Jun 9, 2025
7 Key Steps in the Supplier Management Process + Pitfalls
Improve supplier relationships and reduce risks with smart SRM.
The efficiency and effectiveness of your supply chain is dependent on how well you can collaborate with the vendors and partners along the chain. The stronger the relationship with your suppliers, the easier it is to create more streamlined processes, ensure that all parties meet compliance obligations and that you have the foresight and agility to change plans to avoid disruption and bottlenecks.
More than 75% of procurement leaders say that they focus on building closer supplier relationships for this very reason. But it is not just the movement of goods and materials around the world that need managing. In 2024, cyberattacks cost businesses $4.88 million on average, 10% up from 2023. Managing suppliers effectively means ensuring they are following best practices over how they manage data related to the supply chain. In addition, there is reputational risk to consider regarding how upstream companies treat their employees and whether they adhere to regulatory requirements for your industry and relevant jurisdictions.
This requires a robust supplier management process that involves supplier selection, due diligence, performance management, risk identification and crisis planning. In this article, you will find out the steps you need to take to manage suppliers effectively and avoid the common pitfalls that organizations face.
Key takeaways
Supplier management is essential for supply chain efficiency and resilience
Effective SRM involves strategic evaluation, segmentation, onboarding, and continuous improvement
Technology plays a crucial role in being able to effectively manage suppliers
Risk management is critical when selecting supply chain partners
There are serious consequences for skipping key elements in the SRM process
What is supplier relationship management (SRM)?
Supplier relationship management (SRM) is a strategic approach to directing a company’s interactions with its supply chain. It includes the evaluation of the strengths and capabilities of potential suppliers, as well as overseeing the ongoing service they provide. This involves building long-term, collaborative partnerships that drive mutual value, boost performance, and reduce risk.
SRM focuses on shared goals, continuous improvement, and joint problem solving, requiring strong communication along the chain to keep all parties aligned and focused on those goals. With SRM, you can streamline your processes and encourage innovation that leads to a better quality service and increased resilience in your supply chain.
Key steps in the supplier management process
Supplier evaluation and selection
It is important to set your supplier management process up for success by being rigorous over how you select the companies that you will work with. Undertake a supplier qualification process to understand whether they can provide the goods you require in the quantities you need and to the necessary quality standard.
The qualification should run like this:
Define your specific requirements for your supplier relationship, including the production capacity, ethical standards, and other such criteria
Send out a request for information (RFI) to gain an overview of potential suppliers
Shortlist suppliers based on the information they provide and how well it aligns with your needs
Send your shortlist a request for proposal (RFP), outlining your requirements and expectations so that the suppliers can propose solutions, timelines and costs for your potential partnership
Narrow the list further based on the RFP responses. At this stage, you might want to carry out on-site audits to ensure that your potential suppliers would make suitable partners. Look into the financial stability of the business and the risks associated with working with them.
For those who pass this stage, you can add them to your approved supplier list.
Supplier segmentation and classification
Not all suppliers are suitable for every task that you undertake, so make sure that you segment and classify your approved suppliers. This makes it easier to engage the right company for the job and informs your long-term engagement and management strategy moving forwards.
Separate your tactical suppliers, those you use for quick wins, from strategic suppliers, those with whom you can build mutually beneficial, long-term collaborations. This helps you engage the correct entities for each project. Here are the differences between the types of suppliers:
Aspect | Strategic Suppliers | Tactical Suppliers |
Role in Business | Long-term, integral to core business activities | Short-term, transactional, supporting specific needs |
Impact | High impact on competitive advantage and innovation | Lower impact, generally cost-focused |
Relationship | Collaborative partnerships, joint problem-solving | Transactional relationships, limited collaboration |
Risk Management | Priority for risk assessments and mitigation strategies | Lower priority, standard monitoring |
Examples | Key raw material providers, technology innovators | Standard office suppliers, basic consumables |
Most companies will need both types of supplier from time-to-time, but the relationship you have with those suppliers will differ, as will the relationship that you build with them.
Supplier onboarding
Create a standard supplier onboarding process to ensure that you maintain necessary levels of collaboration and scrutiny across all your relationships. When you welcome new entities into your procurement ecosystem, it is important to set clear expectations for how the relationship will work over time. There should be no doubt over both parties’ responsibilities.
This involves highlighting the key contract elements relating to the ongoing relationship, including key performance indicators (KPI) and required standards for delivery set out in service level agreements (SLA).
Check compliance documentation, such as certifications, financial stability checks, insurance documents, and agreements to ethical and sustainability standards, and agree on how monitoring will take place and when audits should occur during the finalization of the contracts.
Risk management
Consider the most pressing risks to your organization’s supply chain, which may be dictated by your location or industry, amongst other considerations. Prioritize critical risks, then carry out a risk assessment on your suppliers to understand how exposed they are to the risks that are most pertinent to your business.
Types of risk to consider are:
Strategic risk, where the supplier may be working to objectives that do not align with yours or could be undergoing a change of management that might affect their relationship with your business in time
Operational risk, such as the supplier not being equipped to deliver on the promises that they have made and which are central to the smooth running of your business
Business continuity risk, which is a branch of operational risk focused on the risk of unforeseen circumstances, such as natural disasters or geopolitical issues destabilizing their region
Compliance and regulatory risk, where the issues relate to the suppliers inability to meet obligations under the law or industry standards. This is particularly important for companies in highly regulated sectors, such as businesses that deal with conflict minerals in their supply chains.
Financial risk, where a supplier is at risk of going out of business due to poor financial health
Cybersecurity risk, which relates to the level to which the supplier is exposed to the threat of cyberattacks or data loss.
