Learning about vendor management is no easy task.
As soon as you search the words ‘vendor management’ in Google, you’re bombarded with details regarding vendor management systems, rather than information regarding vendor management itself.
And considering that 88% of companies use at least one outside vendor, and 47% more than 10 vendors, vendor management is a topic that, at some point in their careers, many employees will need to understand.
That’s why in this informative, easy-to-understand post, I’ll tell you everything you need to know about vendor management – and in layman’s terms.
Specifically, you’ll learn exactly what vendor management is, the benefits of it, and the process of managing vendors successfully. To finish off, I’ll even provide you with (free!) vendor management templates you can jump into and use straight away. Just read through the sections below:
- What is vendor management?
- Benefits of vendor management
- The vendor management process (and its 4 essential components)
- Tried-and-tested tips for successful vendor management
- How Process Street can help with vendor management and vendor relations
Now, it’s time to get a solid grasp on vendor management.
What is vendor management?
I appreciate that the topic of vendor management may appear a little bewildering. So let’s start from the very beginning.
A vendor is a business that supplies goods to another company.
For instance, a restaurant which offers seafood on their menu will have a wholesale seafood supplier as one of their vendors. A digital marketing company, meanwhile, will have vendors such as The Rocket Science Group, who provide tools such as MailChimp.
Now onto vendor management itself.
SAP Ariba, the procurement and supply chain specialists, define vendor management as follows:
“Vendor management is the multi-stage process of initiating and developing relationships with providers of goods and services that a purchasing company (“the buyer”) needs for day-to-day operations and the fulfillment of its mission.” – Sap Ariba, What is vendor management?
As an example, let’s take the aforementioned (and hypothetical) restaurant.
When undergoing their vendor management, the restaurant’s staff will first determine what they need for their fish-based dishes (i.e. 100 salmon, 100 yellowtail, and 400 oysters), and then they’ll evaluate potential seafood vendors.
Once a vendor has been chosen and the contracts have been negotiated and drawn up, the money-for-produce transaction will take place.
Specifically, they’ll ensure the vendor is providing quality goods, make sure the goods are being delivered on time, and that the whole transaction is ticking along smoothly.
After the restaurant has worked with the vendor for long enough, the managerial chef will consider whether they’re getting the maximum benefit from working with the vendor. This will lead to the managerial chef either renewing the contract or opting to work with a different vendor entirely.
These steps are repeated until the restaurant has solid, trustworthy relationships with vendors which provide them quality produce.
That’s the definition of vendor management covered, and an example of how vendor management is done.
Benefits of vendor management
No matter if your business is in the culinary industry or construction, you’ll have a lot of plates spinning at once when it comes to your supply chain. But effectively managing the relationships you have with your vendors isn’t a process to skimp out on.
In fact, by prioritizing vendor management and giving the process the time and dedication it deserves, you’re opening a host of benefits up for your growing business.
Specifically, the benefits are:
- Reduced spend. A short-term benefit that’ll grab the attention of any business is reduced spend. By negotiating with a vendor, you can figure out an agreement that, for you, is money-saving. Additionally, by building a good relationship with the vendors you’re working with, there may be an opportunity down the line to reduce costs even further.
- Risks are mitigated. Without vendor management, it’s harder to protect your business from any potential supplier risks. But with the greater visibility that vendor management provides, you can use the insight to make appropriate – and potentially business-saving – financial and logistical decisions.
- More efficient operations. Businesses need to act fast and move quickly, but this isn’t possible when inefficacies in the supply chain halt progress. By tackling vendor management properly, you’ll notice where inefficacies occur and then have the chance to rectify them. This will help your business to become a well-oiled machine.
- Strengthened vendor relations. If you want to work with first-rate vendors for the long-term, you have to prove it. After all, just as you can choose your vendors, the vendors can freely choose the businesses they want to trade with. If there are mistakes, mishaps, or miscommunications on your business’ part – and all due to a lack of proper management – the vendor in question could cease working with you and side with a competitor instead. But with proper vendor management, which fosters communication, collaboration, and allows you to increase loyalty with vendors, a mutually beneficial working relationship can develop.
