IT Vendor Management

What is Vendor Management?

Vendor management is a discipline that allows organizations to control costs, drive service excellence and reduce risks to gain raised value from their vendors during the deal lifecycle.

Vendor management permits you to build a relationship with your service providers and suppliers that will, in turn, strengthen both businesses. Vendor management does not refer to negotiating the lowest price possible, but it continually works with your vendors and arrives at agreements that will mutually benefit both companies.

Proper vendor management practices provide only the necessary information at the correct time to enable a vendor to cater to your needs sufficiently. This could include new product launches, limited forecast information, changes in design and expansion, or relocation changes. Vendor management mainly focuses on gaining the commitment of your vendors to assist and support all your business operations. On the other hand, the vendor is out there always expecting a specific level of commitment from you. This does not mean that you should blindly accept the prices they offer, instead always aim at getting competitive bids.

Definition of IT Vendor Management

A vendor management system (VMS) is an Internet-enabled, often web-based application that functions as a mechanism for businesses to operate and procure staffing services as well as a contingent grind or outside contracts. Typical features of a VMS application include consolidated billing, order allocation, and significant enhancements in reporting capability that outdoes manual processes and systems.

What is Vendor Management Process?

The vendor management process is typically broken down into six steps.

1. Create vendor management strategy

The first point is to understand how your approach will align with the organization’s strategy. For instance, if your organization stresses on reliability and safety, then that principle will help in guiding your approach. You can also consider other strategic points like high-level market research, determining user requirements, and your budget.

2. Make vendor selection criteria

You must decide in advance how you aim at making your vendor selection as this will eventually reduce bias. Every vendor will have its weaknesses and strengths, and hence choosing the right one is a very important task to optimize operational results. Some organizations tend to use a points system or scorecard regarding criteria. For instance, out of 100 points, 30 points can be assigned for pricing, 10 points can be assigned for industry awards, 10 points for prior experience with your firm, and so on. The weighting system that you employ should be a reflection of your goals and understanding of what can be provided by the market.

3. Make a bid document

For big purchases and vendor relationships, the typical process is to employ an “RFx” document to summarize your organization’s requirements and seek bids. The three most vital types of bid documents include:

• Request for Quote (RFQ): This mechanism is chiefly used for commodity purchases where price is treated to be the most important criterion.

• Request for Information (RFI): This process is used for obtaining information from the market and supporting internal planning. In many cases, an RFI will likely lead to a RFP.

• Request for Proposal (RFP): This document describes a business requirement or problem and asks for vendors to suggest a solution. Calibrating a RFP to the exact level of detail is extremely vital. You will receive proposals with unrealistic pricing if the document lacks details. On the other hand, you run the risk of narrowing the marketplace to a few or only one vendor if the RFP is too detailed.

4. Evaluate offers and select suppliers

If all your bid documents present a clear business opportunity, you will indeed have the good fortune to receive a wide range of bids. It could be tempting to automatically select the bid with the lowest price at this stage. By employing the selection criteria earlier developed, you are indeed more likely to execute a strategic selection that will be satisfactory for the long term.

5. Negotiate the contract

In this stage, an increasing number of companies shift their efforts on just one vendor. Taking the time to negotiate a comprehensive contract makes sense for high-value vendor relationships.

6. Manage the vendor relationship

Actively managing the vendor relationship produces several benefits such as finding ways to reduce costs, improving quality, and fulfilling internal audit requirements. The vendor relationship can be handled via two practical ways.

The first is to make use of clearly defined key performance indicator (KPI) reports in order to assess vendor success. The second way refers to scheduling recurring meetings to discuss both negative and positive issues with the vendor. By finally developing an effective relationship model, the vendor receives the complete spectrum of feedback instead of just hearing about problems.

Overview of Vendor Management Process Flow

Your vendor management process can gain immense success if you adopt a strategic approach to build and maintain relationships with your best vendors. Good suppliers are hard to come by, and hence it is essential to nurture your relationships with the suppliers you don’t intend to lose.

You will thus have to provide necessary information in a timely manner if you want your vendors to effectively meet your requirements to the best of their ability. This could include changes in design, forecast information, launch dates, and several other relevant information that could affect service or quality.

Always remember that short-term relationships with retailers will only help in marginal cost savings and get short-term gains. The actual value evolves from building partnerships for the long term. Doing so will enable commitment and trust from your vendors, which could lead to preferential treatment, access to expert knowledge, and discounts. On the whole, you need effective vendor management to get the most out of your vendor relationships.