- February 5, 2021
Vendor Management: Best Practices & Benefits
Strategic vendor management is a vital part of any successful business. A well-executed vendor management program will control vendors’ sourcing and researching, obtaining quotes, turnaround times, contracts, relationship management, performance evaluation, and more.
An effective vendor management strategy requires time, skills, resources, and experience due to its complexity. Although many business owners think that vendor management is about sourcing the supplier or offering the cheapest rates for a product or service, it can actually be much more complicated than this.
Having a professional vendor management system in place is about streamlining multiple processes for maximum efficiency while ensuring that any agreements benefit all parties involved.
This post will explain why vendor management is vital before outlining the challenges and advantages posed by vendor management programs and processes. We’ll also share some vendor management relationship best practices and tips for success.
What is Vendor Management and Why is it Important?
Vendor management can be defined as the processes that businesses and organizations use to manage their suppliers (vendors). Vendor management processes include controlling costs, finding vendors, reducing vendor-related risks, guaranteeing service delivery, and negotiating contracts.
The vendors a business uses will depend upon the nature of the organization. They could include suppliers as diverse as marketing consultants, social media influencers, vegetable suppliers, IT vendors, cleaning staff, and stationery suppliers. Vendors can differ in size, from sole traders to giant corporations.
Vendor management is essential for several reasons. Firstly, it plays a huge role in selecting vendors that will complement and streamline business activities. Choosing the right vendors to supply your business can increase profits, save time, improve customer satisfaction levels, and much more.
Additionally, companies can use vendor management to achieve strategic goals, such as cost-cutting and improving vendor onboarding processes.
Vendors must be managed effectively to reduce the chances of supply chain disruption Doing so will ensure all services and goods are delivered on time. Aside from this, effective vendor management processes can help companies build strong relationships with their vendors, leading to negotiable rates.
Vendor Management Process
The vendor management process has several stages, including:
- Sourcing Vendors: The vendor selection process works by researching and sourcing vendors suitable for supplying your organization. Once identified, potential vendors should be asked for quotes via ‘Requests for Quotation’ (RFQs, and ‘Requests for Proposal’ (RFPs). Although the price is an important factor in the selection process, vendors should also be evaluated on their reputation, capacity, and ability to communicate efficiently.
- Contract Negotiation: Contracts should be finalized towards the start of the vendor management process, and they must be fine-tuned to benefit both parties. That said, contract negotiations can be time-consuming. The process must define the start and end of the arrangement, terms, and conditions, and the goods and services that the deal will include.
- Vendor Onboarding: Vendor onboarding involves gathering information and documentation required to set up the vendor as an approved supplier for your business. During this process, you must ensure that the vendor can be fully paid for any goods and services they provide, which means collecting all their payment information, insurance details, tax forms, and proof of the relevant licenses they hold.
- Tracking Vendor Performance: During the vendor management process, businesses must evaluate and monitor the performance of each vendor they recruit. This could include monitoring their timekeeping skills, the quality and volume of their goods, and customer service levels.
- Risk Management: Any new vendors should be checked for potential risks that could disrupt or impact the company. These risks include data-security issues, loss of intellectual property, compliance breaches, and lawsuits. Additionally, companies should create emergency plans in case vendors fail to deliver their goods or services as agreed in their contract.
- Payment: Finally, make sure that all vendors are paid on time for their goods and services, as outlined in the agreed terms of your contract.
By following these vendor management process steps, you’ll be able to build lasting professional relationships with all of your suppliers.
Benefits of Vendor Management
Implementing an efficient vendor management program will help your organization to reap the following benefits:
Once you have a watertight vendor management system in place, your company will benefit from an increased selection of vendors, which provides more choice and the potential for decreased costs. Once negotiations involve several vendors, bidding wars can take place, ensuring the best possible price for your organization.
Better Contract Management
In a scenario with multiple vendors, contracts can be challenging to juggle without a robust vendor management system in place. By implementing a VMS, your company can benefit from centralized oversight on the status of all current contracts and other information that can help save time and improve decision-making capabilities.
