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HCMWorks Insights

What Is Vendor Management?

Posted by Julia Fournier on 23 Sep 2015

The businesses and individuals that provide goods and services to an organization are considered its vendors. A company could work with a few, dozens, or even hundreds of different vendors, all with different contract terms, pay rates, and points of contact that must be managed through a vendor manager.

The term vendor management is used when describing the activities included in researching and sourcing vendors, obtaining quotes with pricing, capabilities, turnaround times, and quality of work, negotiating contracts, managing relationships, assigning jobs, evaluating performance, and ensuring payments are made. It requires a lot of skills, resources, and time.

Though many business owners believe that vendor management is simply about finding the supplier with the cheapest price for a product or service, it’s about more than that. It’s about streamlining the process for heightened efficiencies and managing vendor relationships to ensure that the agreements made are mutually beneficial for both parties.

With effective vendor management processes in place, you can properly establish service, quality, cost, and satisfaction goals and choose and manage third-party suppliers that help you achieve those business goals.

The Four Parts of the Process

Vendor management is typically broken down into four steps. The first is the establishment of the business goals mentioned above. It’s much easier to select and manage vendors when you have clearly defined performance parameters to compare and contrast.

The second part of the process is to select the best vendors that will be able to match your company’s performance characteristics. Every vendor will have its strengths and weaknesses, and choosing the right one is a very critical task to optimizing operational results.

Third is managing your suppliers. On a daily basis, your vendor managers will need to monitor performance and output, ensure contract terms are being followed, approve or disapprove changes, provide feedback, and develop relationships through effective communication, honesty, and integrity.

Finally, the fourth aspect of vendor management is meeting your goals on a consistent basis. This requires continuous work in influencing vendors to meet performance objectives to ensure profitability.

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Building Relationships with Vendors

To get the most success out of your vendor management process, you need to take a strategic approach to building and maintaining relationships with your best vendors. Good suppliers are hard to come by, so it’s important to nurture your relationships with the suppliers you don’t want to lose.

Share information and priorities: For your vendors to effectively meet your needs to the best of their ability, it’s important for you to provide the necessary information in a timely manner. This might include launch dates, changes in design, forecast information, and other pertinent information that might affect quality or service.

Allow strategy and innovation: When you and your vendors work together on strategy, you can get the best value for your money. Invite the vendor to meetings that involve the product he is working on. You hired him because he’s an expert in that area so he could provide valuable insights or innovative suggestions that make the product better or even cheaper, which could give you a competitive advantage.

Look to the future: Short-term relationships with vendors will only lead to short-term gains and marginal cost savings. The real value comes from building partnerships for the long terms. Doing so will enable trust and commitment from your vendors, which could lead to discounts, preferential treatment, and access to expert knowledge.

Focus on win-win agreements: You won’t be able to build relationships with strong-arm negotiation tactics. Instead, you’ll create resentment that can lead to further problems down the road. Focus on negotiating agreements in good faith that allow both parties to walk away feeling good about the deal.

To get the most out of your vendor relationships, you need effective vendor management. Make sure you consider all four parts of the process and focus on building relationships, and you’ll get better value from your suppliers.

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