Every business relies on suppliers to run smoothly. From cloud infrastructure providers to automation software services, growing companies rely on a range of SaaS suppliers to execute important tasks. But despite being critical, the fact remains that supplier management is a tricky task for most businesses.
Tracking contracts, supplier terms, payment cycles, and planning future business is challenging even when there are a few suppliers on board. As your company grows and onboards more suppliers, these challenges compound. Thankfully, finance automation offers a great way to surface and erase supplier management bottlenecks.
What is supplier management?
Supplier management refers to all the activities you undertake to manage your relationship with the entities from which you purchase goods and services. Everything from vendor negotiations to handling disputes falls under the supplier management umbrella.
A typical supplier management program includes the following:
- Supplier identification processes and selecting the firms with the best fit for your business
- Managing ongoing relationship parameters such as invoice status, goods bought, renewal terms, etc
- Streamlining purchasing processes to eliminate duplicate spending
- Contract visibility via data-driven metrics and Key Performance Indicators (KPIs)
A robust supplier management program offers benefits such as eliminating duplicate spending, optimizing supplier onboarding, better expense management, and minimizing supplier risk.
Why your business needs a sound supplier management process
Every business must know the products and services it purchases. A lack of visibility into these processes will result in wasted resources and smaller profits, leading to negative long-term consequences. Inefficiency will catch up with growing companies since they’ll struggle to compete in the market, attract top talent, and create differentiated products. Eliminating sources of inefficiency, whether in supplier management or any other business function, must be your top priority.
Here are some of the benefits of a strong supplier management program:
Streamline performance management
Companies these days subscribe to a range of SaaS suppliers. Tracking supplier product performance is critical to ensuring you eliminate inefficiencies in your business. Manually managing your vendors can be tough due to the varied workflows involved.
A technology-driven program will help you create data-driven KPIs, such as delivery defect rates and PO cycle length, that identify areas of improvement. The result is a transparent and streamlined performance management program that will never let you down.
Monitor compliance effectively
Compliance monitoring is a central aspect of supplier management. Electronic supplier management platforms help you create audit trails right from the onboarding stage. With critical documents such as contracts, performance reports, and invoices logged at all times, compliance management becomes a breeze.
Involving stakeholders in compliance-related matters is also simple since you can define role-based access to documents and sensitive material. Whether tracking business registration documents or trade compliance, a technologically-driven supplier management process simplifies compliance tasks.
Duplicate purchases are a common problem that growing organizations encounter. Typically, new teams or departments purchase a SaaS tool that performs the same functions as an existing one, creating unnecessary spending. This leads to unused subscriptions, called zombie spend, that brings your organization no benefits.
A lack of coordination in supplier management processes is the reason for this and other issues like low ROI from tools, overpaying suppliers, and ignoring product updates. A robust supplier management process tracks every tool the company uses and maintains up-to-date information regarding payments and performance.
The result is greater ROI from supplier investments and cost savings.
Control supplier risk
Suppliers can pose risks to your business. For instance, cybersecurity issues with their product can expose your data to malicious actors. Organizational risks with the supplier's company can hamper their ability to deliver the services you need. In addition, employees might purchase apps outside approved software lists, called shadow IT, creating unknown risks from apps that have not been vetted for security.
A data-driven supplier management program will alert you to possible risks ahead of time. For instance, a steady drop in KPIs will alert you to potential issues that you can mitigate before your organization is exposed to critical incidents.
Build better supplier relationships
Suppliers are an integral part of your business, even if they hover in the background. An ideal supplier is a business partner that supports you during times of need and grows with you during the good times. Strong supplier relationships give you an ideal platform to negotiate favorable terms.
Creating mutually beneficial outcomes where the supplier and your company prosper together via data-driven insights reduces operating costs in the long run. For instance, a supplier will be more willing to accept custom terms for your business, thanks to the transparency you provide them. Supplier management programs help you get to know your suppliers’ business deeply via KPI trends.
For instance, seasonal trends in PO cycles will help you anticipate hurdles that your supplier faces at certain times of the year. The result is a strong relationship that benefits all parties.
4 steps in the supplier management process
There are 4 steps every robust supplier procurement process has. Follow these steps, and you'll seamlessly manage vendor relationships, stay on top of supplier risks, and realize all the benefits that great supplier management brings.
Identify goals and create qualification criteria
Before you decide to search for suppliers, make sure you define the business goals you expect them to help you achieve. Some of these goals include achieving lower time to market, better product to market fit, etc. Defining these goals is essential because they'll help you create objective qualification criteria. In turn, these criteria make supplier evaluation simple.
