Does your business have a supplier manual? If not, do you feel like you struggle to communicate with your suppliers and hold them accountable? A Supplier Manual is one of those things every company should have, but many don’t. One of my first ever tasks for a client was to build them a supplier manual, and having a supplier manual is a great step on the journey toward having suppliers instead of vendors. Today we will discuss the benefits of a supplier manual, the components, and a potential process to implement a supplier manual.

Supplier Manual Benefits

So why have a supplier manual at all? We all saw what happened in 2021 when suppliers were unable to supply quantity or quality of product. A disruption lasting even 30 days or less could equal losses of 3-5% to a company’s EBITDA (Source), which quickly adds up to hundreds of thousands of dollars. For a medium-sized manufacturer with an EBITDA of $30m, this means $900,000-$1,500,000 in disruption. The purpose of a supplier manual is to communicate expectations and minimize supplier disruption. The supplier manual:

• Communicates clear quality requirements
• Prevents miscommunication on delivery dates
• Sets supplier performance metrics
• Establishes supplier continuous improvement expectations
• Outlines the supplier code of conduct

The supplier manual is also a piece of moving a supply chain/procurement/purchasing group from a tactical, day-to-day organization to a strategic team who partners with suppliers and their operations team. This is true independent of the company’s industry, and having clear supplier expectations benefits the company in every area of the business.

Supplier Manual Content

While you can simply type “write me a supplier manual for a company in my industry” into a large language model AI, chances are 1) it will miss some key sections and 2) you will still need to edit what the AI model creates heavily. Feel free to use AI for a first crack at it, but consider ensuring these sections are included:

• Introduction – this section sets the tone for the document and outlines some basic information. It may include:
  • Purpose, vision, and scope of the supplier manual – this tells suppliers what you are trying to accomplish, what is (and is not) included in your supplier manual, and how you want to approach supplier relationships.
  • Company values – this is a chance to tell suppliers about what your company truly values so they can align to those values. This works both ways; it ensures your suppliers know your company values, but it also ensures your supply chain team knows them. Having to teach your values to suppliers means your team has to be conversant in what they are and why they matter. 
  • Supplier responsibilities – what are your suppliers responsible for in your relationship, and what are you responsible for? This should be fairly straightforward, and is mostly a place to emphasize that the supplier is responsible for the content of this supplier manual. You might outline if it is a living document subject to change (or not), and the consequences if suppliers fail to comply with the supplier manual. 
• Supplier Selection and Evaluation – this is a larger section and is the main component of the supplier manual. It may include the following components:
  • Supplier selection criteria – what makes a desirable supplier to your business? What do you evaluate your suppliers based on? Consider reviewing my article on writing a scope of work for some thoughts on how to build clear go/no-go criteria. 
  • Evaluation process – how does a supplier become a supplier for your company? Will there be an on-site inspection of their facility? Do they have forms to file with either you or a third-party? Will there be ongoing qualifications, such as an annual assessment? Do you follow a quality control process like ISO:9001 or require PPAPs?
  • Supplier quality performance expectations – How will you resolve defective work/materials? How will you handle payment and credits for defective work or materials? Will you as a company simply take a credit and ship the item back to suppliers? Will you put current invoices on hold? Or are you expecting the supplier to take the financial lead for those processes?
  • Document control processes – what system is considered the system of record? What kind of inspection or test records are required and who creates/controls them? What must be on key documents? How long must records be stored? (Note: your company legal team may have input on this last point.)
  • Product specifications – who will provide the product specs? Who owns the engineering drawings? What are your standard tolerances? How much of a first part inspection is needed? How is tooling handled and who owns it?
  • Continuous improvement – what is the expectation of suppliers for a continuous improvement program? Is the company willing to help suppliers out with these requirements? What about value add/value engineering (VA/VE) improvements where the supplier continues to refine their own designs and efficiency?
  • Purchase orders – how are they placed and what is the expectation for supplier acknowledgement? Will the company run blanket orders? If so, what do those look like? Will the company provide forecasts? If so, at what frequency/for what timeframe and how firm are they?
  • Delivery expectations – are there certain days or hours deliveries are allowed? What is considered an “early” or “late” delivery? Is it acceptable if suppliers deliver early? Do they need to set up a delivery appointment or provide an advance shipment notice? How should the supplier let the buyer know a shipment is delayed?
  • Packaging and handling – what are the packaging requirements? Do suppliers need to use sustainable or recyclable packaging? Or avoid things like packing peanuts? (This one is so common now, I don’t know if suppliers even use packing peanuts. The things make a horrible mess.) Are there weight limits or requirements for when something is packaged on a pallet? For services, are there expectations for how electronic files are delivered, such as no USB drives?
  • Shipping – what is the standard shipping method? Is there a 3PL the company works with that should handle shipping? What are the rules for expediting shipments?
  • Chemical and hazardous products/materials – what are the expectations for handling hazardous materials and who is responsible for them? Are there any special regulations the company and suppliers must follow or any common hazmat materials to be aware of?
• Cybersecurity – this section is increasingly important to companies in every industry. Suppliers often represent the greatest vulnerabilities to a company in their cybersecurity position and supplier expectations are very important.
  • Data protection – how will the company data be protected, what are the required protocols? How will data be encrypted? How is confidential data handled?
  • IT security requirements – how is access to data controlled? What levels of authentication are required? How well will the supplier be allowed to “tie-in” to the company software? Are third-party audits required? 
• Communication – this section is about how information will flow between the company and the supplier. Who is the main point of contact? Which forms of communication are considered valid and for what content? (Phone? Email? Traditional mail? Fax? Courier?)
• Supplier code of conduct – this is another section that is increasingly important to supply chain teams. While most companies have an internal code of conduct, many do not have a separate code of conduct for their suppliers. This outlines the expectations for suppliers to hold themselves and their supply chains accountable for employee safety, health and freedom; laws and ethical standards; data protection; environmental standards; and gift-giving guidelines. One example supplier code of conduct I was involved in writing was the Berkshire Hathaway Energy Supplier Code of Conduct. Note that supplier codes of conduct should be publicly available as well as incorporated into a supplier manual. 
• Appendices – example forms and templates can be put into the appendix of the supplier manual. This might include a non-disclosure agreement, the standard contract template, quality inspection checklists, supplier self-assessment or external audit templates, on-site assessment forms, part deviation forms, supplier scorecard templates and any other template or document not part of the core supplier manual. 

