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The Importance of Supplier Management

Alone, the concept of supplier management is not necessarily complicated. However, if business leaders are unsure of what should make up a supplier agreement, or how to approach choosing a supplier, supplier management can quickly become complex. This is especially true when one vendor has a particularly large impact on the success of your business. 

 For example, a business that is choosing a vendor to provide office supplies will not feel the same amount of pressure in choosing a vendor as a business that plans on repackaging and distributing a supplier's products. In today's fluid workplace, the emphasis on working with only reliable suppliers and properly handling suppliers has grown substantially. It is a wonder to many why supplier management has grown so much in recent years. 

However, upon further examination, the field has grown because the need for better supplier management grew due to the explosion of outsourcing. Outsourcing is the act of dividing activities between other, external parties that previously would have been conducted in-house. For example, a phone company that would normally handle customer service calls within the country can outsource their customer service to workers in another country who will work for much less.  

Let's examine some of the reasons for outsourcing:  

 Businesses will be more likely to outsource if they can save money on operating costs.  

 Many companies outsource certain tasks and projects because they want to keep in-house workers focused on other tasks. If a company leader feels her in-house workers will be wasting time and energy on menial projects, she may be tempted to outsource certain tasks to suppliers and vendors.  

 Businesses may choose to outsource if they feel that they will gain access to better facilities or modes of production.  

 Outsourcing can free up resources that can be put to better use internally.  

 The business may not have certain in-house capabilities to fulfill a contract and might need to recruit outside experts to help meet contractual obligations.  

The company does not have the resources to handle the task or project in-house. While outsourcing might seem like a recent phenomenon, its roots actually extend back almost two hundred years. 

 When the Industrial Revolution spread during the mid-1800s, companies sought to produce more goods at cheaper costs. In order to drive up profits, it was no longer feasible to hire expensive artisans and use outdated production methods. Business owners distributed tasks to those who could complete work faster and at cheaper costs.

 Despite significant advances made in the workplace throughout the century (shorter working hours, more pay, and safer work environments), outsourcing was still a method favored by business owners who were looking to save money. The explosion of the Asian economy during the post-WWII decades gave businesses a new market to outsource projects, tasks, and responsibilities. As contentious as the subject of outsourcing might be today, there is no denying that it is critical to the modern workplace. 

 That is where supplier management comes into play. While you might not plan to outsource to companies in Asia, it is safe to say that much of your business currently relies on your suppliers. Therefore, learning how to select, hire, and maintain the best suppliers is a crucial component to running a profitable business.