What is supplier management and why is it so important?
What exactly is supplier management and what is it really about?
In this article, we take a closer look at what supplier management is, what it means and how you can effectively implement supplier management in your business.
What is supplier management?
Supplier management in the construction industry refers to the process of managing and monitoring relationships with external suppliers who provide goods, services or materials that are critical to your project's success. This involves identifying, assessing, selecting and working with suppliers to ensure they meet the quality, price, delivery time and reliability requirements necessary to meet project objectives.
Each company undertakes some degree of supplier management depending on the size of the company, the number of suppliers and the competitive landscape. What's important to understand is that every company has the opportunity to improve their supply chain management and gain significant benefits from it. Below, we discuss why supplier management is so important, how it can be done effectively and potential challenges you may face.
Why is supplier management important?
There are several reasons why supplier management is important. We will now look at some overarching themes related to supplier management and how they point to the importance of supplier management. Quality assurance, cost efficiency, time management, innovation and competence emerge as the most important themes related to supplier management.
Effective supplier management ensures that materials and services used in a project meet high quality standards. We like to call this quality assurance. This is essential to avoid errors and costly corrections later in the project. Good suppliers also play a key role in maintaining these standards. In this way, supplier management helps to ensure a high level of quality throughout the life of the project.
Effective supplier management is also about choosing reliable suppliers that offer competitive prices. Through strategic negotiations and establishing long-term partnerships, cost savings can be achieved. This helps to increase profitability and promote more sustainable business operations by keeping costs under control. In other words, it's all about cost efficiency.
The right choice of suppliers and efficient logistics are crucial for the timely delivery of necessary materials and services. This significantly reduces the risk of delays in project progress, which can often result in additional costs and disruptions to the original plan. Time management therefore becomes a very important part of supplier management.
Effective supplier management opens the door to working with suppliers who can offer new technology, innovative solutions or specialized expertise. This can help improve the quality and efficiency of the project, while increasing the attractiveness of the business to potential customers. Collaboration with such suppliers can provide added value and innovative perspectives that drive the business forward and provide competitive advantages in an increasingly competitive market. Innovation and competence are therefore becoming an important factor in supplier management.
How to make supplier management effective?
To ensure effective supplier management in the construction industry, there are several measures that can be implemented:
Clear requirement specifications: Set clear and precise requirements for suppliers. For example, this could be specifications for quality, delivery time and any certifications related to materials or work. The more precise and clear requirements you set, the easier it will be to rank and judge the suppliers' performance afterwards.
Evaluation and selection: A thorough evaluation of suppliers based on their history, references, quality of products/services and financial stability is essential before selection. In addition, it will be useful to do recurring evaluations over time to ensure that suppliers maintain a good standard throughout the collaboration process.
Contract management: Developing clear and comprehensive contracts that clearly define obligations, responsibilities, and payment terms is essential to avoid misunderstandings and conflicts later on. Set aside time to create good contracts that ensure your interests are covered. First and foremost, you decide what you want the collaboration to look like. However, a good dialog with a supplier can lead to a good, long-term collaboration.
Communication and collaboration: Maintaining open communication and a collaborative relationship with suppliers throughout the duration of the project is key. This also includes resolving issues and challenges in the collaboration on an ongoing basis. As mentioned earlier, communication and a good dialog will lead to the best results for both parties. Clarify your expectations and goals in advance of the conversation with suppliers so that it will be easier to communicate this in a meeting with the other party.
Typical challenges related to supplier management
In the building and construction industry, several challenges can arise in relation to supplier management, here are some of the challenges that can often be encountered:
Quality control: Ensuring continuous quality control of materials and services from different suppliers can be challenging and can lead to compromises that subsequently affect the end result. To avoid problems related to this, focus on choosing good partners from the start. Conduct an analysis of the different suppliers on the market and find the best supplier for you.
