The modern corporation depends on hundreds of vendors (at least) to provide supplies and mission-critical services. Astute management of those vendors can reap enormous benefits, but the art of vendor management is no easy thing. It requires discipline and attention to detail – and usually a dedicated technology tool to help.
Effective vendor management is the researching and sourcing of vendors, to receive quotes on pricing and delivery times; and the evaluation of vendor performance and key performance indicators (KPIs). Vendor management also includes negotiating contract terms, controlling supplier relationships, conducting due diligence on all vendor relationships, minimizing vendor risk, and assuring that business needs are met.
Simply put, strategic vendor management is an essential part of any growing business as it streamlines its processes for enhanced productivity.
Vendor Management Strategy Explained
The bigger the business, the larger its network of vendors becomes. In such an environment, obtaining maximum value from key vendors requires you to have a solid vendor management strategy that allows you not only to cut costs, but also to strengthen long-term relationships.
Remember that choosing the right vendor is much more important than considering the lowest price points. The vendors your business uses should be those that offer the products and services that best align with your business goals.
How Do You Create an Effective Vendor Management Process?
By definition, a vendor management process is a set of activities that businesses use to manage their vendors. It involves a number of stages:
Reviewing Business Objectives
Why do you need a vendor? Answering this question first helps you understand what your business requirements truly are, and therefore which options will yield the most value. This stage can often be the most difficult part, but success here will put you on the right track in choosing the right vendor.
Building a Vendor Management Team
You need a dedicated team to manage transactions and inquiries that arise from vendors. The size and makeup of the team will depend on the complexity of your organization and the amount you plan to outsource.
Assessing Vendor Performance
Performance management should be at the heart of your vendor management process. Regardless of your industry, vendor information will increase your decision-making capabilities and help in scenarios like planning for partnership renewals and dropping low-performing vendors to make space for better ones.
Conducting a Vendor Risk Assessment
At this stage, you need to identify and assess potential risks associated with a vendor’s operations and its likely effect on your business. Once you perform vendor due diligence, you’ll have a better foundation for long-lasting, powerful vendor partnerships.
Any change in the operations, such as changes in material supply or processes, will affect your supply chain and create disruptions. Therefore, we suggest every business consider risk management and perform risk mitigation for all vendors.
When you’re selecting a potential vendor, you are selecting a partner in your business for the near future. As a business owner, the responsibility lies on your shoulders to manage a vendor the same way you manage your employees, says Forbes. The objective in this stage is to arrive at a decision that’s in the best interest of the business.
Key Benefits Vendor Management Brings to Businesses
Vendor relationships are at the core of many of your business and activities. That said, businesses don’t fully understand the breadth of advantages that arise from strategic vendor relationships and supplier management.
Below are the three ways vendor management benefits your business:
Improved Vendor Onboarding Process
Better evaluation of potential vendors, before they begin working with your business, is always worth the effort. Better onboarding can identify and avoid vendors that might deliver substandard products, bring unnecessary compliance or security risks, or prove financially unstable. Over the long run, better onboarding leads to more durable, productive relationships with vendors you can trust.
The data you collect through onboarding and monitoring will help you detect hurdles in your operations that could be removed and drive better performance. Visualizing, understanding, and acting upon the vendor information you receive will improve the overall performance of the business.
Better Control Over Costs
Cost management is critical for any company to prevail in a competitive market. A vendor management system allows you to see how well finances, fixed or variable costs, are under control.
Tips for an Effective Vendor Management System
When developing a vendor management system, the tips we outline below will help to make the most of your vendor relationship management.
Set Priorities and Expectations at the Start
Have a dialogue with vendors about company priorities, expectations, and deadlines. The better your vendor understands your business needs, the more successful you will be in cultivating beneficial relationships.
Focus on a Relationship for the Long-term
Unlike short-term partnerships, long-term partnerships tend to yield more profits, since both sides are acquainted with the work processes. It will also help you build mutual trust, which means more procurement and vendor contract negotiation opportunities.
Maintain Regular Communication
Vendor management cannot succeed without frequent, transparent communication with your vendors.
Use ZenGRC to Ensure Vendor Quality and Compliance
RiskOptics can help you reduce the cost of managing your governance, risk management, and compliance programs, save time, and manage the new vendor lifecycle with an integrated workflow. ZenGRC‘s automation capability will also enable you to send surveys to third parties, giving you a holistic view of what your business needs to thrive.
Schedule a demo now and discover the full benefits of how RiskOptics can help safeguard your business.