Practical guide supplier manual

Overview

To understand the added value of a supplier manual, let’s take a brief look at supplier management. This refers to the systematic management of your suppliers and is based on the three pillars (see Fig. 1):

• Supplier evaluation
• Supplier processing
• Decide where along your value chain you want to integrate suppliers

You are working hard on these three pillars and yet delivery documents are incomplete or you cannot clearly assign goods to orders. Is it 100% due to the supplier or is the cause of the problems possibly due to communication with your supplier or a lack of transparency? It’s worth taking a look at your supplier manual and, if you don’t have one, creating a common basis for discussion as quickly as possible. Because in order to create a basis for your supplier management, you should put your supplier relationship in writing. Let’s look together at the most important elements and steps for designing and establishing your supplier manual and improving your supplier relationship.

1 What is a supplier manual?

The supplier manual forms the foundation for successful relationships with your suppliers. Open communication about procurement, delivery, etc. allows the parties involved to develop and improve their partnership. Meanwhile, it is important to understand that a supplier manual is a contractual agreement and is therefore legally binding. This is the only way to guarantee lasting and profitable cooperation for all parties involved.

The supplier manual therefore sets out the requirements for you and your suppliers in terms of quality, costs and time:

• Quality: It is ensured that all the requirements of your company’s quality management with regard to the supplier are met.
• Costs: The binding nature of the manual sets out responsibilities and liabilities. This means that intended and unintended costs can be clearly allocated. The basic incentive to avoid costs therefore has a positive effect on compliance with the agreements for both sides.
• Time: Delivery periods, definitions of delivery and deadline compliance can be written down and are comprehensible for all parties.

We should now have drawn the system boundaries of the supplier manual and can use this knowledge to tackle further questions.

2 What is the content of the supplier manual?

The following contents of a supplier manual, as shown in Fig. 2, serve as a guide, which you should supplement to suit your company. Meanwhile, please note that it is not a flexible document that is customized for each supplier. The same law applies to all. It should be avoided at all costs to include supplier-specific “special rules”, as these increase the complexity of supplier management later on. Any special regulations (e.g. for Kanban suppliers) should be regulated in separate contracts, but only if absolutely necessary. I can recommend the following basic structure for your manual:

• Introduction
• Communication
• Procurement
• Packaging
• Shipping
• Deviation management

Introduction

In the “Introduction”, you first briefly and concisely explain the aim of the supplier handbook. Then clarify the questions “Where” and “When”. If there are several plants or goods receipts (per plant), you can create an orientation aid by adding directions, for example. It is important that you specify both delivery addresses and, if applicable, unloading addresses if these differ from the specified delivery addresses. You can supplement the information on opening/delivery times for each delivery address/unloading address with references to an existing yard management system.

Communication

In the “Communication” section, you then define contact persons, their availability and decision-making authority, both on the part of your company and on the part of the supplier. You can also specify communication types, e.g. e-mail, telephone, fax, etc.

Procurement

Under “Procurement”, you can differentiate between individual and collective orders, Kanban and, if necessary, other control concepts. It is important that you define how and who triggers these orders.

Packaging

You are welcome to provide more detailed information on the subject of “Packaging”. In addition to handling, filling levels, etc., the exact description of dimensions and maximum weights must be defined. Use standard norms, e.g. for Euro pallets or similar, as a guide. Other packaging requirements may relate to packaging of the same type, electrostatics, corrosion, hazardous goods and much more. You should also differentiate between disposable and reusable packaging. If, for example, you have an empties management system, this should be listed under reusable packaging.

Shipping

In the “Shipping” section, you formulate your requirements with regard to logistics service providers (CEP, etc.), completeness of containers, marking or labeling of containers, packages or products and delivery documents. In the list of required documents, from shipping documents (e.g. delivery bill, test certificate, etc.) to transport documents (e.g. consignment note (CMR), customs documents, etc.), you should ensure that you define the minimum details (e.g. name of supplier, etc.), their form of presentation (e.g. barcode, etc.), their form of handover (e.g. e-mail, hard copy, etc.) and handover time (e.g. on delivery, etc.).

