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ABSTRACT

Who is a Supplier and who is a Vendor?

Suppliers are often referred to as the first link in a supply chain, presented strictly in a B2B relationship. On the other hand, a vendor is a business or person who purchases products from a company, then sells them to someone else.

What is Vendor Management?

Vendor management is a term that describes the processes organizations use to manage their suppliers, who are also known as vendors. Vendor management includes activities such as selecting vendors, negotiating contracts, controlling costs, reducing vendor-related risks and ensuring service delivery.

In other words, Vendor management is the procedure of coordinating with vendors to make sure excellent service to your customers. It involves onboarding vendors , training them to use your platform, and appealing with vendors for better profitability for both—your vendors and you. Vendor management also involves measures to control costs, mitigate risks, and improve vendor performance.

The vendors used by a company will differ considerably depending on the nature of the organization, and might include companies as diverse as seafood suppliers, IT vendors, cleaners and marketing consultants. Vendors can also vary in size from sole traders to large organizations.

Vendor Management Process

Figure 1

• Selecting vendorsThe vendor selection process includes researching and sourcing suitable vendors and looking for quotes via requests for quotation (RFQs) and requests for proposal (RFPs), as well as shortlisting and selecting vendors. While price will be a consideration during the selection process, companies will also need to evaluate other factors when deciding which vendors to appoint for a particular contract, such as a vendors reputation, capacity and track record, as well as the vendors ability to communicate effectively.
• Contract negotiationIt is important to get the contract right at the beginning and to ensure the terms agreed benefit both parties. Negotiating a contract can take time, and the process will include defining the goods or services that will be included, the start and end dates of the arrangements and all necessary terms and conditions. Awareness may also need to be paid to areas such as confidentiality and non-compete clauses.
• Vendor onboardingThis will engage gathering the documentation and information needed to set the vendor up as an approved supplier to the company and ensure that the vendor can be paid for the goods or services they provide. As well as essential contact and payment information, the onboarding process may also include information such as relevant licenses held by the vendor, as well as tax forms and insurance details.
• Monitoring vendor performance As part of the vendor management process, companies will monitor and evaluate the performance of their vendors. This may comprise evaluating their performance against key performance indicators such as quality and volume of goods or delivery dates.
• Monitoring and managing risk Vendors should be monitored for risks that could contact the company, like the risk of compliance breaches, lawsuits, data security issues and loss of intellectual property. Companies will also need to check the risk that a vendors actions or a failure to provide goods and services as agreed may result in disruption to the companys operations.
• Payment Ensuring vendors are paid on time for the goods and services they supply, in line with the agreed terms.

Types of Vendor Management

There are 8 types of vendor management every company deals with regularly when managing their supplier relationships:

• Procurement – It is the practice of researching and getting products or services critical for performing organizations operations. It is probably the most important stage to find a good and right supplier.

Figure 2

• Vendor Onboarding – It is the process of provding vendors all the important information, tools and permissions to activate new suppliers successfully. For a good supplier relationship, solid onboarding is required.
• Vendor Relationship Management - Vendor relationship management (VRM) refers to the process of deepening your relationships with suppliers by ensuring the proper investment into the alliance. The objective of vendor relationship management is to get the maximum possible value from a contractual arrangement.
• Vendor Risk Management - Vendor risk management, also known as VRM, is a set of activities aimed at reducing the likelihood of suppliers causing business disruptions or taking fraudulent actions. 83% of companies faced a third-party-related incident driving negative consequences for business in the last three years. 59% of respondents confirm that their organizations experienced a data breach caused by one of their suppliers. To mitigate these risks, youd better perform the assessment process for each of your potential and existing vendors.

• Performance Management - This type of vendor management aims at monitoring and evaluating vendor performance. In other words, its a practice of finding out how good your vendors are.To have metrics to evaluate your vendors performance against, you need to set KPIs for service providers and clear standards for product suppliers. Vendor performance management spots issues with outsourced products or services and provides you with an opportunity to notify vendors about arising problems.
• Contract Management – It is the process of creating and executing vendors contracts to maximize the operational and financial outcomes of the partnership while reducing financial risk. Managing vendor contracts can be a headache for your legal team or procurement managers. You can facilitate it by building a contract management plan and/or implementing contract lifecycle management (CLM) software. A clear plan will draft the key workflows for the entire contract lifecycle, and software will help you automate the processes and store everything in one place.
• Compliance Management - Compliance management is the plan aimed at supporting both buyers and suppliers to make sure vendors compliance with buyers statutory, legal, and technical requirements. The key to successful vendor compliance management is drafting a policy that sets obvious expectations and provides unambiguous guidelines. When its in place, all you need to do is to be in touch with your vendors and keep an eye on their performance.
• SLA Management - Service-level agreements (SLAs) are a contract between a buyer and a vendor that sets the opportunity between both parties. It outlines particular aspects of the supply being provided such as how and when the product or service should be delivered, which party is accountable for reporting faults, etc. SLA management is the practice of keeping track of these contracts and making sure vendors meet the terms outlined there. As a part of SLA management, buyers may also place out the metrics by which the service or product is measured, as well as the penalties applied if the outlined requirements are not fulfilled.

Why is Vendor Management Important?

Vendor management is essential for a number of reasons. Vendor management plays a key role when it comes to selecting the right vendor for a particular business need. Also, companies can use vendor management to achieve business goals, such as harnessing opportunities for cost savings, as well as taking steps to speed up the onboarding process.

Vendors also need to be managed efficiently in order to trim down the risk of supply chain disruption and make sure the goods and services provided are delivered on time and to the anticipated standard. Beyond this, an effective vendor management process can help companies build stronger relationships with their vendors which may, in turn, lead to opportunities to confer better rates.

Benefits of Vendor Management –

Vendor Management Challenges - For companies with a big supplier base, or a difficult geographical footprint, it can be difficult to grow a centralized view of the vendors used by a company. Challenges can occur throughout the different stages of the vendor management process, from getting the right documentation from vendors to carrying out any needed risk assessments. Its therefore essential to adopt suitable processes and tools to avoid any issues.

Companies may use a vendor management strategy to make sure vendor relationships deliver the intended value, with efficient processes. A strategy may include areas such as setting out obvious and quantifiable goals, tracking KPIs and building and maintaining efficient relationships with vendors. Companies may also categorize their suppliers in order to spot their strategic vendors and spend in strengthening those relationships. Other considerations may comprise taking steps to avoid relying too heavily on a particular vendor.