Importance of Vendor Management
Now more than ever, it is critical to manage key vendors by ensuring compliance and supporting vendor health. Maintaining a healthy supply chain is vital where demand exceeds supply in many industries. We have seen an increase in companies setting up offices of vendor management and new roles in the executive suite. The curious thing is that almost everyone has a different view on what constitutes vendor management and what tools are available for businesses to employ in managing vendors and supply chains.
Some of that depends on who you talk to and their responsibilities in an organization. For instance, someone working in sourcing may have a vastly different view of vendor management than someone in accounts payable or supply chain operations. All three of those positions will likely have a view toward management that impacts their area of responsibility the most.
This fractured view has come to the attention of executives. In other words, vendor management is no longer a tactical operation, but more a strategic element in the overall success of the enterprise.
Common Management Themes
Regardless of what you call it or how your company views it, there are some common themes and characteristics that we can establish. Vendor Management is a set of people, processes, activities, systems, and information tools that allow an organization to have maximum visibility into all of the characteristics and activities associated with a vendor and having the ability to make real-time decisions based on the availability of this actionable information.
To accomplish this, you need to define vendor profiles and supplier recruitment based on the target profile. Then, you must onboard the vendor via data and document collection to ensure compliance and supplier health. Another theme is tracking and scoring vendor performance, and tracking the transactional activities of the vendor throughout the procure-to-pay process. The goal is to build an organizational structure to manage all vendor-related activities, ensuring healthy suppliers and supply chains.
While not all of the characteristics defined above may apply equally, there is generally some form of activity or process surrounding these areas in every organization, even if discrete and largely undefined. Identifying and formalizing these “discrete and undefined” processes is often a crucial element in establishing a successful vendor management program. It should not be the exclusive province of large companies. Any company that expends time and resources on managing vendor activities, that depends on its vendors as mission-critical components of its core business, or companies that have complex supply chains can benefit from a defined and structured vendor management program.
Evaluating a Vendor Management Program
Here are some of the components you should take a look at when evaluating a vendor management program:
- Define the activities, processes, systems, people, and information assets that are part of the vendor life cycle
- Identify all vendor touch points, including who is responsible for the touch points, the interplay between departments/vendors for each touch point, establish reporting and visibility into vendor activities, and vendor performance
- Identify the relative success or failure of each touch point and identifiable vendor activity
- Define who owns each process or piece of the vendor life cycle and how issues are escalated and resolved.
Based on what you find, you can begin to identify where the holes are, where the challenges will be, and most importantly, where the opportunities for improvement exist and put together the outlines of a successful vendor management program for your company.
Some technologies can assist you in streamlining vendor activities not only for your organization but for your vendors and suppliers as well. Technology-based solutions and other powerful business tools will help streamline these complex and often resource-intensive processes. Modular solutions can also be incredibly helpful as they allow you to only pay for the vendor management functionality that you need. Some examples are:
- Vendor Portals
- Vendor Onboarding
- Vendor Information Management Systems
- Business Process Management/Workflow
- PO Dispatch & Update
- RFx Dispatch & Update
- Dynamic Discounting or Supply Chain Finance
Implementing a formal vendor management program can be a very beneficial undertaking that can deliver substantial economic benefits as well as strengthen vendor relationships and facilitate more secure supply chains. Contact ICG to see how your organization can establish or strengthen your vendor management initiative. Or you can request a demonstration from ICG for you and your team of the many vendor management-related solutions, such as those referenced above.