Typically, organizations that don't tie business goals to qualification criteria end up screening suppliers solely based on costs. This approach results in low-quality products that cost more in the long run. Therefore, take the time to create supplier qualification criteria tied to your business' objectives.
Evaluate potential suppliers
When evaluating potential suppliers, make sure to check how well they fit with your operational workflows. For instance, if a supplier has in-depth expertise to fulfill your needs but cannot deliver in the time frame you require, consider whether you need to tweak your expectations or search for alternatives.
Create a map of every supplier's strengths and weaknesses and the degree of risk they pose to your business. Choose the ones that pose the least risk, irrespective of the prices quoted. Typically, the suppliers that pose the least risk and present the best organizational fit tend to deliver the highest ROI.
Negotiating with your vendors is a critical task, and you must involve all stakeholders in the process. Negotiation can seem intimidating if you’re an SMB owner, but automation platforms can help you implement the best vendor negotiation strategies. A common mistake that companies make is involving just the procurement or finance department, sidelining the department with which the supplier will work.
Take care to negotiate mutually beneficial relationships that will leave all parties satisfied. Define objective KPIs that measure supplier performance, dispute handling procedures, and communicate them to all stakeholders.
Once negotiations are complete, swiftly onboard the supplier without delay. Delays in onboarding can potentially sour supplier relationships before they begin.
Track the KPIs you defined in the previous step to monitor supplier performance. Make sure you follow vendor management best practices at all times. For instance, handle disputes according to terms you agreed upon during the negotiation stage.
When tracking KPIs, make sure you communicate any trends you observe to your suppliers. This will help them understand where they need to improve and clarify your expectations.
Challenges in supplier management
Every process has its challenges, and supplier management is no exception. Here are some of the most common challenges companies face when managing their vendors.
Lack of expense visibility
Supplier relationships can end up costing you money if mismanaged. From duplicate spending to improper expense reimbursement, faulty management has severe monetary implications.
For instance, a common expense that modern companies incur is duplicate SaaS subscriptions. Track supplier KPIs at all times and ensure everyone in your organization is aware of the tools you use, along with their functionalities.
Inefficient audit controls
A common mistake companies make when installing supplier management programs is relying on manual processes to complete critical tasks. For instance, manually creating and posting payments to supplier invoices instead of opting for financial management software solutions increases employee costs and complicates dispute handling procedures.
Manual tasks also increase the difficulty of maintaining supplier audit records. In the absence of audit trails, supplier risks increase and hamper a company's competitive posture.
Lack of performance insights
A lack of supplier performance data leads to companies relying on intuition instead of analytical insight when evaluating suppliers. These processes risk alienating high-performing suppliers and can damage your reputation in the industry.
A data-driven approach will help you spot trends ahead of time and react proactively. Creating objective, data-backed KPIs will also help you build stronger supplier relationships in the long run.
Lengthy payment cycles
A company that pays its suppliers with the least hassle is bound to gain loyalty since every supplier wants to get paid on time. Unfortunately, complicated internal financial workflows (backed by manual processes) cause delayed payments and make supplier management an issue.
Using electronic solutions to categorize spending and store expense data goes a long way toward eliminating this challenge.
How you can improve supplier management with Ramp
Ramp simplifies SaaS supplier management thanks to the vendor management feature that centralizes procurement and supplier lifecycle management. Here's how Ramp's vendor management tools help you revamp your supplier management processes.
Eliminate wasted spend
Ramp displays all your vendor subscriptions in one place, eliminating the change of shadow IT hampering workflows. Thanks to full subscription visibility, you can eliminate duplicate spending and reduce supplier-related expenses. You can also say goodbye to wasted spend thanks to our Buyer team, who can negotiate vendor contracts on your behalf—saving you money without disrupting your workflows.
Automate supplier payments
Accounts Payable (AP) is a critical function in maintaining supplier relationships. Ramp's AI-powered finance automation tool helps you pay your suppliers in a few clicks, create multi-level approval workflows, and block vendors or merchant categories to control employee spending.
Ramp integrates with the best accounting software for small businesses, helping you simplify accounting. Thanks to automatic expense categorization, the ability to specify merchant and category rules, and real-time transaction syncing, Ramp scales with your business. Thus, you'll always remain in control and automatically create supplier expense audit trails.
Supplier expenditures will never get out of hand, thanks to expense insights. Ramp's AI-powered savings insights will highlight money-savers such as duplicate spending and unused partner rewards. Thanks to complete expense visibility from a single dashboard, you can increase your bottom line.
Supplier management is a critical function that your business can ill-afford to ignore. Ramp’s vendor management, accounting automation, and real-time reporting features help you stay on top of your supplier relationships, all from a single intuitive dashboard.
Learn how Ramp can strengthen your finances.