What is Vendor Management? Importance and Tips

If you are running a business currently, terms like vendor management tools and vendor management software are the buzzwords in the industry. Let us understand why these terms are so important.  

The smallest, as well as the biggest of businesses, always have vendors. Be it a software company or your local hair salon, all businesses have this single entity supporting their business (supplying what they need to run their business) known as a vendor. And the consolidation of activities you take on to keep a close watch on all your vendors is vendor management – one of the industry's most overlooked processes. However, this process is essential to ensure the smooth running of your business operations while preparing for future growth.  

Creating and sustaining efficient vendor relationships result in: 

• Builds long-run vendor relationships: A robust VMS enables tracking of all vendor-related information and assists the organization build strong and mutually beneficial relationships with vendors. 

• Efficient and fast delivery: A dependable vendor helps ensure one can effectively meet customer requirements. 

• Competitive advantage: Levering a vendor’s expertise in a specific field can help improve one’s standing in a competitive market. Moreover, once you build a trusted relationship, vendors often warn if they are working on product and process improvements or updates that can decrease costs and improve the profit margins. 

• Better financing terms: A good vendor management relationship can also help in a cash flow predicament.  

• Corporate compliance: Vendor management supervises contractual compliance for company transactions. Once a vendor is active in a Vendor Management System (VMS), you can analyze and evaluate performance with respect to the contract to make sure the business is fulfilling your demands and following your specifications. 

Importance of Vendor Management 

Vendor management is not about being able to negotiate the lowest price possible but continually working with vendors to come to an agreement that will mutually benefit both businesses. It comprises negotiating contracts, selecting vendors, reducing vendor-related risks, incorporating vendor-related approvals, reconciliation, payment advice, and so on. Without a doubt, being able to handle multiple vendors at the same time could be challenging for businesses, some common problems that smaller businesses may face with vendor management are: 

• Insufficient technical knowledge: A new start-up may involve its finance team or other relevant stakeholders in vendor management processes such as vendor selection, vendor payments, and so on instead of a dedicated vendor management team. 

• Handling vendor invoices manually: Managing vendor invoices manually through programs applications such as Excel can be redundant and time-consuming.  

• Data on email: A lot of back and forth happens with vendors regarding their information such as vendor bank account details, IFSC code, and so on while handling payments which can be challenging. As a business owner, minimal vendor communication can help in a lot of ways. 

The good news is there are many tips and strategies that businesses of all sizes can deploy for efficient vendor management. In addition to applying vendor management best practices, businesses can also invest in vendor management software, which uses process automation and spend analysis to enhance finance and business operations. 

Tips and Strategies for Businesses for Vendor Management: 

Keep in mind that for your vendor relationships to be successful, the relationship must be mutually beneficial. The following points will help you build an efficient vendor management process:  

• Choose your vendors wisely: While it is certainly appealing to choose vendors only based on price, I suggest that you make your choice based on vendors who can offer the greatest value to your business. 

• Use a reliable VMS: A VMS can help manage all vendor-based activities while working on enhancing efficiency and long-term growth in a budget-friendly manner. Partner Portal is an excellent example of a VMS that enables a business to automate its vendor management cycle from vendor onboarding and qualification to procurement with shipment tracking, right up to billing and accounting. 

• Pay your bills on time: Treat your vendors the same way you want to be treated. Make all your payments on time and let your vendors know well in advance if you expect any issues so that alternative arrangements can be made. 

• Employ a vendor relationship manager: This role should be the designated point of contact for your vendors, managing all communication (phone calls or such as site visits) with your suppliers. The vendor relationship manager should also be assigned the task to research the top vendor management systems and vendor management tools, based on which you can select the right VMS for your business. 

• Share your objectives and aim: Do share your growth objectives and where appropriate main data that drives your growth strategy. Quality vendors can offer guidance and feedback that is difficult to find elsewhere. 

• Find out how your vendors prefer doing business: Taking the time to understand how a vendor runs their business helps optimize the entire process. This includes knowing their time frame for delivery, preferred payment options, and other likings. 

• Accept accountability: Treat your vendor relationships as partnerships by accepting responsibility for shortcomings that could affect a supplier’s ability to offer their best services. 

• Create a contingency plan: There is always some scope for a mistake even by the best vendors. Also, there may be other disruptions that are in no one’s control. Thus, you must always have a good vendor management system contingency plan on hand in the event of an emergency. Have a few other options of vendors in hand if required. 

Conclusion 

It is quite evident that vendor management is not a simple task. Creating healthy relationships with vendors goes a long way in ensuring that you offer the best quality products to all your customers while minimizing costs and mitigating risks. Also, deploying the right VMS automates all the redundant and manual tasks in vendor management and turns it into an efficient one-step process. Give your business the edge it needs to stand out in this competitive market. 

To learn more about efficient vendor management and how it can benefit your business, click here to fill out a form and get in touch with our experts. 

FAQs 

1. What is Vendor management? 

Vendor management is the process of managing relationships with external suppliers or vendors to ensure that they provide the products and services a business needs to operate. It's important for businesses because it can help improve product quality, ensure efficient delivery, provide a competitive advantage, offer better financing terms, and ensure compliance with corporate regulations. 

2. What are some typical obstacles that businesses encounter when it comes to managing vendors? 

Some common challenges that businesses face with vendor management include insufficient technical knowledge, manual handling of vendor invoices, and challenges in communication and data sharing with vendors. 

3. What steps can businesses take to enhance their vendor management procedure? 

Businesses can improve their vendor management process by choosing vendors wisely based on value rather than just price, deploying a vendor management system (VMS) to manage all vendor-based activities, paying bills on time, employing a vendor relationship manager, sharing objectives and data with vendors, understanding how vendors prefer to do business, accepting accountability for shortcomings, and creating a contingency plan for emergencies.