Strategic Vendor Management: Tips For Success
Collaborating with multiple vendors allows businesses to expand past their current capabilities and focus more on their core tasks. This allows them to achieve a much higher level of specialization without sacrificing efficiency with any other operational process. However, vendor management is a task that requires a lot of logistical competence and a well-developed infrastructure of a business. Let’s learn more about good strategic vendor management.
Every single vendor has the potential to make an impact on your entire organization. At the same time, some of them may require special attention. This is why a relationship with strategic vendors (those that exhibit partnership-like traits and are essential for your organization) is so important. It’s also worth mentioning that strategic vendors are also referred to as strategic suppliers.
Here are several things you must know about this.
Benefits Of Strategic Vendor Management
The first thing you need to do is identify your strategic vendors. This is a process that should revolve around a shared vision, values, and interests. Strategic vendor management (SVM) is a process that can improve your organization in several important aspects.
- First, it lowers the overall operational cost of your entire organization.
- Second, it increases the amount of insight that you have into the performance of your strategic vendors.
- Third, it helps you improve relationships with vendors, which ensures successful collaboration in the long run.
- Fourth, it helps you mitigate risks, which increases the resilience of your organization.
These four massive benefits are meant to improve the business model of your organization. This is only possible by making your SVM more systemic. Still, there are many of those who are unsure whether they need SVM, to begin with. Here are some signs that the time is right to consider improving your SVM system:
- Absence of an established reporting system, which makes you oblivious about the current state of your vendors.
- No risk management plans or contingency plans regarding your strategic vendors, whatsoever.
- Too many vendors or a rapidly growing number of vendors.
In other words, even if, at the moment, you don’t feel like you need an SVM system, you should always think about the scalability of your organization.
Updating Strategic Vendor Profiles
The first step on the path towards successfully managing your strategic vendors lies in making data-based decisions. To execute this properly, you need to create vendor profiles based on their previous track record. This is why you need to develop quarterly scorecards. In order to make them easier to monitor, you can create scorecards. Keep in mind that the performance of a certain vendor may vary on circumstantial factors.
Also, remember that you can’t afford the luxury of making definitive conclusions when your vendors are in mind. Sure, they may be trustworthy when you first start collaborating, but things change over time. This may happen regardless of the direction that their enterprise takes.
- If their business grows, they will gain more leverage, which might make them bolder in their interactions with your business.
- If their performance plummets, they may no longer be able to fulfill their promises (even with all the best intentions).
This is why real-time updates and a long-term track record are equally important. Harvesting all this information is a lot easier with specialized intelligent information management (IIM) tools like M Files. This way, you can have all this data in one place and restrict access to sensitive information only to those in the highest positions within your organization. In other words, strategic vendor data can easily be restricted on a need-to-know basis.
Tracking KPIs And Evaluation
In order to keep track of the performance of all your vendors, you need to establish some KPIs (key performance indicators). This will ensure that your evaluations are always systemic and unbiased. There are various examples of decent KPIs for vendor management. For instance:
- The ability to fulfill orders on time.
- The ability to fulfill orders accurately.
- Fair pricing (and pricing structure, in general).
- Quality of goods (adequate or superior quality).
- Strategic opportunities (during contract negotiation and renewal).
- Risk level (low-, medium-, or high-risk vendor).
- The ability to comply with your terms and conditions.
- The ability to comply with your legal/safety requirements.
In the era of COVID-19, a lot of businesses are suffering from a drop in productivity. Some are making attempts to bridge this gap and adapt with better utilization of technology. Others are not coping so well. Even though there’s nothing normal about the current situation of the global market, the key thing is that you need to persist in your evaluation. These KPIs will give you a simpler way to put some of these matters into perspective.
Adjusting To Vendors
Working on your vendor relationships takes time and patience. It also takes an investment of effort and resources. This is why you need to take all of the above-listed evaluation results and go over them with people from finance. With their help, you need to develop an action plan. Keep in mind that actions speak louder than words, and in B2B interactions, it all comes down to negotiating the best deal for everyone. Your next order (a bit larger in volume than the last time) can be your way of demonstrating a commitment to their organization.
Aside from this, you need to establish a direct line of communication with your vendors. Never neglect the human factor. The report that you get and KPIs that you base them on shouldn’t be the only feedback you receive. For this to work, it’s essential that you (or the person in charge of maintaining the contact) develop a greater in-depth understanding of their operation. Sure, you’re outsourcing in order not to have to worry about these things. Still, business success often comes to going that extra mile.
There are three key factors to making your strategic vendor management work. First, you need to gather all the data you can regarding your strategic vendors. Second, you need to establish a reporting system (weekly, monthly, quarterly, or biannually) with clearly defined KPIs. Lastly, you need to process all of this information with adequate tools IIM or BI (business intelligence) in order to turn them into actionable information. Then, you can develop a solid action plan.