47% of all vendor collaboration initiatives hit the wall. Why? Because buyers suffered from a severe case of an underpowered vendor relationship management program.
Not all vendors are the same. Hence, all vendor relationships can never be handled with the same strategy. Placing too much emphasis on driving down costs will only cause a well-devised vendor relationship management process to splutter and wilt.
Everything from the situation of the buyer and supplier to the quantity and frequency of the products and services acquired must be taken into account before devising a vendor relationship management strategy.
To derive more value out of their vendor relationships, organizations need to snap out of their traditional vendor management practices to a more modern and collaborative approach.
Here’s all you need to know to create a definitive and efficient vendor relationship management process.
What is vendor relationship management?
Vendor relationship management, also known as VRM is deepening the buyer-supplier relationships to achieve a mutually beneficial goal and establish trust. An efficient vendor relationship management process can deliver a number of key benefits from quality increments and improved total cost of ownership (TCO) to new innovations and a much smoother flow of data.
Top 3 successful vendor relationship strategies
Successful vendor relationships require quite a bit of planning and hard work. Here are three vendor relationship management strategies that can be used to maximize the value of supplier relationships:
1. Communicate often
Poor communication is at the heart of most business failures. The inability to convey or receive important information from your suppliers can end up shaking the very foundations of your vendor management process.
Corporate buyers need to communicate with their vendors frequently in order to transmit their requirements effectively and get a better understanding of their suppliers’ capabilities.
2. Build partnerships
The key to efficient vendor management is moving out of a transactional relationship and into a strategic supplier-buyer relationship model. The first step of the process is treating your suppliers as valuable partners.
Rather than just disclosing the pre-defined KPIs with your suppliers, involve them in key strategic vendor management decisions like setting clear objectives for the relationship.
This will not only allow you to tap into their expertise but also offer other benefits like increased trust, preferential treatment, and more.
3. Create a win-win situation
Running after short-term cost savings will cost your organization more in the long run and make a substantial impact on the quality. So, rather than squeezing your suppliers to cut down the cost, take some time to study and understand your vendor’s business.
Negotiation should be based on good faith and value rather than resorting to strong-arm tactics. Objectives of the partnership should be structured in a way that offers equal opportunity for profitability and strengthens both businesses.
Best practices in vendor relationship management
Procurement teams need to look for best practices and try implementing them to lower the total cost of ownership and improve the efficiency of their supplier management process. Here are three vendor relationship management or vendor performance management best practices.
1. Measure performance
Organizations with the best vendor relationship process have an elaborate system to measure the performance of their vendors. Scorecards, vendor ratings, and vendor performance reviews are used to hold vendors accountable for their performance.
2. Share risks
Uncertainty in the supply chain paves the way for a number of risks like price volatility, demand fluctuations, and more. Carefully designed vendor contracts reduce the amount of uncertainty, by enabling risk-sharing.
3. Build trust
A truly effective vendor relationship management process is built on a foundation of trust. Buyers who ensure that their vendors are financially and emotionally invested in the relationship have a good chance of winning the trust of their vendors in a relatively short period of time.
How a comprehensive procurement solution improves your vendor relationship process
Vendor relationship management isn’t restricted to managing an up-to-date database of your vendors and communicating with them regularly. In fact, this process is actually designed to help you know your vendors better, making them an active partner in your business operations. In addition to supplier information management, managing vendors involves things like efficient vendor onboarding, transparent vendor performance reviews, robust risk mitigation, and more.
Manual vendor management tools such as paper forms and spreadsheets cause a number of disruptions like delayed payments, missed discounts, lost opportunities for savings, and strained vendor relationships.
Cloud-based procurement software like Kissflow Procurement Cloud makes the vendor management process smooth and consistent. Kissflow offers accurate, advanced insights on contract compliance, expense management, and operational performance reporting. Running your vendor management through Kissflow helps you evaluate your vendors by offering you proper visibility into the process. Here are some other advantages:
Quick vendor screening
Retrieve and verify supplier data like business reports, financial and credit risk data
Instantly confirm goods receipt notices (GRNs), goods return ship notices, and more
All data in one place
Access all POs, PRs, contracts, and confidential vendor payment information, all in one place
Easy vendor enrolment
Collect key vendor information to screen them based on reputation, past performance, and more
With sub-par supplier performance, initiate corrective action plans (SCAR) or offboard them
Incorporate rate contracts; enforce contract pricing when catalog prices are raised
How can Kissflow Procurement Cloud help with vendor relationship management?
Whether you are looking to establish a vendor management process from the ground up or you are looking for ways to streamline your existing supplier relationships, a supplier management software can help you implement your vendor relationship strategy rapidly.
The vendor relationship management process which is handled in the right way with an optimal mixture of people, processes, and technology, can do wonders to plug in communication gaps and leverage the power of collaboration to drive more value out of vendor relationships.
Looking for a way to implement your vendor relationship management process? Check out the free Kissflow Procurement Software demo today. You’ll see how it can transform vendor onboarding, vendor performance management, vendor offboarding, and more to help you take vendor management up a notch.