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Supplier Management

Purpose

The purpose of the supplier management practice is to ensure that the organization’s suppliers and their performances are managed appropriately to support the seamless provision of quality products and services. This includes creating closer, more collaborative relationships with key suppliers to uncover and realize new value and reduce the risk of failure. 

Activities

Activities of the Supplier Management practice include: 

  • Supplier planning – The purpose of this activity is to understand new or changed service requirements and review relevant enterprise documentation to develop a sourcing strategy and supplier management plan, working in conjunction with other practices such as business analysis, portfolio management, service design, and service level management. 
  • Evaluation of suppliers and contracts – The purpose of this activity is to identify, evaluate, and select suppliers for the delivery of new or changed business services. 
  • Supplier and contract negotiation The purpose of this activity is to develop, negotiate, review, update, finalize, and award supplier contracts. The failure of negotiations will trigger a new contract, an updated contract, or a contract termination. 
  • Supplier categorization – This procedure aims to categorize suppliers on a periodic basis and after the awarding of new or updated contracts. Commonly used categories include strategic, tactical, and commodity suppliers. 
  • Supplier and contract management – The purpose of this activity is to ensure that the organization obtains value for money and the delivery of the agreed performance of the supplier against the contract and targets. 
  • Warranty Management – The purpose of this activity is to manage warranty requirements or clauses and make warranty claims when a warranty issue arises, in conjunction with performance management. 
  • Performance management – This activity includes the setup and continuous tracking of operational measures that have been mutually agreed with internal and external suppliers. It focuses on the key measures, which can then be consolidated on a supplier scorecard. Monitoring will allow for the identification of systemic problems and improvement opportunities and provide a basis for reporting. 
  • Contract renewal and/or termination – This procedure aims to manage contract renewals and terminations, which are triggered by either specific or periodic reviews of supplier performance. 

Sourcing Strategy

There are different types of supplier relationship between an organization and its suppliers that need to be considered as part of the organization’s sourcing strategy. These include: 

  • Insourcing – The products or services are developed and/or delivered internally by the organization. 
  • Outsourcing – The process of having external suppliers provide products and services that were previously provided internally. Outsourcing involves substitution, i.e. the replacement of internal capability by that of the supplier.
  • Single source or Partnership – Procurement of a product or service from one supplier. This can either be a single supplier who supplies all services directly or an external service integrator who manages the relationships with all suppliers and integrates their services on behalf of the organization. These close relationships (and the mutual interdependence they create) foster high quality, reliability, short lead times, and cooperative action. 
  • Multi-sourcing – Procurement of a product or service from more than one independent supplier. These products and services can be combined to form new services which the organization can provide to internal and external customers. As organizations place more focus on increased specialization and compartmentalization of capabilities to increase agility, multi-sourcing is increasingly a preferred option. Traditionally organizations have managed these suppliers separately across different parts of the organization, but there is a move towards developing an internal service integration capability or selecting an external service integrator. 

Service Integration

Service integration is responsible for coordinating or orchestrating all the suppliers involved in the development and delivery of products and services. It focuses on the end-to-end provision of service, ensuring control of all interfaces and outcomes from suppliers, and facilitating collaboration between suppliers. An organization can either perform the role of service integrator itself, or use a third-party service integrator. It is possible to develop a hybrid model, where the organization is responsible for some of the service integration function and augments that capability with that of an external service integrator. The service integration function can also be operated by a lead supplier. The service integrator is also responsible for assurance; this includes performance management and reporting, defining roles and responsibilities, maintaining relationships across all parties, and heading regular forums and steering committees to address issues, agree priorities, and make decisions. 

Contribution to the Service Value Chain

  • Plan – Supplier management provides the organization’s approved sourcing strategy and plan. 
  • Improve – The practice identifies opportunities for improvement with existing suppliers, is involved in the selection of new suppliers, and provides ongoing supplier performance management. 
  • Engage – Supplier management is responsible for engaging with all suppliers and for the evaluation and selection of suppliers; for negotiating and agreeing contracts and agreements; and for ongoing management of supplier relationships. 
  • Design & Transition – Supplier management is responsible for defining requirements for contracts and agreements related to new or changed products or services, in alignment with the organization’s needs and service targets. 
  • Obtain/build – Supplier management supports the procurement or obtaining of products, services, and service components from third parties. 
  • Deliver & Support – Supplier performance for live services is managed by this practice to ensure that suppliers meet the terms, conditions, and targets of their contracts and agreements.