The wheels of industry revolve around proper vendor management, so let’s talk about the elements that build a winning strategy — using a centralized platform you can rely on. This post will further explore the importance and benefits of vendor management, so you can take actionable steps for a more efficient, lucrative way to work with your third-party suppliers.
What Is Vendor Management?
Vendor management is the process an organization uses to control its costs, gain the highest value from its vendors, and mitigate risk. It includes searching for the best prices and services, sourcing the highest quality products, and managing third-party vendor partnerships with intelligent contract lifecycle management (CLM) software.
Why Is Vendor Management Important?
Vendor management is, of course, about building strong long-term relationships with your suppliers. Doing so requires:
Accurate, readily available data
The ability to share that data with teams and third-parties alike
Without a central point of operation, important items can and will slip through the proverbial cracks. Whether that affects proper compliance or products not arriving on schedule, you can’t run your business effectively without identifying those issues in enough time to take action. Ultimately, vendor management is really vendor relationship management.
4 Benefits of Vendor Management
Effective vendor management allows for improved workflow at every intersection of business between you, your teams, and third parties. Below are just a few examples.
Having precise data on each vendor, you can easily tell if there are issues with purchases, quality, or scheduling, and address them before they affect your bottom line. Intelligent feedback with artificial intelligence (AI) as well as automated alerts and notifications help you identify opportunities to negotiate terms and make vendor decisions that save on costs — without cutting quality.
Improved Vendor Relationships
Your connection to valuable vendors is based on earned respect and high standards. When any party falls short because of inconsistent data-sharing, it can reflect on their reputation. And in an age where reputation is everything, this is something to seriously consider when doing business with third-party vendors.
Vendor management software helps to unify communication across all channels so everyone remains in the loop and in the know. Better data results in better relationships long-term.
Great products and services are essential to building customer trust and loyalty, but any inconsistency can cause concerns. Protecting your business begins at the junction of the back-and-forth with your vendors. This is true for orders, shipping, planning, renewals, and making sure your records account for the same processes through a shared system.
When you have accurate, timely data and better communication, you also get improved efficiency across your entire operation. And who doesn’t want to save time whenever possible?
With intelligent data reporting, you don’t have to rely on your instincts or somebody’s word regarding your contractual expectations. An integrated view of all your vendor data — no matter how dense or complex — means you can communicate expectations instantly.
When you get exactly what you need when you need it, your entire operation runs more smoothly. This comes from fast, accurate, and deep insights.
What Are the 4 Primary Elements of a Strong Vendor Management Strategy?
A successful strategy is built on data that’s easy to find and access. But what does that look like?
The Right Selection Criteria
Use your vendor management software to define exactly what you’re looking for in a quality vendor. For further tips on this, check out our previous blog post: How to Choose Your CLM Vendor.
Informative Contract Management
Your CLM should give you intelligent insights regarding terms, goals, compliance, and renewals so you and your vendors know what’s expected. Without the right kind of data for your specific business needs, these insights are meaningless.
Accurate Performance Measurement
Use the data that’s at your disposal. Your management platform tells you what you need to know and helps you analyze how vendors are tracking toward your standards. An intelligent platform will always offer accurate data, whereas manual data entry runs the constant risk of human error.
Excellence in long-term business relationships derives from excellence in communication. Keeping a clear outline of needs and expectations and an occasional pat on the back for a job well done go a long way toward keeping your best vendors happy.
The 4 Most Effective Vendor Management Best Practices
Your vendor management platform can empower you to strengthen long-term connections with your vendors. But this only happens if you put these tools to use.
The following are four of the most important vendor management best practices you can use to drive organizational growth.
Regular Performance Reviews
Your vendor management system can provide detailed analyses of the performance metrics that matter to you the most. Use that data to communicate the positives—and the negatives—with your vendors.
Lift them up for a job well done, and discuss how to improve the areas that need the most work.
Collaboration with Your Vendors
Speaking of discussing performance with your vendors: Strong vendor relationships are built on excellent communication.
Work with your vendors to get the absolute best prices. Part of this comes from the nuance of acknowledging great work. It also stems from asking for vendor input about ways to reach your goals and get the most from long-term connections.
Use your vendor management software to identify and mitigate risks. These risks include anything that can disrupt your supply chain and ultimately keep products from reaching your customers.
According to an article from Compliance Week, “Working with third parties is one of the biggest blind spots in a company’s risk matrix today — especially large, public companies with complicated and extensive international supply chains and outsourced services. The bigger the organization, the more third parties are likely involved in operations. And the more third parties that are relied upon, the bigger the risk for the business if one of them skirts the rules or proves to be the weak link in a growing chain.”
Understanding your risks also means making sure your vendors are doing what’s required for regulatory compliance.
An Emphasis on Transparency
Transparency is synonymous with visibility, and your vendor management software provides the means to make sure you share all of the same up-to-the-minute data. Use your software’s ability to keep vendors consistently in the loop so everyone remains clear about goals and expectations.
When vendor management is executed correctly, everybody involved knows what expectations need to be met, from payments to delivery, quality, and other detailed performance metrics.
4 Common Challenges in Vendor Management
Vendor management comes with unique problems to solve, yet the solution to all of these challenges is the same: transparent data shared across all teams.
The following are a few specific vendor management challenges in today’s tech-driven landscape.
Companies thrive when their departments excel in their respective specialty. Each of these teams has vendor tools to help them with their role, leaving a gap of information that’s not getting shared from one application to the next.
Managing the vendor ecosystem is complex. Companies are entering emerging fields that require the expertise of third-party specialists. Businesses rely on their vendors for long-term, critical roles.
There’s a lot at stake, with little room for missed deadlines, underperformance, or overlooked renewal opportunities. Modern businesses need sophisticated management software to stay on top of their game. The bedrock of trustworthy vendor relationships is comprised of clear goals and expectations.
Poor Vendor Performance
Contracts are only as strong as your ability to ensure vendors abide by your ironclad terms. You have to know when your vendors fall out of contractual standards. Not only can their underperformance negatively impact your business; it can cause a cascade of unmanageable issues if you don’t catch the problem in time.
And for when it does get to that breaking point within a “toxic” vendor relationship, we enjoyed this LinkedIn article on how to professionally cut ties.
Lack of Visibility
Without the right tools, your important clauses, terms, dates, and calendar events get buried deep somewhere in the legalese.
Visibility is about making sure your vendors have an eye on their responsibilities as well. No one’s happy when important deadlines and obligations get lost in the mix.
Quality CLM software provides centralized data storage for better visibility, which means better resource allocation and efficiency.
The Solution: Intelligent Vendor Management
If you want to reap the rewards from great long-term relationships with the best vendors, you need a way to maintain fast, accurate, and consistent data about those relationships.
Vendor management is about finding the best vendors and then encouraging cooperation and excellence. Terzo can get you there.
With our AI-powered vendor management solutions, you’ll not only have a better grasp of what you pay and whether your vendors are up to your standards, but your vendors will also have access to that same data.
Implement an effective vendor management strategy for your business with Terzo. Get in touch with us to try a free trial today.