Global supply chain crisis, transportation bottlenecks, and rising commodity inflation are all factors leading to influence from suppliers, ultimately giving them the upper hand. For procurement teams to succeed, it’s imperative to improve supplier interactions and fully harness the comprehensive approach for supplier management.
Regardless of the industry, employee size, categories, and other factors, organisations have fallen behind in characterising the importance of supplier relationships in achieving company’s business objectives. Traditionally, the conversations were only limited to negotiations which failed to yield a competitive advantage to organisations for a longer run.
By definition, vendor management acts as a single mode to manage all activities related to a vendor including cost optimisation, managing potential risks, ensuring timely delivery, and value creation. It’s also helpful in keeping a track of best quality vendors with performance evaluation and maintaining desired organisation standards.
Challenges Associated with Vendor Management
While vendor management is beneficial, businesses often meet with challenges which hinder the smooth functioning of the supply chain. Here are some of these challenges that arise if companies don’t implement vendor management correctly:
1. Vendor compliance
Even after sharing vendor requirements, at times not all vendors deliver the desired outputs. To reduce such mishap, it’s important to set internal business KPIs and organisational standards to ensure excellent performance.
2. Vendor reputation
Before one should start vendor onboarding, companies must analyse previous vendor performance records. Such analysis would help in filtering poor performance vendors that might compromise with a company’s quality of work and deadlines.
3. Lack of visibility
Often businesses suffer due to lack of sufficient vendor-related information that might’ve helped them make informed decisions. To reduce issues like these, companies need to focus on creating a centralised dashboard for improving visibility for internal business units which can lead to improved efficiency and better vendor evaluation.
4. Vendor payment
After finalising contracts with vendors, businesses face challenges in ensuring timely payment from vendors. The challenge often increases when businesses deal with multiple vendors involving different payment terms.
Benefits of Vendor Management
Efficient vendor management can deliver exceptional results for businesses. Here are some of these benefits:
1. Better vendors
By implementing the right approach for vendor management, companies can benefit from onboarding the right vendors which can result in better savings and efficiency.
2. Improved contract management
With a lack of a proper vendor management system, business teams often fail to keep a track of individual contracts, documentation, and other vendor-related details. An efficient vendor management system gives view of all such details which might help companies make better decisions and save valuable resources.
3. Performance management
With all vendor-related information at one place, it becomes easier for business teams to track performance of all vendors against desired business KPIs. This helps in analysing whether a vendor is working efficiently or not which improves delivery timeline and business performance.
4. Enhanced vendor relationship
Businesses often work with multiple vendors and it becomes difficult to nurture relationships beyond just transactions. Vendor management system solves this problem by providing seamless collaboration with vendors from start to the end and managing individual relationships with vendors.
5. Greater value
The ultimate goal of a vendor management system is to deliver most value while generating savings for the long-term. The VMS helps identify the right vendors that have the potential to help your business grow.
Process of Vendor Management
Vendor management is an elaborate process which gauges the end-to-end engagement of a vendor with an organisation. Usually, companies create a list of steps on how to engage with their suppliers to ensure consistency and efficiency. Mentioned-below are some of the basic steps:
1. Establishing desired business goals
The first step is to identify and understand the desired business goals before interacting with vendors. This helps in analysing internal requirements and prevents wastage of resources and efforts when finalising the terms and contracts with vendors. It’s also helpful in evaluating individual vendor performances based on these defined metrics.
2. Creating vendor management team
Once the desired goals are identified, organisations must create an internal, dedicated team to manage vendors. The main goal of this team is to keep track of business KPIs for selecting the right vendors, negotiating pricing, track transaction activity, and assess periodic performance of vendors. This team acts as liaison between vendors and internal business divisions to ensure seamless collaboration between the two parties. Additionally, the team also checks for any disparity or repetition in contracts leading to any possible supply chain risk.
3. Maintaining vendor database
Once the business goals are established, the vendor management team creates an elaborate database for all vendor-related information. The main idea of this database is to centralise all vendor-related details for internal use and streamline information for other teams. Here are some benefits of having such database:
- Helps in identifying the right vendor for various business units to fulfil organisational needs
- Categorises vendors on the basis of their type, performance, contracts, and location, to ease evaluation and cross-vendor comparison
- Streamlines information at a centralised dashboard to provide featured insights about vendors
- Eases budgeting and cost-cutting exercises by identifying long-term vendors
4. Constituting vendor selection criteria
Once the team centralises all vendor-related details and business KPIs, companies can now focus on finalising criteria for vendor selection. Companies often look at criteria other than reducing the cost to yield maximum value from their vendors. These factors include financial stability, credentials, industry recognition, legal records, industry experience, and others.