Time pressure and delivery: Lack of realistic deadlines and delays from suppliers can disrupt the progress of the project, which can be very costly and, in the worst case, can lead to breach of contract. To avoid delays, you should have a good dialog with suppliers where you discuss deadlines and expected delivery times. This is essential for you to be able to plan and structure your own projects accurately.
Dependence on suppliers: Being dependent on certain suppliers can pose a risk, especially if these suppliers experience production problems or delivery failures. It is recommended to have several alternative suppliers readily available to avoid delivery problems if one of the suppliers withdraws.
Contract and negotiation challenges: Contractual ambiguities, misunderstandings about expectations and difficulties with negotiations can create tensions between the parties and lead to conflict. Naturally, a contract between you and a potential supplier will dictate how the collaboration works. Therefore, it is important to reiterate that in negotiations and contractual work, it is essential to set out your expectations and clarify the working relationship in writing.
To manage these challenges effectively, it is crucial to implement good planning, thorough evaluation of suppliers, clear contracts and continuous follow-up through active communication and collaboration. This helps to minimize risk and ensure the successful completion of construction projects.
In light of the challenges that can arise in supplier management, we want to provide some tips on how to effectively avoid problems along the way.
Five tips for effective supplier management:
Diversify your supplier base: Having multiple trusted suppliers for key materials and services can reduce the risk of potential supply chain issues. Diversifying your supplier base helps to minimize the vulnerability associated with reliance on a single supplier. Make sure to develop and maintain a network of reliable alternatives to ensure continuity of supply, even if one supplier experiences problems.
Clear and concise communication: Communication is key to effective supplier management. Clear and precise communication channels must be established from the start to avoid misunderstandings. Define communication expectations clearly in contracts and meetings, and maintain ongoing communication throughout the collaboration period. Open dialog enables early identification and resolution of potential issues before they escalate and become irreversible.
Develop smart contracts and agreements: Contracts and agreements should be detailed and include clear specifications for products/services, delivery time, payment terms, quality requirements and division of responsibilities. It is important to include clauses for potential deviation situations and handling of conflicts. Developing robust contracts reduces the risk of misunderstandings and disputes during the collaboration period.
Continuous evaluation and follow-up: Regular evaluation of suppliers is important to ensure that they maintain expected standards. Conduct assessments of supplier performance based on criteria such as quality, delivery time, and service. Identify any areas for improvement and provide constructive feedback to encourage positive change. Close follow-up ensures that the supplier continues to deliver according to the agreement.
Risk management and contingency planning: Develop a thorough risk management strategy and contingency plan to deal with unforeseen events that could affect supplier performance. Identify potential risks, such as changes in market conditions or technological failures, and develop strategies to minimize their impact on the project. By being prepared for different scenarios, you can quickly and effectively deal with unforeseen events without disrupting project progress.
Implementing these five tips can help streamline supplier management by addressing the typical challenges that often arise in the construction industry. Taking proactive steps to diversify, communicate clearly, establish solid contracts, follow up regularly and manage risks can improve collaboration with suppliers and ensure smoother project execution. All of this is made easy with a supplier and customer management system.
Supplier management can be made easy with mycontact
With Buildit as your system provider, you get full control over all your customer and supplier relationships, the ability to manage and strengthen relationships with your suppliers, continuously evaluate supplier performance, create strategic partnerships and do good contract management.
By including supplier relationship management components in our mycontact software solution, you'll be able to reduce supplier dependency risks, improve the quality of materials and services, and drive innovation and cost efficiency through closer and more strategic collaboration with your suppliers.
At Buildit, we are dedicated to making effective project management easy. In the mycontact module, we have integrated SRM (Supplier Relationship Management) aspects. This means that we not only provide the tools needed to manage complex projects, but tools that also enable you to build strong, mutually beneficial relationships with suppliers. This results in a more holistic approach to project management and helps optimize the performance and success of construction projects.
Book a free demo and find out how you can easily streamline your projects!
Check out the our blog blog for more information on how you can streamline your operations in a variety of ways. Or click on any of these blog links for direct access: Calculation, project management, procurement, progress plan, checklists and deviations.