Earlier, procurement was simply a department that was responsible for the purchase of goods and services. But now, procurement is considered to be an integral part of the overall business strategy. To maximize the value for your money, you need to establish a winning vendor management process with strategic planning.
Moreover, you would also require an effective and productive vendor management process that can maximize value, build strong relationships, and support your company’s short- and long-term goals. Depending on the size of your business, you can implement vendor management best practices and manage suppliers accordingly to gain a competitive edge in the market.
At SpendEdge, we understand the impact that an effective vendor management process can have on your company’s short and long-term goals. Therefore, in this blog, we have pinpointed out ways through which you can create an effective vendor management process.
A productive vendor management process can maximize the value of your company significantly. Request a free demo and know how you can establish a vendor management system.
How to create an effective vendor management process?
Evaluate the process
Every business has different goals and requirements. To get the most from your vendor relationships, you need to understand what are the objectives that you want to achieve from your vendors to maximize the company’s success. A close look at your business and vendor management process often reveals cross-departmental processes that are fragmented, unmeasured, unmanaged, and disconnected.
By gaining a clear view of the procurement goals, you’ll be able to set benchmarks for the right kind of vendor. This will help you zero in on those suppliers who best align with the company’s priorities and ambitions apart from enhancing the vendor management process.
Optimize third-party spend
Before optimizing the spend, you need to have a clear understanding of the existing spend. Perform a detailed spend analysis and gain visibility on the resources already flowing out through direct and indirect spend.
Spend analysis can help you identify the vendors that are receiving the lion’s share of the company’s spend and help you make informed decisions to refine your vendor management process.
Sort vendors smartly
The days of selecting vendors solely on the basis of cost are gone. Now you need to silo your suppliers according to your industry and specific business goals. This includes evaluating their cultural compatibility, time orientation, and decision-making process. They can be classified into three groups:
- Primary vendors are single-source, with high value and low volume
- Secondary vendors have multiple sources and provide moderate value
- Tertiary vendors provide plentiful options, with low value and high volume
Sorting your vendors according to these categories gives you strategic benefits for simplifying performance management and improves the vendor management process.
No matter how long have you been associated with your vendors, regular performance reviews are a must. The KPIs set by your vendor management system will offer the guidelines required for determining the value offered by a particular supplier or vendor. A few KPIs that can be beneficial for supplier benchmarking while evaluation are:
- Mutually agreed targets
- Contract compliance
- Vendor risks in terms of finance and performance