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Vendor Management Challenges: Frequently Asked Questions (FAQs)

May 13, 2019

What is the Process of Vendor Management?

Vendors are the key stakeholders in any successful business, and you need to take a strategic approach to mitigate vendor management challenges. You might be working with hundreds of different vendors, all with different contracts terms, rates, and objectives that must be efficiently managed. And that’s when a vendor management system comes into play.

With an effective vendor management system in place, you can easily set service, cost, and quality goals and manage vendors who will help you address any vendor management challenges. Here’s a quick guide that can be followed:

Step 1: Vendor Selection

Select vendors who will help you save both time and cost. Every vendor has their own set of strengths and weaknesses and you need to classify them based on the needs of your organization. This requires creating a database of existing suppliers and classifying them on the basis of the nature of services they provide.

Step 2: Service Delivery

Your vendor management leaders need to monitor the performance of suppliers and ensure that the terms laid in the contract are being followed. They need to build an effective communication channel to analyze and approve changes, provide feedback, and develop relationships with vendors.

Step 3: Service Adjustment

Optimize already established relations with your vendors. This will help you to identify areas of change and improve them based on previously defined KPIs. Implement vendor management strategies and conduct audits and assessments on a regular basis to proactively address vendor management challenges.

Step 4: Contract Review

Conduct a review meeting with your vendors as per the strategy defined. This should be held periodically i.e. once a month, quarterly, half yearly, or yearly depending on the strategy and client expectation. The agenda of meetings should necessarily include:

  • Analysis of performance based on different metrics.
  • Action points from review meetings.
  • Areas of improvement.
  • Support need to deliver the project.

Building a robust vendor management process can help procurement leaders to successfully mitigate vendor management challenges.  Request a free demo and know how our experts can assist you in addressing key vendor management challenges.

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Top Vendor Management Challenges

The vendor management challenges faced by your company can depend on the size of the company and industry you are operating in.  For instance, vendor risk assessment can be a priority for larger enterprises, but it may not be the same for start-ups or mid-sized businesses. Therefore, we have compiled a list of vendor management challenges based on the size of companies.

Vendor Management Challenges Faced by Large Enterprises (Annual Revenue: Above $ 1 billion)

Challenge 1: Complex Vendor Ecosystem

Associating with large number of vendors brings innovative solutions to the business but at the same time exposes your organization to different types of security and compliance risks. It is crucial for your vendor management leaders to collaborate with vendors to ensure compliance despite having a complex vendor ecosystem.

Challenge 2: Risk Assessment Process

Understanding the risk posed by each vendor relationship is very important for your organization. It helps you determine if the vendor is critical or non-critical to the organization. It might seem easy, but for organizations having hundreds of vendors, completing a risk assessment becomes a herculean task.

Vendor Management Challenges Faced by Small and Medium Enterprises (Annual Revenue:  $ 10 million- $1 billion)
Challenge 1: Contract Management

Usually, contract management involves many people from different departments. There is no single contract management “department” in most organizations, this makes it challenging for vendor management leaders to manage contracts and review them on a regular basis.

Challenge 2: Getting Documentation from Vendors

Getting the documentation from vendors is one of the key vendor management challenges faced by organizations of today. It leads to unnecessary delays in legal reviews and makes your organization vulnerable to unprecedented risks.

Vendor Management Challenges Faced by Start-ups (Annual Revenue: Below $10 million)

Challenge 1: Increase Efficiency

Outdated cultures and organizational structures are among the top major vendor management challenges faced by start-ups, globally.  It hampers the efficiency of companies and creates the need to integrate the latest technology.

Challenge 2: Cost Optimization

Cost optimization requires the identification of sourcing opportunities that can streamline and standardize business processes while meeting organizational goals. This can be a tough task for start-ups as the processes are new.

To know more about the top vendor management challenges faced by companies, request more information.

Strategies to Mitigate Vendor Management Challenges

Solution 1: Get a Dashboard

You need to consolidate all the vendor-related data in one place and manage it. This will help you to overcome vendor management challenges that can be overlooked while dealing with multiple vendors.

Solution 2: Standardize Process and Centralize Requisitions

When hiring managers operate independently throughout your organization, it’s hard to gain a clear picture of your suppliers and address vendor management challenges. By setting up a centralized and simplified process, you can streamline the work for teams and gather all information in one place.

Solution 3: Scrutinize Billing and Payment Process

Supplier and vendor data is often disorganized and results in double billing, data entry errors, and incorrect time reporting. Automation and a systematic validation process can result in cost optimization and help you to address vendor management challenges.

Solution 4: Ensure Compliance

Most companies fail to classify employees. The risk of non-compliance arises when a hiring manager gets “creative” and starts hiring what should be full-time employees as independent contractors. You should avoid this misclassification of independent contractors and ensure full compliance with the federal law.

Solution 5: Develop Contracts and Monitor Them

Contracts are often assigned to the teams involved with vendors. This seems to be inefficient in the current scenario. Therefore, all the relevant stakeholders should be involved in the decision-making process to maximize vendors’ operational performance and mitigate vendor management challenges.

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