How To Level Up Your Vendor Management Process
Whether you work with a handful of vendors or hundreds of them, how you manage them matters. If want to get the best bang for your buck, you need to take a strategic approach to vendor management. Doing so allows companies to reduce costs, build resilience, and achieve revenue and overall organizational goals.
Understanding vendor management
First, let’s break down what vendor management is. Vendor management is the multistep process of researching and sourcing vendors, obtaining quotes, negotiating contracts, evaluating vendor performance, among other tasks, with the goal of taking vendor relationships from passive to collaborative.
The vendor management process involves working with your vendors as a team to streamline and optimize every state of the relationship. Keeping tabs on vendor information like pay rates and contract terms for multiple external resources can become complex, that’s why having a solution that consolidates and manages all of these moving parts can be a valuable tool for a company when it comes to cost savings, compliance and mitigating risk.
Why you need effective vendor management processes
Having effective vendor management in place is crucial to the success of a business. Here are just a few reasons why a vendor management system (VMS) is not only necessary but also gives companies a competitive advantage:
- Cost savings: Increasing visibility into spend yields better control of enterprise spend and value across the organization
- Mitigate risk: Vendor management monitors vendors actively and gathers the data you need to determine each vendor’s risk level
- Better performance: From vendor selection to vendor onboarding, implementing appropriate vendor management ensures that you choose the right vendors and that they are complying with your requirements which in turn optimizes how your company functions
- Improved vendor relationships: Juggling various vendors at once gets complicated but compiling vendor information in a single place and regularly conducting status checks ensures everyone is happy and on the same page
Conversely, neglecting vendor management could result in the above benefits falling to the wayside and open the doors to non-compliance, security risks, lack of brand protection, and other negative consequences.
6 Top strategies for effective vendor management
While there is no definitive guide to the vendor management lifecycle, there are some general steps you can take that will lead to an effective vendor management strategy.
1. Define your business goals
First and foremost, businesses must establish goals that clearly define performance parameters. This will prevent resources from being wasted and help with evaluating vendors down the line.
2. Vendor Selection
Now it’s time to carefully choose the best vendors that compliment your company’s goals and KPIs. Ask yourself if the vendor has the appropriate resources and experience and will yield optimal operational results.
3. Risk Management Process
You must do your due diligence before a contract is signed and throughout the supplier relationship when it comes to managing vendor risk. Things to look at include the financial condition of the vendor and what kind of internal controls are in place regarding data security and privacy. Conducting a risk assessment will help you understand the risks posed by a third-party vendor and ensure that any issues are being addressed.
4. Contract negotiation and contract management
When negotiating and managing contracts, remember that they are more than just pricing agreements. Vendor contracts outline the responsibilities of both the buyer and vendor and should cover topics like confidentiality, dispute resolutions, data privacy, and ownership of intellectual property. Expectations should be clearly communicated both verbally and in writing.
5. Vendor onboarding
Once vendors are approved, they are onboarded and ready to conduct business. This involves collecting and storing all pertinent vendor information into a centralized database. Be flexible in this step as no two suppliers are the same.
6. Reporting and monitoring
Engaging in ongoing reporting and monitoring is crucial to supplier management. Tracking a vendor’s quality of service, risk management practices, and financials will help you determine if certain vendors are bringing unnecessary risk and costs to your supply chain. Performance management provides a glimpse into the health of your vendors and creates an environment that encourages collaboration and open communication.
Vendor Management Challenges
As with most new business practices, implementing a vendor management solution is no easy task and comes with its roadblocks. The old-fashioned notion that vendor-buyer relationships are short-term and transactional might cause a lack of buy-in from leadership. There also might be a lack of tools and resources within an organization to work effectively with external teams and communicate with all of them.
The key to the mitigation of these barriers is to actively work on shifting the mindset from ‘me’ to ‘we’ by investing in a vendor management system that fosters collaboration. A supply chain that is powered by technologies that improve visibility, mitigate vendor risk, and assess performance metrics, leads to valuable, long-term relationship building and the achievement of organizational goals.
Advantages of vendor management software
Luckily, vendor management software solutions are available to uncomplicate and streamline the vendor management process. Effective supplier management software will provide supplier visibility in real time, track KPIs and metrics on supplier performance, and automate payments, ultimately eliminating manual workflow and saving time and money.
By digitizing supplier management, you get a holistic view across suppliers by connecting all documents, transactions, and contracts in one place, which is a win-win for both parties.
Take control of vendor management
Short-term vendor relationships lead to short-term gains. Corcentric can help you build and maintain long-term vendor relationships that drive innovation while lowering costs and risks.
Our advanced vendor relationship management capabilities push third-party relationships beyond just pricing and cost savings, turning them into major assets. From validation and certification, to score carding, contract compliance and beyond, Corcentric Supplier Management boasts industry leading capabilities that will fulfill stakeholders’ expectations and improve your bottom line.