The way you are managing vendor relationships could be hampering your Procurement team’s ability to contribute to your company. According to the Challenges in Asia-Pacific Procurement Benchmark Report that was commissioned specifically for ProcureCon Asia Summit, 45% of respondents report that they are dealing with too many vendors. Not only that, 58% report that less than half of purchases are done with preferred suppliers. These are two of the biggest challenges that Procurement departments face.
According to Avis Yates Rivers, CEO of Technology Concepts Group International (TCGi),
“The more vendors that are not part of the strategic and leveraged core of corporate buying, the more contracts there are to manage, many with less-than-preferred terms. This provides too many opportunities to stray out of compliance and face increased risk.”
Vendor management can be overwhelming. If your organization is like many others, you probably juggle tons of different supplier relationships. Each day, you might be spending a lot of time placing orders, following up on previous orders, trying to find out what happened with that elusive “missing invoice.”
It’s not easy, is it?
However, managing vendor relationships doesn’t have to be so overwhelming.
When you read through this post, you will learn the following:
- Why you should consider consolidating your vendors.
- Two different approaches to vendor consolidation.
- Some best practices that will help you successfully consolidate your vendors.
If you put these tips into action, you’re going to see how much easier your life will become. You will notice that your team is saving two incredibly important resources: money and time. You will be able to use both to improve your Procurement department and make a bigger difference for the company.
The Great Big Benefits of Vendor Consolidation
Consolidating your vendors may be challenging, but it can have tremendous benefits for your organization. When you narrow your pool of suppliers, you increase your buying power, spend less time managing relationships, and negotiate better terms.
- Lower costs – Limiting your pool of vendors will increase your buying power. This means you can take advantage of more discounts and overall better pricing.
- Time – Managing vendor relationships takes time, right? Well, when you have less vendors to work with, your team will have more time to devote to other important functions.
- Decreased risk. More vendors means more contracts. Managing more contracts means greater risk of non-compliance. This is especially risky when it comes to software license management.
- Better service – When you spend more money with a particular vendor, they will be more serious about providing you with a higher level of service.
The Two Approaches
There are two ways to manage your vendor consolidation: outsourcing, and in-house. Both have their advantages, so you will need to determine which approach is best for your Procurement organization.
When you outsource your vendor management, you take the load off of your team and let experts handle it for you. The vendor will analyze your pool of suppliers, identify areas of opportunity, and then select the vendors that are the most in line with your company’s objectives.
One of the key benefits to outsourcing your consolidation efforts is that you will free up more time for your team members. They could use the time that is being saved for other tasks that support the goals of the organization.
In-House Vendor Management
When you handle your vendor consolidation in house, it means that members of your Procurement team are responsible for deciding which vendors are best for your company. The advantage of handling your vendor consolidation in-house is that members of the team may have a more established connection with the goals of the company and how the vendors may contribute in that purpose.
In-house vendor consolidation allows for a more intimate knowledge of the stakeholders involved in the vendor selection process. In this way, Procurement can ensure that they are providing the solutions that actually address the problems that your company is facing. Although, objectivity can sometimes be an issue if long-held patterns, beliefs and relationships are too difficult to change.
3 Tips For Managing Vendor Relationships
Identify The Right Vendors
Managing vendor relationships means making sure that you are dealing with the right suppliers. However, when it comes to choosing the right vendors, the issue isn’t just looking at which vendor offers the lowest price. It’s taking a more strategic approach to selecting your suppliers.
Price, while important, isn’t the only factor you should look at when you’re deciding which suppliers to deal with. There are other attributes that a potential vendor should have if you’re going to consider doing business with them.
If your vendor doesn’t deliver when they say they will, it could mean that you’re going to have a disappointed customer. Even if the vendor has lower pricing, it’s not worth losing business. Make sure that the vendors you’re dealing with are reliable. You don’t want to deal with a supplier that will leave you high and dry, right?
Obviously, the items that you’re purchasing need to function in the way that you need them to. Purchasing low-quality products can hamper your effectiveness. Making sure that you’re getting high-quality might be worth paying more.
You don’t want to deal with a supplier who you can’t reach when you need them. Make sure that the vendors you deal with are responsive. You want quality service as well as quality products.
Build Profitable Relationships
Successful vendor management is largely dependent on the quality of the relationships your organization has with its suppliers. Positive relationships are key to making sure that you get the best service, most favorable terms, and the best delivery times.
Instead of thinking of your supplier as “a company that you’re doing business with,” try to think of them as an actual business partner. You want to partner with your suppliers in an effort to accomplish both of your goals.
Here are some ways you can turn your suppliers into partners.
Building a Business Case
As you may already know, there will be plenty of situations where you or someone else identifies a need that your organization has. Perhaps there is something that is making it harder for a particular department to reach its objectives.
When you find the right solution, you will probably have to convince the decision makers to adopt the solution. Let your vendors help.
Most vendors have materials that you can use to persuade your leadership to buy into your idea. They will usually have white papers, case studies, or reports that can help you build your case. Don’t hesitate to take advantage of these tools
Have a Long-Term Focus
Whenever possible, avoid short-term, transactional relationships. If you’re able to build a long-term relationship with a vendor, you will have a partner that knows your business and its needs.
When there is trust built between your two companies, it will be easier for both companies to accomplish their goals. Not only that, if you’re able to purchase more with a particular vendor, you are increasing your buying power, which means you can take advantage of better pricing.
Leverage Your Relationships
Why not find ways to leverage your relationship for the good of both parties? Chances are, you may know someone else at a different company that might have the same problems as you.
They may benefit from your vendor’s services. If this is the case, it might be a good idea to “play matchmaker.” Everyone loves a referral, right? When you show your vendors that you’re willing to help them meet their business objectives, they are more likely to help you reach yours.
Learn How to Handle Negotations
Successful vendor management means knowing how to negotiate the most favorable terms. You want a contract that doesn’t put your company in a risky situation.
The first thing you need to do when starting a negotiation is to establish your objectives. What are you trying to get out of the deal?
Here’s a few factors to consider:
- Delivery time
- Payment terms
- Maintenance and service (after the sale)
- Total cost of ownership
- What your organization needs/doesn’t need
You also need to understand the supplier that you’re dealing with? What position do they have in the negotiation? Do they have a lot of competition? Or are there only a few other companies you could do business with?
What do they really need from you? Are they a newer company that wants to gain a foothold in the industry? Or are they a larger organization that wants to maintain their grasp on the market?
When you go into the negotiation, you need to know what factors you can compromise on, and which you can’t. You don’t want to let them know your position too early in the conversation, but you need to know where you’re willing to bend and where you’re not. Don’t allow yourself to be swayed by pressure tactics.
Managing vendor relationships can be complicated, especially if there are too many. Given the time and budget for many Procurement teams, makes it a huge challenge. Beyond that, not managing their vendors effectively, can mean not meeting higher level strategic objectives.
The keys are in the proper analysis and planning to prevent managing vendor relationships from becoming overwhelming. Best best practices and tips, as suggested in this article, as well as expert consultation, will allow you to be able to save time, money, and extra headaches.
For more information on shared challenges related to supply chain, vendor management and procurement, download the Benchmark Report: Challenges in Asia-Pacific Procurement.