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• Businesses that deal with multiple vendors face a tough balancing act to optimize their procurement operations. They have to ensure that procurement costs are reasonable and that vendors meet expected quality standards.
• Vendor management is an art that requires both policy-level measures as well as agility to adjust to emerging issues. Proper vendor management can lead to competitiveness.
• When a company has a healthy relationship with vendors, such vendors can become strategic partners, creating value for both parties. As a business leader, here are ways to handle common vendor issues.
Proper Contract Documentation
Incomplete documentation can result in strife in the relationship with your suppliers and create vendor issues. Before carrying out any business dealings, it’s important to sign a detailed contract. The contract must explain such things as payment terms including currencies and credit period. The contract must foresee and explain how disputes arising between the parties will be addressed. In addition, it’s crucial to list circumstances under which parties can exit the relationship. For instance, if one party realizes that the other party no longer has the capacity to fulfil their end of the contract, it should be grounds for voiding the contract.
Businesses can find themselves unable to properly monitor their contracts due to inefficient processes that lead to cost overruns. As a leader, you should outline your processes and identify areas where there is duplication of duties. Automation is the solution in most cases when you need to eliminate inefficiencies. Such things as a collection of vendor information, updating of catalogs, and onboarding of new vendors should be done through a supplier self-service portal. The business should also maintain a database of all dealings with vendors to make it easy to query and generate reports.
Have Proper Communication Channels
Vendor management should include having proper communication channels with vendors. Both parties should agree on certain channels of communication. Furthermore, they should also agree on modalities for quality and capacity checks. The vendor should agree to provide the businesses with access to information that shows their continued compliance with quality standards agreed upon in the contract. Healthy communication relies heavily on good faith from both parties. However, it’s equally important to create a framework within which such communication will occur.
A data breach can lead to unrepairable reputational damage as well as litigation costs. Any business that handles sensitive information from vendors must ensure that such information is well-secured. It’s quite common for parties to get business secrets of the other party during their dealings. The security of such information can be safeguarded through access controls in the systems that the business is using.
Sourcing is a subset of procurement activities. It involves finding potential suppliers and onboarding them. It’s a continuous process for big businesses that are always looking for value opportunities in their supply chain. Continuous sourcing is important because the businesses can quickly pivot in case a vendor is suddenly unable to deliver or logistical challenges arise on a particular shipping route. Developing a sourcing strategy means that a business has a criterion for evaluating and short-listing suppliers. The sourcing strategy should complement the overall corporate strategy of the business.
One of the biggest qualities a supplier should have is flexibility. A vendor who can increase capacity as requested or deliver products with customized specifications can be a strategic partner for a business that is seeking to tap into customers with distinct needs and preferences. Working with inflexible suppliers can lead to opportunity costs from lost businesses. To get around this issue, businesses will look for suppliers who demonstrate agility or help vendors build up such agility. Exchanging information on forecasted demand can help vendors prepare for changes in quantities requested.
Development Plans for Procurement Managers
Businesses should have a proper plan to develop the technical knowledge of their procurement team members, especially the management. The goal should be to have a knowledge pool with the capacity to tackle emerging challenges in the procurement operations of the business. Providing development opportunities is also likely to reduce the employee turnover rate in the procurement department.
Dealing with many vendors presents several risks for a business. First, there is the possibility that vendors will offer different payment terms. The business must therefore develop a strategy to ensure they always have a positive cash position and can meet their obligations to vendors. Dealing with vendors who are in different jurisdictions also presents several challenges. Small exchange rate fluctuations could lead to very significant changes in item prices. Geopolitics could also come into play, such as was the case in the US-China trade wars during President Trump’s administration.
Getting Vendor Management Right
In order to get vendor management right, a business must cultivate a win-win relationship with its vendors. Most times, there is no vendor who will be a perfect fit. However, information sharing and capacity building on both sides could lead to a fruitful long-term partnership. Major businesses have a system of building up smaller vendors to become critical players in their supply chain.
In addition, businesses must engage proper legal help in drafting contracts with vendors to ensure nothing is overlooked.
Technology too plays a major role in helping manage vendor information and improving supply chain visibility and transparency. Using procurement software can help reduce administrative costs through automation, which also speeds up internal processes.
Is your business seeking to improve its vendor management strategy? Getting the right technology is a great place to start. Contact the world’s leading provider of e-procurement software, ProcurePort for your e-procurement needs today.