Vendor management is the process that empowers an organization to take appropriate measures for controlling cost, reducing potential risks related to vendors, ensuring excellent service deliverability and deriving value from vendors in the long-run. This includes researching about the best suitable vendors, sourcing and obtaining pricing information, gauging the quality of work, managing relationships in case of multiple vendors, evaluating performance by setting organizational standards, and ensuring that the payments are always made on time.

So, that’s where the vendor management system or VMS comes in place.

Nodezap provides Vendor Management template  to help you manage, control, and evaluate suppliers. It includes important considerations for evaluating vendors, so you can feel confident when you enter into a supplier relationship.

Benefits of Vendor Management

By having proper vendor management in place, an organization can experience the following benefits:

1. Better Selection

By implementing appropriate vendor management in place, your organization can benefit from a larger selection of vendors, resulting in more choices and ultimately better costs.

Your organization can benefit from a bidding war between vendors while ensuring that you get your money’s worth.

2. Better Contract Management

In a multi-vendor scenario, lack of vendor management system elevates the issue of managing contracts, documentation and other vital information in your organization.

By implementing a proper VMS in place, your organization can benefit from a centralized view of the current status of all contracts and other useful information which will enable your organization to achieve better decision-making capabilities and save valuable time.

3. Better Performance Management

An integrated view of the performance of all the vendors can be achieved through the implementation of a vendor management system.

This can give your organization a clear understanding of what is working and what is not! This ultimately leads to improved efficiency, which in turns improves the overall performance of the organization.

4. Better Vendor Relationship

It is never easy to manage multiple vendors at the same time. While some vendors may prove really fruitful, others may not. But managing relationship among the vendors is the key to successful project completion.

By getting all vendor related information in a single place, you benefit from getting all required information at once and it can influence your decision-making process, thereby simplifying it!

5. Better Value

Ultimately the goal of a vendor management system is to get the most value for your buck. So, implementation of a vendor management system, when done properly can result in long-term savings as well as improved earnings over a period of time.

Challenges in Vendor Management

Although there are many benefits, some challenges need to be overcome to ensure the smooth functioning of the organization.

There are many challenges that an organization may face if vendor management is not implemented correctly. They are as follows:

1. Vendor Compliance Risk

Setting standards before dealing with vendors can save you loads of time and money spent. Not all vendors may perform as per your standards. It is important to choose the right vendor from multiple vendors, who meet your organizational standards and criteria while promising excellent performance.

2. Vendor Reputation Risk

Dealing with multiple vendors is not an easy task. Also, the quality of work has to be gauged upfront before getting into a contract, which makes the process more complicated.

While some vendors may get your task done really well, others can put up with some poor performance and throw all your deadlines in a tizzy. Hence, background checks are a must

before any selection is made. This may provide you with some insights into vital points that you may have missed in the first place.

3. Lack of Visibility

While it is really important to have a centralized data storage solution for managing vendor data, it also benefits the organization from a centralized view and improved visibility, which can lead to better resource allocation and improved efficiency.

4. Vendor Data Storage

As your organization grows, it becomes essential to have a vendor data storage solution in place. In the absence of a vendor management system, storing and retrieving data might prove to be really tough, considering the fact that you may be dealing with multiple vendors for multiple projects at the same time.

5. Vendor Payment Risk

Some vendors may have different payment terms, while some may adhere to industry standard terms. Figuring out the terms and ensuring that the payment is always made on time is one of the major issues, especially while dealing with multiple vendors at the same time.

Vendor Management Process

At this point, we can infer that having effective vendor management is crucial. An organization has to plan and execute a process to guide how they will engage with their vendors at every step.

While it is not possible to have one specific vendor management process that encompasses all enterprises and vendors, we can bring together the basic steps that underlie an organization’s start-to-finish engagement with its vendors:

1. Identification and Establishment of Business Goals

Before the vendor management process starts, it is crucial to identify and establish business goals that necessitate vendor involvement. This helps in understanding the requirements of every business unit and prevents duplication of efforts and wastage of resources in terms selecting and contracting with vendors. It also helps in the later stages of measuring and evaluating vendor performance as these goals establish appropriate metrics.

