Vendor management is essential for the smooth functioning of an organizational supply chain and related value addition processes. Chief procurement officers (CPOs) must take into account the suppliers’ capability, delivery time, and production practices while selecting a vendor or a supplier. Earlier, the procurement function knew very little about their suppliers or what they did. However, today, owing to the globalized supply chain networks and fierce competition in the market, the CPOs have realized the benefit of having a strong vendor management practice in place.
What is Vendor Management?
Vendors or suppliers are those businesses and individuals that provide input materials, goods, and services to an organization, helping them deliver their end-product to the ultimate consumer. As per traditional processes, vendor management was believed to be just a process to source the cheapest vendor. It is much more than that, as vendor management entails activities like sourcing, requisitions, obtaining quotations, negotiations, relationship management, and ensuring payments. It is a practice that helps streamline processes and ensures an effective and efficient organizational supply chain.
Why is Vendor Management Important for Procurement?
It is crucial for an organization because it can have huge business impact and cause a financial loss. Thereby, making an effective supplier management practice, which is essential for the procurement function. Here are few reasons why vendor management is of utmost importance for the sourcing and purchase function
- If the vendors are not managed properly, it can disrupt or bring to halt the entire supply chain flow and have a negative impact on the organizations bottom-line
- Supplier performance and adherence to service level agreements (SLAs) is crucial for the smooth flow of operations, benefitting from supplier relations, and thereby reducing the potential risks
- This helps in curtailing the Maverick spend within the organization and obtaining contracts at pre-negotiated suppliers from preferred and top-rated suppliers and thereby ensuring predictable financial outcomes for the organization
- It also helps in establishing long term relationships with the suppliers and vendors, thereby improving margins and enhancing logistic operations
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