Vendor management is a process that ensures that organizations can find vendors, evaluate them, and connect businesses with vendors. This process came into existence out of a basic need for outsourcing. For this to work, an organization needs to find suitable vendors and ensure they have what it takes for the job. They also need to compose a list of conditions and requirements they will use in the negotiation stage. Finally, they need a performance evaluation to ensure that they’ve made a good deal from that point on.
Let’s see how all of this comes together and how a company can benefit from a more efficient vendor management system.
Choosing the right vendors is a relatively simple task once you ensure that all the parameters are objective and relevant to your needs. First, you need to focus on cost-effectiveness. To achieve profit, you need to pursue the highest possible value for your paying price.
The quality of service is essential but often hard to quantify. This is where experts’ insight might be completely invaluable. One of the ways to handle this issue would be to check references. Sure, individuals may base decisions on whether to buy or collaborate based on a review, but enterprises and corporate entities usually dig deeper than that.
Ethics and integrity of the vendor are essential for long-term vendor partnership. The problem is that they are not a priority for the majority of traders. The level of professionalism amongst the general workforce of the vendor is often tightly intertwined with this notion.
With these several parameters on your side, making a checklist and making the selection criteria as unbiased as possible is possible.
Even with superior selection, you can’t always trust your partners. The good thing is that you don’t have to trust them for as long as your contracts are well-composed, and you have legal mechanisms that you can enforce when things go wrong.
The problem is that this is a lengthy legal process, and it may take a lot of time for your legal team. This is also true for menial tasks such as contract renewals once previously signed documents are expired. Thus, saving valuable time works to everyone’s benefit.
With adequate contract management, the majority of legal aspects of this vendor partnership are handled automatically.
One of the biggest challenges when handling multiple vendors is that different vendors may have different payment terms. This isn’t supposed to be a major problem; however, it leaves a lot of room for a clerical error. In addition, a missed due date may portray you negatively in the eyes of a specific vendor, which will have numerous long-lasting repercussions.
The simplest way to handle this issue is through account payable automation. This way, there’s no risk of missing a due date for payment. It also leaves you an opportunity to pay every time in the exact way that the vendor prefers. Most importantly, you get to avoid all the late fees and redirect your attention towards something else. When pursuing the idea of establishing a productive vendor partnership, you’ll have enough work as it is.
An efficient and two-sided positive vendor relationship is a complex logistical matter that may require all of your skill and attention. First of all, it’s a high priority that your vendor can stay on track with all project deliverables. They also need to be able to keep up with the strategic goals of the entire brand.
The key to maintaining an efficient vendor partnership lies in maintaining an open channel of communication. This determines both trust and transparency. From your perspective, you must understand one thing – your role here is double-fold. On the one hand, you’re a part of a mutually beneficial partnership. But, at the same time, you’re also supposed to act as a professional relationship manager. Neither of these two roles will come easily.
Major Risks of Vendor Partnership
When the business structure is complex, there are more instances where something can go wrong. Vendor partnership is perhaps the prime example of this situation. There are numerous risks here that you need to keep in mind, as well. Some of these risks are:
- Vendor compliance
- Vendor reputation
- Lack of visibility
- Vendor payments
Fortunately, most of these risks can be mitigated through some of the simplest vendor management processes or techniques.
Essential Vendor Management Techniques
The priority in the vendor management process is ensuring that the entirety of the organization acts in unison. For this to work, there are several essential techniques:
- Clarity of communication: If there’s an ambiguity involved somewhere, the blame always falls to the one who failed to explain the subject matter clearly.
- Realistic deadlines: Setting expectations that are impossible to achieve will make the project, as a whole, unsuccessful 10/10 times.
- Long-term objectives: A minor slip-up can sometimes be tolerated for the sake of a great long-term relationship.
- KPI for vendor performance: To avoid any talk of bias, it’s important that you set KPIs early on. It’s also vital that you’re transparent about them from the very start.
Again, while these concerns are primarily your responsibility, this also shouldn’t be seen as one-sided. For instance, a vendor can complain that your expectations are unclear right away and ask for clarification. They can tell you straight away that the deadlines are unrealistic or complain that your KPIs are not fair.
Outsourcing is essential for the survival of the present-day business world. It allows for a much higher level of specialization within smaller organizations because they can rely on others to handle different (highly specialized) tasks. The biggest problem with this business model lies in organizational issues. Keeping the logistical system functioning is a challenge even within a single organization. Coordinating between different vendors is a major challenge. Still, with the right vendor management, even this shouldn’t be impossible.