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What Exactly is Vendor Management? Overview, Benefits, and More
What is Vendor Management?
At the heart of streamlined procurement lies a successful vendor management program. Gartner defines vendor management (VM) as a “discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle.”
Without effective vendor management processes, organizations are more vulnerable to vendor risks and other issues such as value leakage, contract disputes, unfulfilled deliverables, and even third-party breaches.
Typical vendor management activities focus on:
- Researching vendors
- Obtaining quotes, turnaround time, capabilities, etc.
- Negotiating contracts
- Controlling costs
- Ensuring on-time payments
- Ensuring service/product delivery
In this post, we’ll be going over the importance of vendor management and how contract management software can help improve the effectiveness of VM programs.
Why is Vendor Management So Important? The Benefits
Vendor management plays a variety of roles before, during, and after vendor onboarding. An effective VM process assists in communication and delegation; it also eliminates unnecessary back-and-forth between buyers and suppliers by supporting contract negotiation and oversight.
Once agreements are made and onboarding is complete, vendor management will aid in project management. It will also oversee the quality of delivery and associated parameters such as timelines, payments, and more until all obligations of the vendor contract have been duly fulfilled.
Most importantly, vendor management is key to nurturing long-term relationships with suppliers. Below, we’ve outlined some of the major benefits effective vendor management offers:
1. Accurate vendor selection
Once the business requirement has been finalized and the performance parameters established, vendor management can assist in the process of selecting and onboarding the right vendors for your enterprise.
The selection process begins with requests for quotations (RFQs) and requests for proposals (RFPs). Vendors may then be shortlisted based on industry-specific criteria, such as the supplier’s reputation, pricing, and whether either party is interested in a short-term or long-term relationship. Detailed vendor assessments of the shortlisted vendors can be carried out to select the most suitable vendor. After this, vendor management can simplify onboarding by addressing remaining areas of concern such as risk assessment, cost savings, tax forms, and licensing.
2. Lower risk of supply chain disruption
A survey examining effective third-party risk management noted that 87% of surveyed organizations reported a “disruptive incident” with a third party. A “major disruption” was reported by 28% of organizations, while 11% experienced a total third party failure.
An effective vendor management framework can reduce the risk of disruption through standardized evaluation of established key performance indicators (KPIs). Vendor performance may then be assessed according to compliance with contracted terms, quality of delivery, responsiveness, and so on. Moreover, vendor management can mitigate additional risks by reconciling performance with contracted terms to identify gaps in delivery so corrective steps can be taken.
3. Stronger third-party relationships
Short-term relationships provide short-term results. To maximize the business value from commercial engagements, you need to build a relationship that lasts for the long-term. Maintaining clear lines of communication are needed to nurture trust between buyers and suppliers.
Vendor management makes this possible by enabling enterprises to preempt disputes and take proactive actions to resolve them before they arise. With smoother step-by-step transitions, buyers and suppliers can lay the foundation for co-innovation and focus on mutually beneficial goals. This in turn can open the door to more fluid collaboration, smoother contract negotiations, optimized cost savings, and better procurement relationship outcomes.
4. Fulfilment of business goals
VM provides additional benefits by helping businesses reach their goals through cost-effective project management. These goals can be related to business performance, process improvement or financial outcomes.
By effectively managing vendor contracts, you can maximize profitability and performance by getting the quality of service and efficiency from suppliers as was agreed upon in the underlying contract. You can also ensure vendor projects stay on time and within budget with regular monitoring. This is key in maximizing value realization from supplier engagements which will subsequently help you achieve your business goals.
Key Elements of a Robust Vendor Management Program
VM programs traditionally focus on aspects such as vendor sourcing and vendor information management. One area that often gets less attention but holds significant transformation potential for an organization’s VM program is contract management. Enterprises can take their VM capabilities to the next level by underpinning it with a robust contract lifecycle management (CLM) system. This will significantly improve their ability to align the supplier relationship to the underlying contract. This in turn can ensure:
Seamless negotiation and contract review
Combined with VM strategies, contract management enhances collaboration between internal stakeholders and external suppliers by streamlining negotiation. Using AI-aided legal review capabilities and automated workflows, the contract review process can be expedited by identifying and resolving potential risks such as missing clauses and clause deviations before an agreement is signed to onboard a new supplier.
Contract management also bridges other gaps found in traditional VM programs by allowing buyers to easily assess historical insights on past vendor performance. This, in turn, can be leveraged to gain an edge during negotiations.
Complete visibility into supplier performance
Contract management software offers total visibility into ongoing collaborations with the vendor, enabling you to monitor contract compliance and take remedial action whenever necessary.
SirionOne’s supplier management functionality enhances transparency by enabling enterprises to monitor obligation management and service level fulfillment through a unified dashboard and offers predictive insights into potential compliance failures based on historical trends. In turn, businesses are able to track and measure vendor performance and take a metrics-driven approach towards ensuring better business outcomes.
Additionally, streamlined consumption tracking allows for an in-depth analysis of vendor performance. This helps minimize delays during all parts of the collaboration and produces an audit trail internal parties can rely on.
Stronger buyer-supplier collaboration is another notable benefit of effective contract lifecycle management (CLM).
Thanks to in-depth analytics, both buyers and suppliers can evaluate outcomes against contracted terms. CLM software enables both parties to have access to the same relationship data (performance, financial, etc.).This in turn creates opportunities to identify and address areas of improvement, streamline communication, resolve disputes efficiently, and build trust.
Next-gen contract management software that offers capabilities for the end-to-end contracting lifecycle can help plug value leakage through automated reconciliation of invoices. This helps eliminate invoice discrepancies effectively – ensuring that what you pay is tightly aligned to the underlying contract as well as what has been actually delivered. Given the vast sums of money involved in large outsourcing contracts, reducing value leakage has a direct and significant impact on the bottom line.
Such features can enable enterprises to spend less time resolving invoicing issues and more time focusing on strategic procurement goals.
Vendor Management with SirionLabs
The real value of supplier engagements lies at the intersection of contract management and vendor management. SirionOne is one of the few systems in the market today that successfully combines vendor management and contract management.
By bridging the gap between VM and CM processes, SirionOne leverages AI-powered automation to help you maximize the ROI from your vendor relationships. It helps create a solid foundation for strategic third-party relationships by ensuring transparent governance, preventing value leakage, smooth issue resolution, and taking a data-driven approach to vendor relationship management.
Learn more about SirionLabs’ supplier management solutions by downloading this brief or by requesting a demo today. Contact us to discover why SirionOne should be an integral part of your vendor management strategy.