A Practical Guide to Vendor Management
Vendor management came into practice in 1983. It kick-started when McKinsey consultant Peter Kraljic urged corporate buyers to move away from purchasing towards effective supply and supplier management. And, his observation was proved right by supplier management horror stories like the massive Boeing 787 delay.
Vendors are at the heart of any organization’s procurement process. However, several organizations tend to overlook the importance of establishing a good relationship with their vendors. This act of negligence might not have made a difference when procurement played an administrative role in purchasing goods/services for an organization.
Now that procurement teams have stepped on to a business co-creator footing, effective partnering and collaboration with vendors is indispensable. Gone are the days where you could manage spend through better negotiation. Outdated vendor management practices are no longer sufficient to address the existing procurement pain points.
Here’s all you need to know to create an effective and efficient vendor management process.
What Is Vendor Management?
Vendor management enables an ongoing development of third-party vendors through frequent collaboration and constant monitoring. It involves working with your vendors as a team to draw up mutually beneficial contracts that ultimately strengthen both businesses. It prioritizes establishing a long-term vendor relationship over short-term gains.
Strategies to Implement Successful Vendor Management
Most businesses have some process in place to manage their vendors, but there may still be some room for improvement.
Here are five vendor management strategies employed by procurement leaders around the world to optimize vendor spend and improve vendor performance.
Transparent vendor spend management will eliminate hidden costs and indirect spends. However, tracking the amount spent on each vendor manually can be a time-intensive task.
By implementing an automated procurement system, organizations can inject transparency into the procure-to-pay process.
Vendor segmentation is the process of mapping suppliers against profitability and exposure to risks. Small and medium businesses with small supplier bases prefer to use a simple process like the Deloitte priority model.
On the other hand, most enterprises with large supplier bases and mature supplier relationship management practices prefer to use the Kraljic Matrix method.
The Deloitte priority model classifies vendors into three groups (strategic, important, and transactional) based on business criticality. The Kraljic Matrix maps suppliers into four groups based on two key dimensions: risk and profitability.
According to a recent Global CPO survey, 23% of CPOs are focusing on supplier collaboration activities. Fruitful vendor collaborations can not only fortify the buyer-vendor relationship but also deliver tangible benefits (value and cost savings) for both parties.
Although emails and messengers enable real-time communication, they are not the most efficient tools for the job. Automated vendor management tools help organizations create a supplier network through enhanced visibility and collaboration.
The process of measuring and analysing vendor performance helps organizations save money, mitigate risk, and drive more value out of the contract.
The key to this practice is creating a centralized data repository with all vendor-related information.Businesses use a variety of tools from paper forms to spreadsheets and vendor management solutions to store and manage their vendor data.
Procurement automation tools that come with an inbuilt reporting module make the vendor performance management process a breeze.
Vendor risk management is the process of identifying, assessing, mitigating risk in an organization’s supply chain.
Best supplier risk management practices monitors vendors actively and has a contingency plan in place to address every type of risk (strategy, implementation, and performance).
Stages Involved in Vendor Management
The vendor management life cycle can be split into five major steps:
The first step of vendor management is determining whether or not a vendor has the expertise and capability to fulfill the business need.
There are two types of vendor qualification: pre-qualification (for potential vendors) and re-qualification (assessment of active vendors).
Approved vendors are then onboarded into the organization’s database. This stage involves the process of collecting, capturing, and storing all relevant vendor information in a centralized database.
Typically, either a purchase order or a contract initiates the order process. The specifications are listed out clearly in a terms of reference (TOR) or (SOW).
Once order is fulfilled, the received goods/services are subjected to a quality check and the vendor’s performance is evaluated.
After receiving the goods/services, the buyer needs to match the invoice with related purchase order.
If everything seems to be in order, the invoice is approved and forwarded to finance for payment processing. In the case of discrepancies, the invoice is rejected back to the vendor.
When a contract ends or a long-term vendor relationship terminates, it is critical to remove the vendor from finance and administrative records.
Failure to do so might result in compliance breaches, loss of valuable organization time and costs.
How to Automate Vendor Management in 15 Minutes
Manual tools complicate the already complex business process. By implementing a procurement solution, organizations can develop a structured supplier relationship management process that controls costs and reduces risk, all while maintaining quality.
Vendor management workflow automation tools like KiSSFLOW enable users to create a simple yet dynamic vendor management process that captures high-value data and auto-populates captured information across other procurement apps.
Here’s how you can automate your vendor management process using KiSSFLOW in 4 simple steps:
1. Install Vendor Management App
You can create an automated vendor management app from scratch or draw inspiration from our 50+ predefined templates that include vendor onboarding, supplier performance management, vendor offboarding, and more.
2. Automate Workflows
Design a digital workflow to set accountability and ensure compliance in every step of the vendor management process from vendor qualification to vendor onboarding and offboarding.
3. Customize Your App
After creating the basic outline of an app, you can tailor it to fit around your unique vendor management policies.
KiSSFLOW’s drag-and-drop builder allows users to customize data fields, define policies, set approval points, and establish dependencies.
4. Publish the App
The final step is to publish the app and share it with the entire organization. Once the app is up and running, you can retrieve the status of every vendor’s performance, spot inefficiencies, and make real-time changes to vendor information.
Benefits of Automating Vendor Management
Vendor management is essential for the success of any business. By automating the vendor relationship management process, organizations can save time and cost in their day-to-day business operations.
An automated vendor management process can:
- Enhance operational and financial efficiency
- Reduce organizational spend
- Accelerate delivery of goods/services
- Establish a good vendor-buyer relationship
- Improve employee productivity
- Increase accuracy and consistent in the process
Unlock the Power of an Automated Vendor Management Process
Vendor management has a much broader scope than merely building a rapport with vendors. If ignored, it has the potential to affect the viability of any business. Businesses with an efficient vendor management process stay clear of purchasing risks, and derive more tangible benefits.
KiSSFLOW is a build-it-yourself vendor management automation tool that has the potential to incorporate and implement supplier relationship management best practices. Corporate buyers can efficiently qualify and onboard vendors, manage orders, and track vendor performance at a glance.
Looking for a powerful vendor management software? Sign up for a free trial today and see how KiSSFLOW can dramatically improve your vendor management process!