Your vendors are critical to the success of your company. They drive new growth within your industry and ensure your able to achieve revenue and profit goals. They are at the heart of many of your organization’s processes and activities.
However, you might not consider how important it is to effectively manage your relationships with them. In the past, procurement was simply the department that bought goods and services. Nothing more, nothing less.
But now, procurement should be considered as a part of your overall business strategy. To get the best value for your money, you should be taking a strategic approach to efficiently manage your suppliers. Doing so will have myriad beneficial effects.
Unfortunately, vendor management isn’t well understood or widely implemented in the business world. You might not truly understand how vendor management works, and the advantages you’ll receive from supplier relationship management.
So, what actually is vendor management?
Vendors are the individuals and businesses that provide goods and services to your organization. It's likely that your company works with hundreds of different vendors all with varying pay rates, contract terms and points of contact.
This, of course, can become complex. Without the proper management of these vendors you can soon find that your organization is overpaying for goods and services, and losing money on a range of hidden costs.
That's where vendor management comes in.
Vendor management is a process that involves researching and sourcing vendors, obtaining quotes, negotiating contracts, managing vendor relationships, evaluating vendor performance and paying vendors. Streamlining these processes will save your business time and money.
If you're looking for a more detailed look at vendor management, please read our blog titled 'What is Vendor Management?'
Why vendor management is important for your business
Vendor management is crucial for the success of your business. To help you understand exactly why, we’ve outlined seven reasons why vendor management should be a top priority for your organization:
1. Mitigate risks
To effectively reduce supplier risks, whether in terms of operations, unforeseen cost implications, or regulatory compliance, you need increased visibility. Vendor management can track your suppliers and provide the data you need to identify supplier risks so you can take the necessary steps to mitigate them, or choose an alternative vendor. You can easily verify supplier information, such as qualifications and certifications, track performance, and even look into the supplier’s financials to get a broader picture of their risk level in order to protect your organization.
2. Optimize performance
Once you have a supplier active in your vendor management system, you can track and measure performance against the contract to ensure that the company is meeting your needs and complying with your requirements. This will enable you to ensure optimal performance. The data you receive from tracking performance can signal challenges before they become problems and identify areas that may need improvements.
3. Reduce costs
When you have increased visibility, you can see invisible costs that you can then better control in order to save on costs. Additionally, having strong relationships with your suppliers, due to effective procedures and processes thanks to vendor management, can help you to negotiate better rates and have access to discounts and incentives that can increase your profit margin.
4. Create loyal relationships
Good vendors are hard to come by. If you’re working with excellent suppliers, you should be doing everything you can to strengthen your relationships with them in order to build loyalty. With effective supplier management, you can ensure efficiencies that lead to smooth processes, which can help you build the loyalty you need to keep your great suppliers as part of your supply chain for the long term.
5. Increase administrative efficiencies
Your vendor management program can significantly drive administrative efficiencies. As a central hub for vendor master data and record keeping, this program can cut down on duplication of data, loss of contracts and other information, administrative labor costs, and errors. Having one central place for all of your vendor data can help you manage your relationships with heightened efficiency, which your suppliers will appreciate.
6. Increase onboarding speed
The time and resources it takes to onboard new vendors can slow down your productivity and cost you money. But with supplier management, it’s a breeze to obtain all relevant vendor information, such as bank details, capability information, regulatory data, and capacity details and input it into the system in a fast and error-free way for approval. The quicker you can onboard your vendors, the quicker you can move through the procurement process and receive your goods or services so you can put them to use.
7. Protect your brand
Your company’s brand holds a lot of value. You do not want to tarnish it due to the actions of an unprofessional or unethical vendor. A supplier management program can provide you with the information you need, such as a supplier’s social and environmental standards, to reduce your risk of a serious incident stemming from a vendor’s actions.
Are you looking for more information about vendor management? Contact HCMWorks today. Our team of contingent workforce and vendor management experts would love to answer any questions you have on the topic.