Let us understand vendor management with a simple example. Did you ever wonder why a flock of birds usually flies in the V-formation?
It is because V-formation increases their efficiency while traveling long distances.
Every bird needs to fly in an orderly fashion to ensure that the flock reaches its destination despite the hurdles it may encounter. Similarly, your vendors must play their roles perfectly, to achieve your organization’s collective goal.
The goal of reaching and delighting as many end-users as possible. Because, when you reach your goal, everyone benefits – the end-users, your vendors, and you.
To establish this level of coordination in your company, the Vendor Management Process is essential.
What is Vendor Management?
Vendor Management is the process of establishing a robust relationship with your vendors and leveraging these relations to drive service excellence and smooth coordination between your organization, vendors, and end-users. Cost control, risk mitigation, and execution assessment lies in the foundation of this procedure. It empowers you to derive the best value from your vendors, while also rewarding them for their performance, making the relationship genuinely mutual.
Additionally, the discipline also incorporates different rewards and recognition and several other activities to improve vendor performance.
7 Fundamental Stages of Vendor Management
Analyze Your Vendors
Before onboarding any merchant, you should assess them for the quality of their product, time taken to supply, pricing, and other vital elements. A large portion of organizations use scorecards for examining their vendors. For example, out of 100, they allot 10 points for quality, 40 points for pricing, 20 points for supply time, etc.
The goal of analyzing your suppliers is to vet them for a long-term relationship. You should identify if they can consistently deliver the promised output and quality
Additionally, you should concentrate on long-term relationships as changing vendors can be an expensive and time-consuming task.
Establish Smart Goals
To meet your business targets, you must set up clear objectives for your vendors, based on your long-term and short-term business goals. Most importantly, you must comprehend your business procedure in the utmost detail. It will help you structure and define clear performance metrics.
It is pivotal in conveying your expectations and building a mutual understanding with your vendors. With strategic inputs, your vendors will be able to forecast your needs and maintain their inventory accordingly.
Negotiate A Contract
To cultivate a stable relationship with your vendors, you must recognize and acknowledge their business objectives. You must author a legitimate contract that is beneficial for both parties.
Negotiating too much for prices and restricting the profit margin of your vendor can hamper the quality of the product. To avoid that, you need to plan the terms of the contract in such a way that they are mutually profitable.
Onboard the Vendor
When your organization and the vendor land at mutually beneficial grounds, the contract document is signed, and the vendor is onboarded.
The onboarding process involves guiding the vendor into your company’s network. A decent vendor onboarding process guarantees the commencement of a smooth Vendor relationship. Discover more about creating a hassle-free vendor onboarding process.
Monitor Vendor Performance
After conveying your expectations, you expect your vendors to work as per the indicated standards of contract. But, most of the time, the situation is far from ideal.
You must ensure that your merchants are working at their highest potential.
The vendors who perform exceptionally well are called strategic vendors, and their perspective is esteemed while establishing new vendor policies or changing the current ones.
Numerous vendors fall in shadows of disarray in improving their performance. They continue working in their usual way, but the performance deficiency persists.
Many organizations hold gatherings and forums to talk about vendor issues. Here, vendors are guided and are provided with several tips to improve. It helps maintain open communication between your company and the vendor. Additionally, it also helps develop coordination with your vendors and nourishes the buyer-vendor relationship.
Organize Reward Programs
Vendors see themselves as an essential part of the organization when you reward them for exhibiting outstanding performance. Organizing reward campaigns helps your company motivate your vendors and establishes a healthy competition among them.
Acknowledging the vendors for their performance drives them to build their service potential, and it is beneficial for your company in the long run.
Benefits of Vendor Management
Convey changing market trends
In the vendor management process, you provide your vendors with the right inputs at the right time. For instance, you can inform them about an ascending demand in the market. Subsequently, you can also advise them to maintain their inventory to satiate the soaring need in the marketplace.
Provide opportunities to improve
Strategic meetings held in the vendor management process helps your vendors improve consistently. It provides them an opportunity to learn from other vendors and enhance their operational processes. It induces a healthy competition amongst all suppliers, which drives them collectively towards excellence.
Build long-term relationships
For a long-term association with vendors, it is essential to ensure that they are accomplishing their business objectives. Your organization should consistently furnish them with significant chances to expand their sales horizons. To that effect, Vendor Management assists them in realizing their goals by measuring their performance and providing inputs to increase their sales.
Your company should set an example of excellence in terms of meeting expectations and staying true to promises. It would ensure that every vendor looks up to you to strive for improvement. It cements a relationship fortified by both trust and belief.
Provide better Quality of Products
The ultimate goal of Vendor Management is to provide a standard quality of products and services in a stipulated time frame and minimal cost. When your company employs a proper vendor management process, it helps you ensure that the product quality and customer expectations are always met.
