Vendor management is the multi-stage process of initiating and developing relationships with providers of goods and services (“the seller’) that a purchasing company (“the buyer”) needs for day-to-day business operations and the fulfillment of its goal. The term vendor management refers to all the activities included in researching and sourcing vendors, obtaining quotes with pricing, capabilities, turnaround times, quality of work, Contract negotiation, managing relationships, assigning jobs, Performance Evaluation and ensuring payments are made. Vendor Management isn’t as easy as it seems as it requires a lot of skills, resources and time.
Many business owners are of the opinion that vendor management is simply about finding the supplier (vendor) with the cheapest price for a product or service. It is simple when the number of vendors is small, but the complexity ratchets up as and when the number of vendors and purchases gets higher. The entire Process needs to be streamlined for better efficiencies and managing vendor relationships to ensure that the agreements made are mutually beneficial for both parties in the long run .
Vendor management is one of the most complex process in the whole of the procurement process in the organization. Effective vendor management can help establish proper timely service, quality, cost, and satisfaction goals and choose and manage third-party suppliers that help you achieve those business mission. The businesses or individuals that provide goods and services to an organization are called its vendors. A company could work with a few, dozens, or even hundreds of different vendors, all with different agreements, pay structure, and points of contact that is managed by a vendor manager.
Vendor Management Process:
Establish Business Goals
Vendor management is typically broken down into four step process. The first is to establish the business goals. It’s much easier to select and manage vendors when you have clearly defined performance parameters to compare and contrast in line with the goals. In order to successfully enlist the aid of a vendor, you need to know exactly what it is that you’re trying to achieve to maximize. Hence, it’s important to define your business goals clearly and as specific as possible. The management of vendors is also easier when you have defined performance parameters to compare and evaluate on timely basis.
Choose the Best Vendor
The second part of the Vendor Management process is to select the best vendors that will be able to match your company’s performance characteristics and requirements. Every vendor will have its strengths and weaknesses, and choosing the right one is a very critical task to optimizing operational results and desired outcome. It’s an important take to choose the right vendor Using an up-to-date risk profile and qualifying and segmenting based on category, location, and business unit. The company needs to weigh the pros and cons of all the vendors, and choose a vendor or multiple vendors after a thorough vetting. It should fit the need and matches of the performance characteristics. When choosing the vendor, you must also ensure that the Vendor has extensive experience and that they have worked in similar environment before. Also, you need to know the stability of the vendor and that the vendor isn’t embroiled in legal battle. Not to forget that they should have a standard process and are able to provide the economies of scale.
Third of the Vendor Management process is managing your suppliers or the vendors. On an ongoing basis, your vendor managers will need to monitor performance and output, ensure contract terms are being followed, approve or disapprove changes, provide feedback, and develop relationships through effective communication, honesty, and integrity. Forming long-lasting and mutually beneficial relationships with suppliers will aid you in keeping your manufacturing and schedule on time and ensure that there is timely delivery of quality products. Therefore it’s important to make sure that you manage your supplier relationships well.
Consistently Meet Goals
The fourth and final step of Vendor Management is persistently meeting goals. This requires continuous work in influencing vendors to meet performance objectives to ensure profitability in order to meet your goals consistently over the course of the relationship.
Tips for a Successful Vendor Management
Vendor management allows you to build a relationship with your suppliers and service providers that will strengthen businesses of both parties. Vendor management is not just negotiating to the lowest price possible but constantly working with your vendors to come to agreements that will be a win-win situation for both companies.
Share Relevant Information and Priorities
The key to succeeding in vendor management is to share complete information about your requirements, purpose and priorities with your vendors. That obviously does mean you share the confidential data of the company.
Appropriate vendor management practices provide only the necessary and relevant information at the right time to allow a vendor to serve your requirements better. It may include expansion plans, change is design, business forecast, new launches and designs.
Balance Commitment and Competition: It is important for the vendor manager to gain the commitment of the vendors and support the operations of your business. On the other hand, the vendor is expecting a certain level of commitment from the company. Hence, company needs to get in competitive bids so as to attain the best possible rates and prices.
Allow Key Vendors to Help You Strategize
If a vendor supplies a key part or service to you, invite that vendor to strategic meetings that involve the product they work with. Remember, the role of a vendor to make the product or service better and/or cheaper than the existing product. They are the experts in that area, and you can tap into that expertise to increase productivity.
Build Partnerships for the Long Term
Vendor management focuses on long-term relationships over short-term gains and marginal cost savings. Constantly changing vendors to save a penny here or there will cost more money in the long run and will impact quality of the deliverables. Other benefits of a long-term relationship include trust, preferential treatment and access to inside information or expert knowledge.
Seek to Understand Your Vendor’s Business Too
The vendor is in business to make money too. If you are constantly compelling them to cut costs and decrease margins, quality will suffer, or they will run out of business. Part of vendor management is to contribute knowledge or resources that may help the vendor better serve you from time to time. Asking questions of your vendors will help you understand their side of the business and build a better relationship between the two of you for long term relationship.
Negotiate to a Win-Win Agreement
Good vendor management focuses on negotiations completed in good faith by both parties. Look for negotiation points that can act as win – win to accomplish their goals. A strong-arm negotiation trick will only work for so long before one party walks away from the deal.
Come Together on Value
Vendor management is much more than getting the lowest possible price. Very often the lowest price also brings the lowest quality. Vendor management focuses on quality for money that is paid. In other words: value for money! You should be open to pay more to receive better quality. If the vendor is serious about the quality they deliver the best and won’t have any problem specifying the quality details in the agreement.
Benefits of Vendor Management
· Vendor partnerships can quickly fall apart if left unmanaged. However, by establishing a manager who is focused on managing that vendor relationship a strong dynamic partnership can be formed, and this is one of the main goals and benefits of vendor management.
· It helps to create more choices for your organization and finding better choices that best suits the company’s budget and needs and requirement through vendor strategy
· Choosing between multiple vendors can create bidding wars, giving the company better rates and prices which will enables cost saving.
· Vendor management can better support IT governance, helping organizations keep a close eye on compliance and mitigate risk.
· Maintaining a close working relationship, businesses can quickly identify any vendor issues and address the same before they become a bigger problem.
· Vendor management allows your organization to remain proactive instead of reactive by staying on top of vendor performance and efficiency and outcomes.
· Good vendor management can place your business in pole position to take advantage of advertisements in their products or services by having close relationships with vendors and managing them well.
Vendor Management tools and Software
In order to manage large number of vendor relationships, there are various tools and software available to help organisation to manage vendors. Vendor management tools and software are useful for something as simple as keeping track of vendor contact numbers and email addresses. Other tools help to provide detailed reports on the cost-benefits. and useful in research phase. As it offers reviews and ratings on vendors and mentions lists of preferred. Some popular software are Gatekeeper, SAP, Rize Point and Tradogram.