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A Comprehensive Guide to Supplier Lifecycle Management

As modern organisations become more complex, so do their supplier networks. Nowadays it’s not uncommon for even medium-sized businesses to oversee thousands of individual vendors situated all over the globe. Managing these suppliers to ensure the compliant, timely delivery of goods and services across their lifecycle is a vital component of business efficiency, but it’s not an easy task.

Here’s a comprehensive guide to supplier lifecycle management, complete with everything you need to know in order to secure better vendor and business performance.

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What is supplier lifecycle management and why is it important?

Supplier lifecycle management is the end-to-end management of a vendor to ensure contracted goods and services are delivered on time, with minimal risk and full compliance.

Every organisation depends on its suppliers, so it’s impossible to overstate the importance of managing each vendor consistently throughout the lifecycle. Failing to do so leaves the business exposed to risks that can seriously impact profitability. For example:

  • Reputational risk, if a business is involved with a supplier that has ties to unethical or unsustainable practices (e.g. modern slavery, environmental harm).
  • Operational risk, if the supplier cannot deliver the contracted goods and services on time.
  • Security risks (particularly in IT categories).
  • Legal risks, if suppliers don’t maintain necessary accreditations or insurances.
  • Financial risks, if a supplier goes bankrupt.
Quick links
The benefits
The stages
Best practices
The challenges
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The software
 

What are the benefits of supplier lifecycle management?

Risk reduction

Effective supplier lifecycle management gives a more transparent view of supply chain health, so organisations can notice and address potential problems well before they happen.

Increased compliance rates

With more visibility over what their suppliers are doing, organisations are better placed to ensure compliance. For this reason, good supplier lifecycle management involves regular auditing.

Supplier value gains

Supplier lifecycle management is key to maximising the cost-benefit ratio delivered by a vendor, but it can produce non-financial value gains too. For example, clear and consistent performance reporting might reveal the long-term benefits of investing in a more innovative or sustainable supplier.

Streamlined operations

Consistent supplier lifecycle management processes save you the administrative time and effort involved in chasing up suppliers, locating poorly managed documents, manually updating supplier details, or recollecting supplier data with each contract renewal. These savings directly impact profit while also freeing up procurement resources for more important tasks.

What are the stages of supplier lifecycle management?

Supplier identification

Identification is the process of shortlisting potential suppliers for a new procurement event. For this to happen, organisations must first define their ideal supply partner (not to mention the terms of the contract) so they can assess each supplier accordingly.

Note that these ideal criteria aren’t always easy to agree on. Different teams will have different expectations of a supplier, so it’s rarely something that can be decided without collaboration. The more agreed the definition, the simpler it is to select a supplier that satisfies every stakeholder.

Supplier qualification and selection

The qualification stage involves a more detailed assessment of supplier risks and capabilities before making an eventual selection. An organisation might conduct due diligence using qualifying criteria such as:

Worksite or plant checks

Checking of industry licenses and accreditations

Requests for information

Technology and security reviews​

Supplier onboarding

Once a supplier has been selected based on qualifying criteria, all of their data is onboarded into a shared database where it can be viewed, updated, and stored for future procurement events. This includes any data sourced from third-party assessors.

Supplier performance management

Supplier performance management is the ongoing assessment of a supplier’s performance for the duration of the contract. The more frequently this occurs, the easier it is to detect risks and performance gaps.

To facilitate good performance management, it’s important to agree on transparent key performance indicators (KPIs) with each supplier. These can then be measured with assessment tools such as scorecards and dashboard reports, if using a supplier management system.

Supplier offboarding

In the offboarding process, supplier deliverables should be checked against the original contract before termination to determine whether the contract was upheld. Supplier data also needs to be removed from administrative systems (e.g. finance), but kept on file for future procurement events.

Best practices for successful supplier management

Use KPIs

It’s almost impossible to measure performance in a standardised way without supplier key performance indicators (KPIs). These will vary depending on your industry and sector, but common KPIs include:

Lead times

The average delivery time for a supplier’s goods or services.

Invoice accuracy

The rate of accuracy when comparing supplier invoices with the initial purchase order and contract.

Compliance rate

The degree to which supplier deliverables meet the demands of the original contract.

Emergency spend

The running amount of money that has gone toward unplanned expenses, such as emergency supplies.

Customer service

Customer service KPIs might assess vendor response times, complaint resolution, or ease of communication. 

ROI and benefit tracking

A cost-benefit ratio is the most fundamental measure of ROI, but it’s worth also capturing benefits that extend beyond the short-term balance sheet. For example, buying from an indigenous supplier can create jobs and positive community outcomes.