Challenges in Vendor Management
To gain detailed insights into the challenges in Vendor Management, I connected with Jim Goodrich, Co-founder of Continuous Process Improvement Systems, South Carolina Area.
Jim divulges the challenges that he faced in managing vendors.
He says, “ In my experience, a big challenge was performance management. It may be considered as a part of overall contract management, satisfying terms, and conditions over time. Reasons for issues include that terms and conditions should change over time if managed actively.”
Jim adds further, “Not all suppliers should be managed the same,- including performance measures and performance review meetings.”
“Strategic, Leveraged and Critical Suppliers will have more extensive face time with higher execs and 2-way communications, on possibly changing terms and conditions as market and other factors change- at least more so than those suppliers providing paper clips or office supplies.”
Now, to study the challenges of vendor management in the Indian Market, I approached Mr. Kumar Harshdeep, Former Vendor Manager at Flipkart.
Challenges of Vendor Management in the Indian Market
Harshdeep guided me through the entire process, and we discussed the problems that are quite common in the industry.
He says, “ When E-commerce businesses deal with vendors in two-tier cities, the major issue that vendor managers face is educating the vendor about the company’s selling platform. If the process is not delivered properly, it will increase the probability of mishandling orders and will affect their performance.”
Additionally, Harshdeep shared an incident that further cements the need for proper vendor management.
Incidents like this usually go unnoticed. People order from big companies because they trust them. Any unethical activities such as this can mark a black spot on the organization’s reputation forever.
Hence, laying down guidelines on customer interaction, among other things during the vendor management process is essential for the progress of any company.
Technology Empowers Vendor Management
Technology has created a seismic shift towards a targeted, streamlined, and digital vendor management process. Vendor Onboarding and Management software now oversees the entire process.
With the help of the right software, it becomes easy to examine the performances of your vendors. For judging vendor performance, there can be several parameters – Number of Orders, Quality of product, time taken to supply, pricing, customer reviews, etc.
The parameters differ from company to company; performance metrics are decided based on the policies of the company, their customer segment, the products/services they are trying to sell, and their terms and conditions with the supplier.
Now, the benefits of the software do not only limit to examining vendor performances. There is more:
Understanding Vendor Management Software
The software creates a streamlined approach for onboarding and managing your vendors. Here, when I say vendor, I talk about the entire conglomeration of suppliers, merchants, driving partners, and sellers.
Now, let us understand how the software streamlines the entire process of vendor onboarding and management.
When you capture positive vendor leads from various sources in your company, the software automatically adds them to the day-to-day tasks of your onboarding team.
Autoplan Field Agents’ Day
Simultaneously, the software auto plans the day for your merchant onboarding advisors. It creates a hassle-free process by streamlining the entire workflow for your team.
Increase Efficiency of Your field Agents
Consequently, your feet on the street will get notifications in their mobile applications. Furthermore, it also hints at them about probable vendor meetings in an area and guides them through the shortest path.
Analyze Your Vendors
After arriving at the meeting location, the mobile app will auto check-in the field agent with the time of arrival. First of all, the agents will analyze the vendor and check if they would be a good fit in the business.
When the vendor is suitable for business, field agents will go for the next step – Document collection. The software provides a paperless and digital solution to collect, handle, and verify the records. Your group can take photos of their documents and send them to the verification team in real-time.
To that effect, the verification team will check the documents and settle for a decision whether to onboard the vendor or not.
Also, your field agents will convey every expectation of your company to the vendor. You ought to comprehend that your vendors understand these expectations in the simplest way.
Contract Negotiation and Onboarding
Following this, the contract negotiation starts. It is crucial to ensure that you set the terms in such a way that both parties benefit from it. When both parties agree upon the terms of the contract, the vendor is onboarded. Additionally, the vendor is engaged with different inputs like tips to enhance performance, Overview of the process, etc.
At this point, Vendor Management comes into play. You need to assess the performance of your vendors continually. It is significant for your company’s progress. You cannot afford a low performing vendor in your organization as it hampers the performance of different merchants and mars your organization’s reputation.
The vendor management software saves you from such a disaster. It gives you a constant examination of the vendor performances according to the metrics structured by your company.
Restructure Performance Metrics
Additionally, the software provides you a simple method to alter the performance metrics as per the evolving market. It gives you alternatives to restructure your policies based on which you can inspect the vendor’s performance.
Provide Tips to Improve
Based on vendor performance, the software provides them inputs at the right time to improve. It automatically furnishes videos, information of vendor meetings, forums and directs them to any third party authority (if available) who can help them to progress.
Step Ahead Now!
Incorporating a Vendor Onboarding and Management software in your existing processes will create a streamlined approach for your company. It will help your vendors reach their highest potential by establishing an effective operational procedure.
Your company can surpass the competitors in the market by ensuring that every vendor works in complete harmony and delivers the desired quality of product and service.
So don’t wait for the right time; instead, do the right thing today!
Get a free trial of LeadSquared’s vendor management software here