2. Establishment of a Vendor Management Team

After the business goals are recognized, the next step should be the foundation of a dedicated vendor management team. This centralized team should be skilled in identifying business goals and KPIs for vendor management, selecting relevant vendors, negotiating the contracting process, periodically assessing the performance of the vendors and tracking all transactions activities.

This team is crucial as they will act as an intermediary between the business units and the vendors and ensure collaboration between the two.

It will also prevent the engagement of too many stakeholders – When vendor management is decentralized to the business units, it results in a large number of contracts with the same vendor or disparate transactions with multiple vendors. This impedes tracking and evaluation of vendor performance and exposes the organization to vendor risk.

3. Creation of a Database for all Vendor-related Information

After the business goals are clear and the vendor management team is up and running, the next step should be to build an updated and categorized database of all relevant vendors and vendor-related information.

The benefits of this are manifold –

(i) it will match the needs of the business units to the right vendor. For example, the administration can identify the relevant vendors for office supplies, computer equipment, etc.

(ii) after the categorization of vendors based on their type, cross-vendor comparison will become easier for evaluation

(iii) it will streamline information – scattered, disparate vendor information will be stored in a single location and provide insights into the current stage of the vendors, for example, vendors with contract in place, vendors that require renewals, etc. and

(iv) it will enable effective budgeting – you can easily recognize the long-term, critical vendors and the short-term, tactical vendors and assess the budget assignment accordingly.

4. Identification of the Selection Criteria for Vendors

Once all vendor-related information is streamlined, updated and categorized, you have to select the criteria based on which all relevant vendors will be chosen.

While cost has been the primary selection criterion for choosing vendors, businesses are increasingly looking at other criteria to determine which vendor would best serve their requirements – after all, lowest cost doesn’t guarantee the highest value. A CIO article1 has recognized non-cost factors that need to be considered to select vendors – financial stability, previous experience in the field of work as the business, industrial recognitions, the procedures followed by the vendor, economies of scale and their legal/regulatory records. It is important to consider all of the aforementioned criteria to have a holistic assessment of the vendors.

For purchases of high value, companies also engage in bidding procedures that involve RFQs, RFIs, and RFPs before choosing the vendor.

5. Evaluation and Selection of Vendors

At this stage, the vendors need to be evaluated based on the selection criteria and, if applicable, the bidding process.

The submitted proposals need to be thoroughly assessed to understand the pricing structure, scope of work and how the requirements will be met, the terms and conditions, expiry and renewal dates, etc. This will ensure that your organization is deriving the maximum value from the vendor. Look out for hidden savings opportunities!

Assess the internal strengths and weaknesses of the vendors and study how the external opportunities and threats can affect your transaction as well as the vendor management process.

Once you have ensured a complete start-to-finish evaluation process, it’s time to choose your vendor.

6. Developing Contracts and Finalizing Vendors

Well, now you have the chosen one. It’s time to complete the contracting process and get your vendor(s) onboard.

Typically, the contracting stage is assigned to the legal and finance team and the senior management involved with the vendors. The rest of the business units receive the contract and engage with the vendors after the finalization process. This tends to be sub-optimal in the long run – the business units are the ones finally collaborating with the vendors on a day-to-day basis and have valuable insights on how to maximize the vendors’ operational performance. Hence, all the relevant stakeholders need to be involved, at least in the decision-making process.

Pages in vendor management template

1. Home

Get organized fast with Nodezap's Vendor Management template. Use the board to organize and manage all of your vendor contact and screening information. Document your vendors’ organization, structure, and operating procedures.

2. Screening

The submitted proposals need to be thoroughly assessed to understand the pricing structure, scope of work and how the requirements will be met, the terms and conditions, expiry and renewal dates, etc. This will ensure that your organization is deriving the maximum value from the vendor. Look out for hidden savings opportunities!

3. Assessment

Assess the internal strengths and weaknesses of the vendors and study how the external opportunities and threats can affect your transaction as well as the vendor management process.

4. Evaluation

At this stage, the vendors need to be evaluated based on the selection criteria and, if applicable, the bidding process.

5. Final Decision

Once you have ensured a complete start-to-finish evaluation process, it’s time to choose your vendor.