All of these sections can and should be customized to your business, and some may not even be relevant. Keep an eye on your goals for the supplier manual and ask if every section in the document you create meets those goals. Edit carefully or you run the risk of more bureaucracy than you truly need. 

Supplier Manual Implementation

Now that you’ve written a supplier manual, what’s next? Chances are good the supplier manual was drafted by someone in supply chain or procurement, so the first stop is reviewing the document with peers. What supplier issues are they seeing? Does the document address those issues? Be careful not to “manage to minimums” by putting in every little problem ever seen with suppliers. Instead look for common themes, especially those driven by miscommunication. 

The next logical stop for review is the supply chain or procurement leader. What do they see as missing or extra? Do they agree with the requirements and parameters included in the document?

The next review comes from the leaders of other company divisions. The operations and quality teams are especially important here. What issues are they seeing with suppliers? Do they feel this document covers those issues? Would they be comfortable handing this document to the suppliers they work with every day?

Once internal buy-in is complete, consider how this supplier manual will be distributed. Do each of your supply chain team members take responsibility to roll it out to a few key suppliers? You might do this first with the most important suppliers and once again allow feedback. Do the suppliers think the document is too strict or too loose? You don’t have to change the document based on their feedback, but that feedback is good to have and consider. 

How will new suppliers get a copy of your supplier manual? Is it attached to every Request for Proposal or new supplier add form? Is it posted publicly with a link in your purchase order template? Does your corporate communications or marketing team have thoughts on how to roll it out?

Lastly, what is your plan to maintain this supplier manual? Will you have a set annual review? Who is the “owner” of the document? Is it the supply chain leader? Procurement leader? Someone on the supply chain team responsible for supplier qualification or quality? Make it part of their role to maintain and update this document or it quickly becomes useless and does not accomplish your goals. Hopefully this conversation helped get you thinking about your own supplier manual and approach to supplier partnership. If you’d like to talk to me about communicating with and holding your suppliers accountable, let’s chat.