What is Supplier Management?
By Alan Day, Founder and Chairman, State of Flux
There are very few business functions today that do not depend on suppliers. Suppliers manufacture products, deliver services, develop technology, operate logistics networks, provide customer support and increasingly shape the experience your own customers receive.
In many organisations, suppliers are responsible for delivering a significant proportion of business performance and we know from our annual research over 50% of the end customer experience is provided but supplier. Also, more than 50% of your workforce is not employed by your organisation rather they are employed by your suppliers.
Yet surprisingly few organisations actively manage those relationships. Instead, they manage contracts, or performance or they just procure from them. These are all important disciplines, but none of them, on their own, represent Supplier Management.
What is Supplier Management?
At State of Flux, we define Supplier Management as:
"A discipline of working collaboratively with suppliers that are vital to the success of both organisations, to maximise the mutual value of those relationships."
Every word in that definition matters.
It is a discipline, meaning it is structured, measurable and repeatable rather than left to individual relationship managers.
It is collaborative, recognising that lasting value is created together rather than imposed through contractual leverage.
It focuses on suppliers that are vital to the success of both organisations, not every supplier equally.
Most importantly, it seeks to maximise mutual value.
The objective is not simply to extract more value from suppliers. It is to create more value for both organisations. That is what separates Supplier Management from traditional procurement.
Supplier Management is more than Contract Management
One of the biggest misconceptions is that Supplier Management simply means holding more supplier meetings or reviewing supplier scorecards. It doesn't.
Contract Management ensures suppliers deliver what was agreed. Supplier Performance Management measures how well they perform. Supplier Management builds upon both disciplines to create additional value through collaboration, innovation, governance and strategic alignment. It is the next stage in the evolution of supplier management capability.
The Six Pillars of Successful Supplier Management
Over more than two decades of research involving thousands of organisations, we have found that successful Supplier Management programmes consistently develop six core capabilities. These are the Six Pillars of Success that underpin sustainable supplier relationships.
1. Value
Every Supplier Management programme should begin with a simple question:
What business value are we trying to create?
Too many programmes begin with governance meetings or supplier segmentation. The best programmes begin with the organisation's strategic objectives. Supplier Management should contribute to outcomes such as:
Revenue growth
Cost optimisation
Innovation
Risk reduction
Sustainability
Customer experience
Becoming the Customer of Choice
If you cannot explain how Supplier Management contributes to business strategy, it will always struggle for executive support.
2. Engagement
Supplier Management is not owned solely by procurement. Procurement may lead it, but successful programmes engage executives, business stakeholders, operational teams and suppliers themselves. Relationships improve when everyone understands their role in creating value.
The strongest programmes establish engagement at executive, relationship management and operational levels across both organisations.
3. Governance
Governance is much more than scheduling quarterly meetings. Effective governance creates clarity around:
Decision making
Escalation
Accountability
Roles and responsibilities
Consistency
Compliance
It provides the framework that enables supplier relationships to operate effectively without becoming bureaucratic.
4. People
Supplier Management is fundamentally a people capability and we know that processes do not build trust, People do. Leading organisations invest in:
Supplier Management competencies
Role definitions
Capability development and training:
Relationship skills
Behavioural skills
Collaboration skills
Executive sponsorship
5. Technology
Many organisations still manage strategic suppliers using spreadsheets, PowerPoint presentations and email. That approach cannot scale.
Modern Supplier Management technology provides visibility across supplier relationships, governance, value delivery, risk, performance, innovation and collaboration.
Technology should never replace relationships, it should enable better relationships by providing a single version of the truth and reducing administration.
6. Collaboration
This is where exceptional Supplier Management programmes distinguish themselves. The objective is not to review performance, that is a tactical activity. It is to create value together, drive continuous improvement, look for areas of innovation, risk reduction or cost out.
Leading organisations work with suppliers through:
Shared goals and objectives
Transparency and aligned behaviours
Two-way commitment
Mutual investment
True collaboration creates value that neither organisation could achieve independently.
Why Supplier Management matters
Our research consistently shows that organisations with mature Supplier Management programmes outperform those without them. The benefits extend well beyond cost savings.
They include:
Better supplier innovation
Lower operational risk
Faster problem resolution
Greater resilience
Stronger ESG outcomes
Improved customer experience
Greater access to supplier capability
Higher levels of executive engagement
As supply chains become more interconnected, competitive advantage increasingly comes not from individual organisations but from the strength of their supplier ecosystems.
Supplier Management is often described as a procurement capability; we believe that is too narrow. It is a business capability.
Procurement may lead it, but the value is realised across the organisation. The organisations that succeed over the next decade will not simply negotiate better contracts. They will build better supplier relationships.
Because sustainable competitive advantage increasingly comes not from what organisations do alone, but from what they achieve together with their suppliers.
The findings of our 18 years of global SRM research form the basis of all our efforts to optimise supplier relationships for our clients. Click here to view our case studies.
Please contact us if you would like to discuss any aspect of your supplier management: enquiries@stateofflux.co.uk
Frequently Asked Questions
Supplier Management is the discipline of working collaboratively with suppliers that are vital to the success of both organisations to maximise the mutual value created through those relationships.
Supplier Relationship Management (SRM) is often used interchangeably with Supplier Management. At State of Flux, we use Supplier Management as the broader discipline that encompasses Contract Management, Supplier Performance Management, Innovation Management, Risk Management, Onboarding, ESG and collaborative relationship management.
The six pillars are Value, Engagement, Governance, People, Technology and Collaboration. Together they provide the foundation for successful supplier relationships.
Because suppliers now influence innovation, resilience, customer experience, sustainability and commercial performance. Organisations that actively manage supplier relationships consistently outperform those that rely solely on contracts and performance metrics.
Ready to strengthen how your organisation manages its most important suppliers?
Explore our Supplier Management approach and see how we help organisations build stronger relationships, improve governance and create more value with suppliers.
