What Is Vendor Management And Why Is It So Important?

Vendor management is a process by which organizations can take whatever measures are necessary to reduce risks related to vendors, control costs, ensure outstanding service, and to derive the best value from vendors. It will generally involve researching the best possible vendors to collaborate with, obtaining pricing information, evaluating quality of work, managing vendor relationships, evaluating performance, and ensuring that payments are made promptly. Any good vendor management system will be comprised of an online web-based tool, which serves as a single source to manage all activities involving those vendors your company works with so that long-term efficiency and growth can be achieved.

The Management Process

All companies have to develop and implement a policy by which they will engage with their vendors, and even though there will be certain practices that are different from all vendors, it is still possible to establish certain basic steps that characterize your relations with all vendors. The first of these is the identification and establishment of business objectives that require the involvement of vendors.

This will aid in understanding what your goals are, and it will prevent duplication of efforts when contracting with vendors. It will also help in measuring and evaluating the performance of your vendors, compared to the business objectives you have established. Next, you need to establish a vendor management team that is dedicated to the process. The individuals on this team should be skilled at recognizing business goals and KPI’s as they relate to vendor management.

They should know how to select the most advantageous vendors, how to negotiate contracts, and how to assess vendor performance. This team will be very important, acting as a go-between for business units and vendors, to maintain smooth collaboration between the two parties. Since you have a dedicated team responsible for vendor management, you won’t have to worry about too many stakeholders becoming involved.

This would ultimately result in a hindrance to the evaluation of vendor performance, and your organization would be exposed unduly to vendor risk. Once your business goals have been set forth, and your vendor management team has been identified, you should then go about building a database of all vendors and whatever relevant information which you need to deal with them.

This will help you match your business needs to the appropriate vendor, and it will make cross-vendor comparison much easier when you’re evaluating. It will also help streamline the information you have on your vendors because it will all be stored in a central location, and provide you with useful insights. One more benefit of establishing a vendor database is that it will allow you to implement effective budgeting, while you categorize vendors as short-term tactical vendors or long-term critical vendors, and match budget assignments to each of them.

The selection process for your vendors will involve establishing a set of criteria whereby you can match vendors with your company objectives. Sometimes cost ends up being the primary criterion for vendor selection, but the most informed businesses now recognize that their best interests may be served by favoring other criteria as well.

For instance, you may favor those vendors which are financially stable or which have previous experience in your industry. You might also be interested in a given vendor’s procedures, their regulatory records, and any economies of scale which they offer. To make the best possible vendor selections, all the above criteria should really be evaluated, rather than simply the lowest cost.

Now that you’ve chosen your vendors, you’ll have to develop contracts that can be used to bring those vendors on board with your company. This is generally the responsibility of the legal and financial team, and will sometimes involve senior management as well. Once contracts have been signed and are formalized, all other business units will then be able to engage with vendors, and the collaboration process can get underway.

Benefits of a Vendor Management System

When you have a good vendor management system in place, you will invariably have a better selection of vendors, because you will have gone through a formalized process for choosing them. In some cases, you may even be the beneficiary of a bidding war for your business, which will help you to get even better value from your collaboration with certain vendors.

You’ll also enjoy better contract management when you have multiple vendors that you’re dealing with. The fact that you have all your contracts situated in a centralized location will allow you to achieve better decision-making, and save a great deal of time whenever you deal with other vendors in the future.

When you have this kind of integrated view of vendor performance, it will help you to achieve better performance management across all your network of vendors. This will allow your company to have a good understanding of what works well and what doesn’t work so well. That will allow you to make adjustments in your vendor management process so that you can achieve greater efficiency, and so you can also have better vendor performance.

Ultimately, you are more than likely to have much better relationships with all your vendors, because it’s much easier to manage those relations when you have a good vendor management system in place. Since this is a key to most successful project implementations, it becomes extremely important to have good relationships with all of the vendors you deal with.

When you have all information about any given vendor residing in a centralized location, it’s very easy to get everything you need immediately and make appropriate decisions. This simplifies the decision-making process immensely, and it will help keep all your projects running smoothly because you have such good relationships with all your vendors.

The bottom line on any vendor management system is that you want to get the most value for your investment. Implementing a vendor management system in the right way so that it provides the best value to your business, can provide your company with long-term savings, improved earnings, and potentially solid growth over time.