5. Evaluating and selecting vendors
After laying down the selection criteria, companies receive proposals from multiple vendors. The team, then, thoroughly assesses scope of work, T&C, cost structure, contract expiry/renewal dates, et al., to rate a vendor. They also assess the SWOT analysis for each vendor which might possibly affect their transaction and relationship.
6. Finalising contract
From thorough assessment of each vendor, the team finalises a vendor and starts the contracting process. The process involves a legal team, finance team, and key stakeholders who help in the decision-making process. Once the contract is structured, the vendor onboarding process is started to ensure seamless day-to-to collaboration between business units and vendors.
Make Lasting Supplier Relationships
Nurturing supplier relationships in a volatile business environment adds value and competitive advantages for organisations. Maintaining such relationships helps businesses in procuring timely, receiving better service, and developing sustainable relationships. Usually, businesses take a strategic or reactive approach for creating such partnerships. A strategic approach is market-driven and focuses on refining specific supplier activities out of the entire supply base. However, a reactive approach is an outcome of resources to fixing problems once they happen. A good supplier relationship is imperative to balance reliability, optimisation, and market orientation. Here are some ways in which businesses can turn themselves into valued customers for suppliers:
1. Paying on time
Once the contract is finalised, it’s always suggested to pay your supplier in the discussed timeline. Business teams can negotiate for desired terms before placing the order but it’s not considered ethical to change them at a later stage.
2. Offer ample lead time
It’s always healthy to share adequate lead time on orders and keep posted of your business needs and projections to help them stay abreast of any last-minute changes. When finalising these lead times, it’s also important to consider the vendor’s production timeline, methodologies, and needs.
3. Personalise your relationship
While you’re collaborating with your vendor, try to meet them personally and discuss things other than business to have a meaningful long-term relationship. You might end up finding similar interests or business goals.
4. Share the right information
Keeping the supplier in loop for all your product/service-related details is important. It’ll be helpful if you can share any key stakeholder changes, upcoming product line, other partnerships, and so on.
5. Utilise technology
Implement a technology network that helps both parties to review purchase orders (POs), update contact details, and share RFPs and invoices, to increase accountability while maintaining an audit trail to minimise risk.
How Smart Procurement Software Eases Vendor Management
An efficient procurement system does many jobs for you including vendor management. While it’s difficult for companies to keep track of everything internally, using smart software helps to centralise data for thousands of vendors and monitor their performance in real-time. For companies, a smart vendor vendor management solution (VMS) includes the following stages-
- Vendor selection
- Risk assessment
- Contract negotiation
- Vendor onboarding
- Performance analysis
Here are some of the advantages of using a smart vendor management solution:
1. 360-degree view of supplier data
Intelligent vendor management solutions centralise all vendor activity on an interactive, centralised dashboard in standardised format. This gives business teams an edge to proactively manage all data and derive meaningful insights.
2. Smart supplier onboarding
With KPI-driven forms and multiple assessment factors such as categorisation, quality, and risk, in place, businesses can monitor accuracy and onboard suppliers seamlessly instead of bombarding with unnecessary requests. Companies can also add category-specific requirements to classify suppliers right from their onboarding to business process.
3. Better strategic collaboration
AI-based vendor management solutions can be equipped with measured KPIs to engage with suppliers. Key stakeholders can now collaborate with their suppliers anytime and anywhere to nurture strategic relationships and create greater value while encouraging innovation.
4. Real-time alerts
These smart solutions indicate risks at the first sign of trouble and share alerts in real-time to help minimise operational impact. Businesses can also maintain individual supplier scorecards and manage KPIs to ensure compliance.
In vendor management, every business team and stakeholder plays an important role. When working with multiple vendors, it becomes difficult to identify value generation and operational efficiency. Utilising a smart vendor management solution can be a fix to the problem which helps from end-to-end vendor lifecycle including vendor onboarding, evaluation, risk assessment, performance and compliance management, and contracts. For a seasoned procurement professional, knowing your long term goals will help streamlining the processes of today and eliminate any roadblock which might affect business. Now is not the time to underestimate vendor management and its role in influencing the profit line. Treating suppliers like commodities won’t yield good results in today’s highly volatile business environment.
Procol is India’s leading next-generation procurement solution which encompasses end-to-end procurement lifecycle right from source-to-contract. Our vendor management solution is designed in a way to help companies drive compliance, efficiency, and innovation through India’s only mobile-first solution. Procol takes off the load of manually managing supplier details and uses unique algorithms to deliver optimal results. Till date, Procol has helped 50+ companies cumulatively save up to 10% procurement cost across 100+ categories. Our extensive supplier network comprises 25,000+ quality, enterprise-grade suppliers. Get a demo of our supplier management solution here.