Improved Performance Management
Once a VMS has been implemented, you’ll benefit from an integrated view of all your current vendors’ performance. This will help you to identify what is working and what is failing. Ultimately, you can use this information to improve efficiency, which will improve your organization’s overall performance.
Improved Vendor Relationships
While managing multiple vendors can be challenging, successful relationship management is critical for your organization’s success. Vendor management systems gather all vendor-related information in one place, helping to simplify and influence your decision-making process. A clear and structured flow of vendor-related information simplifies operations and improves vendor relationships.
The primary goal of professional vendor management systems is to help your organization get the most value for money. Implementation of a VMS can result in long-term savings and improved earnings over time.
Challenges of Vendor Management
Although vendor management has multiple benefits, there are challenges that you must deal with to guarantee the smooth functioning of your business. These include:
Vendor Compliance Risk
When faced with multiple options, it helps to choose the right vendor for your organization. Not all vendors will perform as per your expectations and standards. Therefore, you must set your criteria and expectations before dealing with vendors, as this will help you save money and time.
Vendor Reputation Risk
Sourcing and organizing multiple vendors is a difficult task. The process becomes more complicated because the quality of work often is unknown until a contract has begun. Although some vendors will complete their set tasks effectively, some don’t perform as expected, which can interfere with your deadlines. Before you make a selection, be sure to run a background check to gain insight into vital points concerning potential suppliers.
Vendor Data Storage
As your business expands, you’ll need to have a vendor data storage solution in place. Without this, retrieving and storing data can be complicated as you’re likely to be dealing with multiple vendors across different projects at any given time.
Payments can be tricky, especially as different vendors will have different payment terms and schedules. A vendor management system can help to automate these payments and pay multiple vendors at the same time. This leaves less room for error and ensures that all parties are satisfied with their working relationship.
Vendor Management Tips for Success
When implementing a vendor management system, the following tips will help to ensure your success:
Share Priorities and Information
If you share priorities and information with your vendors, you’re on the road to vendor management success. However, this doesn’t mean you need to part with any confidential information that could compromise your business’s security. Best practice vendor management involves providing the right information at the right time so that your vendors can best serve your organization’s needs. This information could include expansion plans, new product launches, limited forecast information, and design changes.
Permit Key Vendors to Help With Business Strategy
If you have vendors supplying services that are key to your operation, try inviting these vendors to strategic meetings involving those products. You employed these vendors because they can provide a product or service cheaper, better, or more efficiently than you can. Remember, they are experts, and you can tap into their expertise to improve your organization.
Concentrate on Long-Term Partnerships
In vendor management, long-term partnerships trump marginal cost savings and short-term gains. If you constantly shift from vendor-to-vendor, you may save a bit of cash, but your products’ or services’ overall quality will likely decline. Additional benefits of long-term relationships include preferential treatment, access to insider knowledge, and increased trust levels.
Try to Understand the Business of Your Vendors
Just like you, your vendor operates to make money. Try not to put constant pressure on them to cut costs, which could affect the quality of their services or put them out of business. A crucial part of the vendor management process is sharing knowledge and resources to help your vendors serve your needs. Asking vendors questions will help you gain insight from their side of the business and improve your professional relationships.
An effective vendor management system will help you save time, increase profits, develop your business, and improve your services.
We Make Vendor Management Easy
We provide vendor relationship management software that helps organizations based on their individual needs. Our software includes a dedicated communication portal to facilitate all communications between you and your suppliers, automate the onboarding process, manage contracts and orders, plan improvements, track logistics, and more.
In addition to supplier management tools, we also offer supply chain management software. Use this software to plan, control, and execute product flow, ensuring an on-time supply. From procurement to product lifecycle management, our SCM streamlines your business’s supply chain.
Speaking of product lifecycle management, we have software developed with that in mind, too. Using it will streamline each phase of a product’s lifecycle.
Contact us to learn more about our solutions today!