Ethical risk, looking at the actions of the supplier in relation to matters such as environmental impact, human rights and other areas that could cause reputational damage to your business by association.
Conduct due diligence into your suppliers to understand how exposed they are to risk factors, developing mitigation strategies to minimize the impact they could have on your business and the rest of the supply chain.
Cost control and value realisation
To maintain profitability and competitiveness, you should look beyond the immediate purchase price of the goods and instead assess the total cost of ownership (TCO). This includes delivery expenses, storage costs, lifecycle maintenance, and disposal. This helps you unlock better value during your procurement process with your suppliers.
Think also about proactive cost negotiation that also includes payment terms, volume discounts and long-term service agreements to build longer-lasting relationships and reduce costs simultaneously. Think about value rather than simple cost, and think about a way of working that is beneficial to both parties. For example, with long-term contracts, the supplier has certainty over how long they will be engaged, and you gain from more competitive pricing as well as supply security.
Crisis management
Unfortunately, there are many reasons why a supply chain might experience a crisis and this is why it is important to be prepared. Use a technology platform to help you analyze data and use predictive analysis to preempt bottlenecks and supply chain disruptions. This will give you time to put in place a contingency plan and find alternative routes or suppliers to keep your supply chain running.
Having agility in your supply chain is essential, especially with the potential problems caused by climate change, warfare, tariffs and other events outside of your control. Create crisis plans, communicate them to your internal team and suppliers, and carry out dummy runs to ensure everyone knows what to do when they are triggered for real.
Supplier exit
You need a structured process to phase out or discontinue relationships with suppliers who no longer meet your operational or strategic needs. This is an important element in any healthy supply chain process.
Plan exit strategies to cause minimum disruption, including carrying out a risk assessment. Make sure the new supplier is in place and use clear communication to plan a smooth and secure transition. Maintain all the relevant documentation related to the exit process and any associated liabilities and transition obligations.
Take this opportunity to review your processes and consider any lessons learned from this relationship to inform how you manage your supply chain in the future.
Common pitfalls to avoid in the supplier management process
Pitfall | Consequence |
Rushing supplier selection without proper vetting | If you choose poor quality suppliers, it could lead to unreliable service, higher costs, and compliance issues. |
Overlooking supplier segmentation | Misaligned strategies and resources, as well as missing out on opportunities to prioritize high-impact suppliers. |
Skipping onboarding steps | Incomplete documentation, unclear expectations, and legal risks that can harm relationships and performance. |
Setting vague or missing performance metrics | Lack of accountability and difficulty measuring success, leading to frustration and missed improvement opportunities. |
Failing to communicate and collaborate | Misunderstandings, duplicated efforts, and weakened partnerships that reduce supply chain efficiency. |
Ignoring risk assessments | Unexpected disruptions and financial losses from unaddressed supplier vulnerabilities. |
Mismanaging supplier contracts | Legal disputes, missed obligations, and poor supplier performance due to unclear terms and conditions. |
Handling supplier exit poorly | Disruptions in supply chain continuity, financial penalties, and damage to brand reputation. |
Strategies for improving supplier management
Prioritize strategic supply chain partners to create long-term relationships rather than multiple short-term arrangements
Set measurable performance metrics to track and improve supplier performance
Create opportunities for ongoing communication between suppliers, leading to greater collaboration across the supply chain and streamlined problem-solving
Conduct regular risk assessments and create mitigation strategies to implement in the event of disruption
Use technology to improve document sharing, communication, and gain real-time supply chain insights
Periodically review supplier contracts and exit strategies to ensure they remain relevant and manage risk effectively.
Best digital tools and technology for supplier management
Supplier Relationship Management (SRM) platforms for end-to-end supplier engagement and performance tracking.
Supplier risk management software to identify, assess, and mitigate supplier-related risks.
Contract management systems to store, track, and enforce supplier agreements.
Supplier onboarding and compliance solutions to streamline onboarding and ensure regulatory alignment.
Collaboration and communication platforms for seamless partner interaction.
Predictive analytics and AI-driven tools to anticipate risks, forecast trends, and make data-informed decisions.
Digital performance scorecards and dashboards for real-time insights and supplier benchmarking.
Beebolt provides all this functionality in one single supplier information management platform. You can assess your supply chain in real time, understanding where disruptions might happen and being able to communicate and collaborate with your partners to mitigate the effects. There is also functionality to automate RFQs, manage contracts, and calculate profit margins before you commit to key decisions. Sign up today.
FAQ
What is the difference between supplier management and procurement?
Supplier management focuses on building and maintaining long-term supplier relationships, while procurement is the process of sourcing and purchasing goods and services.
What are the key goals and benefits of effective supplier management?
The main goals are to optimize supplier performance, reduce risk, ensure compliance, and drive long-term value and innovation through strong relationships. This increases supply chain resilience and reduces supply chain risk.
How often should supplier performance be reviewed?
Review the performance of your supplier base quarterly, or more frequently for critical or high-risk suppliers. Consider delivery times, product quality, adherence to standards and other key elements that play a crucial role in supplier collaboration.
How do you deal with underperforming suppliers?
Address underperformance in your supplier management strategy by identifying root causes, setting clear improvement plans and timelines, and considering replacement if no progress is made.
Conclusion
This article shows the importance of having a supplier management process in place and maintaining close contact with suppliers to ensure that you align on your strategy so that all parties receive the benefit of it. Utilizing technology to help with collaboration and data sharing helps you run a smooth operation, and having contingency plans in place ensures business can continue no matter what external issues occur. Beebolt is a supply chain management platform for effective supplier management that brings you and your partners closer and allows you to work together to create an effective and productive workflow. Sign up right now.