- Better service for your customers. With higher-quality (and potentially even lower-priced!) goods coming from your vendors, you can service your customers far better. Whether you’re a home-builder, software-maker, food-preparer, gadget manufacturer or a clothes retailer, your business can provide better products and services with stellar vendors behind you.
With this new information that vendor management results in lower outgoing costs, a stronger supply chain, and an increased bottom-line for your business, you may now be wondering “How do I go about vendor management myself? What steps do I need to follow to reap these benefits for my business?”
Worry not. The next section discusses the vendor management process in thorough detail.
The vendor management process (and its 4 essential components)
The vendor management process isn’t as confusing and convoluted as you might have thought it was. And, in fact, you’ve already read a brief, synopsized version of the process – remember my restaurant example from earlier?
To make it even simpler, the process itself can be boiled down to four core components.
Let’s inspect them more closely.
1. Determine & define
The first step of the process is to determine your business goals. Business goals can be defined by asking yourself the questions below:
- What does your business want the vendor to provide?
- What are the short-term goals of working with a vendor who can supply the goods?
- What are the long-term goals of working with a vendor who can supply the goods?
- How frequently does the vendor need to supply goods?
- What’s your business’ budget?
- Are there any other important factors to take into consideration before sourcing vendors?
Once answers have been provided, you should have a solid idea of exactly what’s wanted from the vendors.
This makes the selection and choosing phase far more streamlined.
2. Select & choose
The second step is the selection stage, where you’ll consider a range of potential vendors to work with. After gathering a list of vendors, you’ll want to evaluate each of them by asking yourself:
- Does the supplier have enough capacity to handle the order?
- Do they have a good reputation and track record?
- Does the supplier ensure consistent service?
- Can the supplier prove that they’re a stable business?
- Who is their main point of contact, and does it seems like they’ll communicate effectively?
By asking these questions, you’re not only mitigating risks for your business, but you’re also sourcing the best possible vendor to work with.
Once a vendor has been chosen, the next step is to negotiate a contract. The contract negotiation stage is arguably the hardest step of the entire process, considering that if no contract is agreed upon, you’ll find yourself back at square one.
This is why it’s advisable to dedicate time to the negotiation process; going about it too hastily or flippantly won’t do you or your business any favors. Following a checklist, meanwhile, will help guide you through the process effectively, and help you to clinch the best possible deal.
Additionally, for insight into the social and psychological aspects of negotiation, check out this (fairly energetic) video from entrepreneur, founder, and investor Derek Halpern.
3. Manage & monitor
By this stage, you should have finalized the contract with a vendor and began working with them – and that’s exciting! It could be the beginning of a long-lasting, mutually beneficial partnership. But to ensure that partnership is working, it will have to be managed and monitored from your end.
What do I mean by “managed and monitored”, exactly?
Ideally, there will be one person your business can delegate tasks to where they’ll monitor the partnership daily; ensuring contract terms are correctly followed, that they’re delivering goods on time and your business is paying them in due course, the goods themselves are up-to-scratch, and that communication between all parties is clear.
Simply put, the vendor manager keeps an eye on the overall partnership.
Any (positive or negative) comments that the vendor manager has should be noted down. Not on a piece of paper, of course, as that’ll only get lost or stored in a drawer never to be seen again – but as part of a vendor management checklist, where the comments can be easily accessed and shared with the relevant colleagues.
4. Renew & replace
After working with the vendor for a sustained period, you should have a solid judgment of how the partnership is faring. If the partnership is collaborative and each business’ performance objectives are being met, then that’s great – the contract can be renewed.
However, if there are causes for concern – let’s say deliveries have been late, and there has been no communication from their side regarding the late deliveries – then it may be time to cease working with them, and replace the vendor in question.
