The success of a business depends on the timely delivery of quality products and services by its contractors, this is why the procurement process is considered as an integral business function. The procurement cycle involves a complex range of activities and one of them is vendor management.
A business needs to effectively manage its relationship with its suppliers in order to ensure long-term partnerships with them. However, there’s more to vendor management than establishing strong relationships with suppliers.
Below are some of the reasons a business should optimize its vendor management strategy.
Allow Vendor Performance Evaluation
Businesses need to constantly monitor and analyze vendor performance to ensure that each supplier performs according to what is stipulated in the contract. This could be challenging especially for businesses dealing with hundreds of third-party contractors. With the rise of procurement technology, vendor performance management has become more achievable, allowing businesses to track and measure each vendor’s output and performance.
Measuring vendor performance goes beyond quality and delivery of products and services. In evaluating vendor performance, companies will also be able to compare a vendor’s performance against its peers/competitors, identify areas that may need improvement and prevent issues that may lead to error or underperformance.
With vendor management solutions, companies can also view a supplier’s financial health to gain information about the vendor’s assets, revenues and changes such as mergers and divestments. This will help businesses identify and mitigate risks that can possibly result in supply delay or financial loss.
Vendor management solutions allow viewing of a vendor’s product pricing. This will help businesses compare pricing among vendors that offer similar products and allow businesses to gauge which vendor they will be able to save more on costs. Vendor management will allow businesses to negotiate better rates, discounts and incentives, increasing a business’ savings and profit.
Improve Document Management and Data Accessibility
Procurement activities involve various documents such as contracts, billings, vouchers and forms. If the business is managing a large number of suppliers, keeping track of and accessing all these important records may be difficult if stored manually. Vendor management programs allow businesses to have a central repository of documents that may be readily accessed when needed. This will help companies reduce labor costs, duplication or loss of documents.
Increase Efficiency and Speed-up Processes
Vendor management processes such as supplier onboarding, performance evaluation and payment involve different steps and requires the approval of multiple POCs. With vendor management solutions, business will be able to go through these processes faster and with less error.
Protect the Company’s Reputation
Vendor management programs provide businesses with reports that hold valuable insights and information. Incidents of contract breach, dip in quality score and similar information may be used by the company to determine if it should continue using a vendor’s products and/or services or tag the vendor as a blacklisted supplier.
While vendor management solutions are beneficial to businesses, its success also depends on how effectively it is communicated with the vendors. The procurement process is a two-way street, and its sub-processes which include vendor management, can only efficiently work if both the business and its vendors agree on the same conditions.