your business.
Supplier Lifecycle Management software can support the processes for full and detailed risk assessments to ensure the compatibility of the two parties when working together on a long-term basis.
Enhanced collaboration
As supply chains grow increasingly complex, so too do the lines of communication that ensure they keep operating. Procurement stakeholders need to quickly and effortlessly reach a specific contact to ensure the fluidity of supply chains, mitigate risks and efficiently deal with emergencies before they impact supply and cause issues for both supplier and organization.
SLM software facilitates this by providing the opportunity to quickly engage with the relevant contact and ensuring that everything is operating correctly towards mutually beneficial success.
Compliance & regulation
When an organization relies on a complex supply chain across the globe, it is essential to be aware of the different regulations that must be adhered to. This means that businesses are required to be able to rely on their suppliers to comply with relevant legislation, as failure to comply could have a negative impact on an organization’s revenue and reputation.
Opting for leading Supplier Lifecycle Management software helps to ensure that an organization can manage compliance and consent requirements and that the required data are collected.
As supply chains become increasingly complex with increased competition on a global level, organizations must begin to recognize the importance of investing and nurturing relationships with their suppliers for long-term mutually beneficial success. This is the case for organizations looking to expand and increase their market share and global enterprises looking to gain the upper hand in the face of increased competition in existing and emerging markets.
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