Although the idea of having to repeat the vendor management process may be initially daunting, if you want your business to reap the aforementioned rewards of vendor management, it’s a necessity.
With each undertaking of the process it gets easier and, with time, you or the person assigned to be vendor manager will become pros of the process. Then, it’ll be far easier to score and secure deals with proficient, professional vendors.
Tried-and-tested tips for successful vendor management
That’s the vendor management process and its four core components covered. Now, to help you complete vendor management as successfully as possible, there are several insider tips and tricks you should know about.
Specifically, you should be:
1. Developing your relationships with your vendors. The goal of vendor management is sourcing credible vendors you want to work with for a long time, and then building a positive business relationship with them.
As business writer James Bucki explains:
“Vendor management prioritizes long-term relationships over short-term gains and marginal cost savings. Constantly changing vendors to save a penny here or there will cost more money in the long run and will impact quality. Other benefits of a long-term relationship include trust, preferential treatment and access to insider or expert knowledge.” – James Bucki, 8 Tips for Vendor Management Success
2. Ensuring lines of communication are always open. Communication, communication, communication. It’s exceedingly important that both parties are communicating frequently. Frequent communication makes sure that the business partnership will run as smoothly as possible, and that all involved are happy.
As the team at Clarizen suggest:
“Make sure to arrange meetings, either physical or online, which are dedicated to measuring the progress of your partnership. Ask your vendor for their feedback and how they think things might be changed or improved. This means you can catch potential problems before they arise and keep tabs on how your relationship is progressing. Good vendor management involves listening and adapting to changes in both of your situations.” – Clarizen, Five Tips for Managing Vendor Relationships
3. Following the process! At its core, vendor management is a process. There’s a beginning and an endpoint, and multiple steps that need to be completed before the end goals can be reached. But by not following the process, the whole act of vendor management is subject to human error and organizational error, both of which could cause your business to lose fantastic vendors.
“Whether it’s an IT problem, laziness, ineptitude, startup bro arrogance or just a lack of proper education, there have been countless mistakes in business over the years that have led to serious consequences, from billions of dollars lost to the total downfall of huge corporations.
And […] it’s all because these businesses weren’t following their processes.” – Benjamin Brandall, How Processes Protect Your Business From Crashing and Burning
That’s why when you undergo vendor management, you should be using Process Street.
How Process Street can help with vendor management and vendor relations
If you’re new to Process Street, Process Street is state-of-the-art BPM software.
For vendor management, this is incredibly useful.
By signing up for a free account, you can start building your very own tailor-made vendor management process. And with nifty in-built features such as stop tasks, conditional logic, and task permissions, your checklists become supercharged.
For instance, with task permissions you can hide important information from others. Meaning if you wanted to send the checklist to a vendor and have them complete a certain step, they can only see the task they’ve been assigned to, and not the rest of the checklist’s content. 👌
So you can start using Process Street for vendor management straight away, we’ve created two vendor management templates – a contract negotiation template and a supplier evaluation template – which you can add to your account right now.
Vendor management: Contract negotiation
Vendor management: Supplier evaluation
Additional resources to aid the vendor management process
The free resources don’t end with the above templates.
Below you’ll find a list of blog posts and templates, created by my colleagues at Process Street, which are undeniably helpful for vendor management. Click on the links to get reading.
- How to Build a Better Purchase Order Workflow with Process Street
- 8 Logistics Management Processes to Perfect Your Supply Chain
- How to Support €38.8 Billion Revenue: Tips from IKEA’s Supply Chain
- 8 Tips to Improve Your Company’s Shipping Processes
- Accounts Payable Process
- Accounts Receivable Process
- Inventory Management Process
- Order Fulfillment Checklist
And that’s it – the end of the post. With all the information you’ve learned and the free resources you’ve been provided, you’re now ready to undergo vendor management successfully!
Are there any further questions you have about vendor management? If so, ask them via the comment box below and I’ll respond as soon as I can.💡