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A Beginners Guide to Vendor Management and Ways to Tackle the Key Challenges

Jan 7, 2019

Vendor management today is not just about comparing prices and finding the supplier with the cheapest price for a product or service, it is ultimately about building better vendor relationships that will ultimately benefit both the parties. Vendor management process allows organizations to control costs, strengthen service, and reduce risk throughout outsourcing the processes to vendors while extracting the most value from the investment.

Vendor management process

For successful vendor management process, companies must take a strategic approach to build and maintain relationships with their best vendors. Good suppliers are hard to come by, so it’s important to nurture the relationships with the suppliers that companies don’t want to lose. Vendor management process is typically broken down into four main steps:

Establish business goals

Define the business goals clearly and be as specific as possible. In order to successfully undertake vendor management, you need to know exactly what it is that you’re trying to achieve. Vendor management becomes easier where there are pre- defined performance parameters to compare.

Choose the best vendor

Companies will have to weigh the pros and cons of different vendors. Some questions to ask here include: Does the vendor have extensive experience? Are they stable? Have they worked in similar environments? Do they have standardized processes and provide economies of scale?

Manage vendors

This is the routine activity of monitoring performance and output. It’s the best way to make sure that the terms of the contract are being fulfilled. This step involves extensive communication to offer approvals, disapprovals, feedback, changes, and everything that is necessary to deepen the relationship.

Consistently meet goals

Companies aim to consistently meet their goals over the course of their relationship with the vendor. This means managing the vendor regularly to better influence and meet performance objectives on a regular basis.

Whether you’re managing 10 vendors or 1,000, SpendEdge can help you radically simplify how you track, manage, and pay your vendors. Request a demo to know more.

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Major vendor management challenges

With the rising scope, scale and complexity of vendor relationships and services, there is a proportionate increase in the risk related to them and the importance of effective vendor management. A key competency for every enterprise to possess is that of managing external vendors. Some of the most common vendor management challenges faced by companies include:

Vendor selection

Inadequate vendor selection might occur during the operations phase when there is a non-fulfillment of core vendor contractual obligations. Due diligence prior to closing the contract can help mitigate this risk and provide the enterprise gain a better picture of the long-term delivery capabilities and sustainability of the vendor. Failure to conduct adequate vendor selection exposes the enterprise to considerable costs associated with replacing the vendor, potential revenue loss, and ineffectiveness of financial penalties.

Contract development

A contract that does not cover all the aspects of the relationship that need to be managed up front is a major sustainability threat to the contractual relationship. A major financial risk associated with this threat is neglecting to detail payment terms and price-setting mechanisms. Other operational risk includes missing exit strategies in the contract or ineffectively communicating clear, measurable requirements to the vendor. Several legal and compliance risk could arise when the contract fails to detail liabilities or does not stipulate any intellectual property rights or specifications on the use, disposal, and distribution of software and data.

Inadequate detailing of requirements

Inadequately setting up and detailing the requirements can have a huge impact on the proper execution of services by the vendor. Organizations that focus on solutions themselves instead of defining the requirements and giving freedom to the vendor to propose the optimal solution could face operational, financial, legal, and reputational issues in the long run.

Over reliance on a specific vendor

An enterprise’s vendor management strategy has a considerable impact on their business activities. Relying excessively on a specific vendor, especially for business-critical tasks, increases operational risk including the lack of in-house knowledge and demotivation of employees and. This consequently increases the financial risk.

To know more about building an ideal vendor management strategy for your business, get in touch with our experts.

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Tips to maximize vendor management strategy

We have curated some of the key vendor management best practices to help service providers improve market coverage, accelerate response times, offer new services and much more:

  • Move away from the one-size-fits-all approach. Identify and analyze vendors on an array of criteria and determine if they fit the company’s desired scale, data security requirements, technology integrations, and budget constraints.
  • Examine the processes can be kept in-house vs. outsourced, as well as the feasibility of managing a mix of both. 
  • Set transparent goals and vendor management policy.
  • Aligning the company’s success objectives with those of the vendors. This fosters trust and shared accountability in the long run.
  • Communication, management and engagement of vendor resources should be streamlined into one centralized ecosystem in order to ensure efficiency.

You’re not alone, everyone faces some sort of challenge associated with risks in vendor management. And the good news is that there are ways to overcome those, and we are here to help. Request a proposal for SpendEdge’s vendor management solutions.

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