Vendor Management and Procurements

Vendor Management and Procurements

Vendor management is the process that empowers an organization to take appropriate measures for controlling cost, reducing potential risks related to vendors, ensuring excellent service deliverability, and deriving value from vendors in the long run. This includes researching about the best suitable vendors, sourcing and obtaining pricing information, gauging the quality of work, managing relationships in case of multiple vendors, evaluating performance by setting organizational standards, and ensuring that the payments are always made on time.

So, that’s where the vendor management system or VMS comes in place.

A vendor management system is an online web-based tool that acts as a single node to manage all vendor-related activities in any organization or business while ensuring improved efficiency and long-term growth in a cost-effective manner.

Benefits of Vendor Management

By having proper vendor management in place, an organization can experience the following benefits:

1. Better Selection

2. Better Contract Management

3. Better Performance Management

4. Better Vendor Relationship

5. Better Value

Challenges in Vendor Management

Although there are many benefits, some challenges need to be overcome to ensure the smooth functioning of the organization.

There are many challenges that an organization may face if vendor management is not implemented correctly. They are as follows:

1. Vendor Compliance Risk

2. Vendor Reputation Risk

3. Lack of Visibility

4. Vendor Data Storage

5. Vendor Payment Risk

Some vendors may have different payment terms, while some may adhere to industry-standard terms. Figuring out the terms and ensuring that the payment is always made on time is one of the major issues, especially while dealing with multiple vendors at the same time.

Some vendors may have different payment terms, while some may adhere to industry-standard terms. Figuring out the terms and ensuring that the payment is always made on time is one of the major issues, especially while dealing with multiple vendors at the same time.

Vendor Management Process

At this point, we can infer that having effective vendor management is crucial. An organization has to plan and execute a process to guide how they will engage with their vendors at every step.

While it is not possible to have one specific vendor management process that encompasses all enterprises and vendors, we can bring together the basic steps that underlie an organization’s start-to-finish engagement with its vendors:

1. Identification and Establishment of Business Goals

2. Establishment of a Vendor Management Team

3. Creation of a Database for all Vendor-related Information

4. Identification of the Selection Criteria for Vendors

5. Evaluation and Selection of Vendors

6. Developing Contracts and Finalizing Vendors

Well, now you have the chosen one. It’s time to complete the contracting process and get your vendor(s) on board.

Typically, the contracting stage is assigned to the legal and finance team and the senior management involved with the vendors. The rest of the business units receive the contract and engage with the vendors after the finalization process. This tends to be sub-optimal in the long run – the business units are the ones finally collaborating with the vendors on a day-to-day basis and have valuable insights on how to maximize the vendors’ operational performance. Hence, all the relevant stakeholders need to be involved, at least in the decision-making process.

Best Practices: Techniques to Improve your Vendor Management Strategy

You have a vendor management process best-suited to your organization, in place. However, vendor management doesn’t just end once the vendors are chosen. There are techniques and best practices that complement your process and can make your organization’s vendor management even more effective. Let’s take a look:

1. Convey your expectations clearly

2. Ensure you set deadlines that are achievable and realistic

3. Collaborate with your vendors to maintain long-term relationships

4. Establish KPIs to measure Vendor Performance

5. Assess Vendor Risks to enable its Minimization

In a Nutshell

This blog post talks about a very crucial aspect of organizational functioning – vendor management. In today’s global economy, where geographical and economic barriers are constantly diminishing, organizations have to work with different types of vendors from all around the world. Even if you are working with a single vendor, it is crucial to have effective vendor management in place because their performance ultimately affects your business’s performance. It is important to understand the benefits and challenges of vendor management so that you can design an effective process that will guide your engagement with your vendors. Don’t forget to complement your process with vendor management best practices to ensure that your vendors deliver maximum value to your organization.

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