Regardless of which KPIs you choose to measure, make sure they are clearly communicated to each supplier. This is a key component of maintaining a productive supplier relationship (see below).

Put relationships first

Building a productive, professional relationship with each vendor is the most effective way to capture your supply chain’s full value. Here are the four founding principles of a solid supplier relationship:

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Communication

Keep your communication regular and clear, whether it’s an email, phone call, or in-person meeting. It’s also worth creating a communication plan that defines the appropriate channels and points of contact.

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Transparency

Make your KPIs visible and give clear feedback to suppliers on their performance. Similarly, buyers should also communicate any internal changes or issues that are likely to affect supplier performance.

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Respect and fairness

Suppliers will always be more willing to go the extra mile for organisations that treat them well. If a difficult discussion needs to be had, be frank but professional. If your suppliers do a brilliant job, give positive feedback. It all makes a difference.

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Clear terms

While they might save time to begin with, verbal agreements and informal contracts only lead to confusion throughout the supplier lifecycle. Make the terms of the contract as clear as possible, and record them in a place both parties can access so there’s no chance of misunderstanding.

Manage supplier information efficiently

Capturing supplier data is a critical part of onboarding, but information management doesn’t end there. As well as adding ongoing performance reports, you’ll also want to keep supplier details up to date (e.g. locations, accreditations, insurances) so that new risks can be quickly flagged.

This doesn’t have to require time-consuming manual updates. If you’re using a supplier collaboration system such as Portt Hub, your suppliers will be able to update their own details in your system – guaranteeing up to date data throughout the lifecycle.

Make risk management an ongoing priority

Due to the time and effort it takes to monitor risk on an ongoing basis, many buyers become a lot less vigilant after the initial assessment and onboarding of a supplier. However, all it takes is the cancellation of an insurance policy, some bad publicity, or a financial restructure, for a supplier’s risk profile to change overnight. That’s why risk management never stops being important.

 

What are the challenges of supplier lifecycle management?

Most organisations don’t manage suppliers as well as they should. Largely this is because regular interaction with each vendor in the supply chain takes time and resources most businesses don’t have. However, it’s also made more difficult by:

Limited performance visibility

Efficient supplier lifecycle management relies on visible performance data. If an organisation can’t monitor its suppliers’ activity and performance, it can’t take steps to optimise it.

Choose a supplier management system that visualises the data taken from scorecards, assessments, and questionnaires to avoid this issue. For example, Portt’s supplier analytics allow you to see dynamic risk and compliance data in a single dashboard.

Inefficient data storage

Missing supplier details, manual spreadsheets, and paper documents which are filed and forgotten all add up to a costly administrative burden with plenty of potential for human error. Many procurement teams also have to repeat the same supplier assessments again each time a contract is renewed.

A robust data storage solution is therefore a must for supplier lifecycle management. In the age of digital transformation, this should be a centralised platform where soft copies can be accessed and updated by every stakeholder.

Conflicting priorities

Cost reduction remains the main goal of many lower-level supply managers, yet this can undercut more strategic objectives such as innovation, community outcomes, and long term supplier partnerships.

To prevent staff from optimising spend exclusively, business leaders need to communicate more strategic supplier objectives and give staff the tools for measuring them. For example, Portt captures supplier innovation concepts so your business leaders can hear from your supply partners what they think you can be doing better to get more value out them and to increase your edge for winning business or delivering better outcomes.

Lack of technical integration

Even in organisations that have undergone digital transformation, supplier data is often juggled across unintegrated platforms – CRMs, ERPs, finance systems, shared drives – in a way that makes for versioning issues and inconsistencies.

Dedicated supplier lifecycle management software can remove much of the headache. Portt, for example, acts as a bridge between all of your existing systems – so supplier data is updated automatically in one centralised location.

What is supplier management software?

Supplier management software ranges from simple eProcurement tools to full, tender-to-termination solutions that provide seamless management across the entire lifecycle. With the right software an organisation can:

  • Easily searchable marketplace for identifying potential suppliers
  • Get full transparency over risk and compliance throughout a contract
  • Easily collaborate and solicit information from suppliers
  • House all supplier data in a centralised hub
  • Track spend and performance via real-time analytics
  • Make better procurement decisions.
 

Transform your supplier lifecycle management with Portt

Looking to empower your organisation with strategic supplier lifecycle management? Join the 8000+ public and private sector organisations across ANZ who are making faster, better supply chain decisions with Portt Discover.

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