Deviation management

Finally, you formulate the “deviation management”. In addition to the topic of special transports and their processing, you will probably write the most exciting passage here. Because what happens if the requirements set out in the supplier manual are not met? For example, you can reject goods or simply record deviations. If you have never worked with a supplier handbook before, I recommend that you do without escalation levels in the first step and concentrate on creating transparency. In the next step, however, you can consider escalation levels per supplier and create classifications. To do this, you should rely on a supplier evaluation system that you have established.

3. who creates the supplier manual and with what added value?

The key players in the creation of the supplier manual are the purchasing department, the logistics department (possibly the incoming goods department), the quality department, the legal department and, last but not least, the management (e.g. plant management) (see Fig. 3). I would like to break down why these areas should be involved in the creation of the supplier manual and what benefits they derive from it for each area individually:

Purchasing

As the point of contact for suppliers, Purchasing has the greatest responsibility for implementing the supplier manual. At the same time, two key benefits can be highlighted for the purchasing department. Firstly, a legally binding basis is created for the development of supplier management and secondly, the performance of suppliers can be quantified. The quantifiability makes it possible to improve cooperation and possibly achieve price advantages.

Logistics

Depending on the size of the company, the incoming goods department may be part of the logistics organization. If this is the case, participants from this area are required for the creation of the supplier manual. The reason for this is that the incoming goods department is the logistical link to the supplier and can therefore be the first to check the agreements stored in the supplier manual (e.g. delivery bill and agreed information available? Adherence to delivery dates? Etc.). Logistics also contributes important points on the topics of packaging and shipping. Logistics also has knowledge of further steps, such as production supply or storage, which can also have an influence on packaging and shipping. The benefit for logistics lies in ensuring standardized logistics processes.

Quality department

Depending on your organizational structure, the quality department is, if possible, directly represented by the quality assurance department in the incoming goods department. On the one hand, the Q department identifies product-related deviations and, on the other, ensures the correct transmission of documents such as initial sample or prototype reports. Here too, the benefit lies in ensuring uniform quality processes.

Legal department

As already mentioned, this is a legally binding document. It is therefore necessary for the legal department to review the document. This ensures that both legal conformity and conformity with other existing contracts/agreements in the company, such as terms and conditions of purchase, is guaranteed. This prevents future challenges as far as possible.

Management

Last but not least, I recommend involving the management. Management approval ensures that the final document has gone through all the necessary instances and that no disputes or conflicts can arise internally.

4. expand the supplier manual for supplier management

Now you are ready, you have created the supplier manual and the final copy is ready in Purchasing. Purchasing now communicates the supplier handbook to the suppliers with the aim of getting all suppliers to sign it. As you have very good purchasing staff, you succeed in doing this. And now we come to a critical phase – tackle the implementation of the plans formulated in the supplier handbook with energy and focus.

During implementation, you should define KPIs for supplier evaluation (qualitative and quantitative) with all parties mentioned in section 3. You should also define who collects the necessary data/information and who evaluates it. Subsequent communication with the customer is always handled by Purchasing, so that centralized communication between suppliers and your company is guaranteed. In Table 1 below, you will find examples of quantitative and qualitative KPIs that you should integrate into your KPI system.

Be particularly consistent with your suppliers in enforcing your deviation management with regard to non-compliance with the requirements set out in the supplier handbook. This is because your supplier handbook will lose its effectiveness if you are not consistent.

Summary

Now you know what a supplier handbook is, what added value it offers your company and what you need to do for it. When creating it, make sure it meets your company-specific needs, establish additional supplier management methods and take your supplier relationship to the next level. In the hope that I have given you an incentive to review your own supplier handbook or to create a new one, I wish you every success with your supplier handbook.