Vendor management refers to managing suppliers in a way that maximises efficiency, productivity, and revenue. This umbrella term includes selecting the right vendors, negotiating contracts, managing costs, optimising risks, and ensuring service delivery. Businesses may use hundreds of vendors, from IT services to office supplies to logistics. The types of contracts and terms with vendors vary depending on the size of the business. Businesses need a robust and data-based system to optimise the vendor side of their businesses to maximise ROI.
Typical phases of managing vendors
Irrespective of the nature of your business, selecting and nurturing a vendor follows certain criteria.
- Research and shortlist potential vendors through a request for quotation (RFQ).
- Evaluate the vendors based on your selection criteria.
- Judge the vendor's reputation, delivery capacity, track record, and communication ability.
- Define the goods or services that you seek from the vendor.
- Set the start and end dates of the contract.
- Set other terms and conditions, including returns and cancellations, non-compete clauses, and more.
- Review the contract with your legal team and get it signed by both parties.
- Gather the information needed to onboard the vendor.
- Set up payment and logistics channels.
- Review the vendor's licenses, tax forms, and insurance details.
- Evaluate vendor performance based on the KPIs.
- Observe the quality and volume of goods, ease of communication, and grievance redressal experience.
- Monitor the risk of compliance breaches, lawsuits, loss of intellectual property, and data security issues.
- Prepare for an eventuality where the vendor is unable to supply goods or services on time, causing disruptions in operations.
- Ensure that you pay the vendors on time and as per the terms of the contract.
Challenges in vendor management
Businesses with a large vendor database face complex challenges. This becomes evident when the vendors are spread across different geographies. Different sets of vendors could have different terms of contract. Merely managing the vendors through simple documentation isn't enough. You need technology to do the work for you. Your business may be relying too heavily on one vendor and not focusing on strengthening relationships with other vendors. Often, there is no way to compare the performance of one vendor against another. Reducing vendor base is a key activity that raises a business' efficiency and market competitiveness.
Automation of vendor relationship management
As a competitive business, you need to work on areas such as:
- Supplier performance management (SPM)
- Supplier relationship management (SRM)
- Contract performance management (CPM)
When it comes to automated vendor management, there is no one-size-fits-all solution. However, your solution should leverage intelligent data sourcing, advanced analytics, machine learning, and artificial intelligence. This helps your vendor management process define clear metrics, use a fit-for-purpose solution, and have a program that focuses on generating value for your business and the vendor base.