Supplier Management Definition

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Supplier management demands interpersonal skills.
Supplier management demands interpersonal skills. (Image: supply boat image by Colin Buckland from Fotolia.com)

A firm's top leadership implements effective supplier management procedures to improve business partnerships with vendors and increase corporate profit potential. Also central to supplier management are purchasing, transportation and logistics agreements.

Definition

Supplier management is a business process that allows a company to adequately select its vendors and negotiate the best prices for goods and services that it purchases. Senior managers also monitor the corporate supply chain to ensure that vendors familiarize themselves with the company's operating activities and manufacturing processes.

Significance

Supplier management is key in a firm's decision-making processes because vendors control how much the firm pays for goods and services. In short, vendors set a firm's cost of materials and, ultimately, its gross profit. Gross profit is a measure of corporate profitability and equals total revenues minus the cost of goods sold.

Procedures

According to the Institute of Supply Management, corporate supplier management procedures typically include purchasing and procurement, contract development and administration, transportation and logistics, strategic planning and supplier evaluation.

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